As remote work becomes more prevalent, companies need to be aware of the tax issues associated with their employees’ presence in foreign jurisdictions. Such a presence can lead to the creation of a permanent establishment (PE) and trigger certain tax obligations.
Remote working is a topical issue in Poland also due to changes to the Labour Code introduced in April 2023, where for the first time the remote work performed by employment contract holders has been precisely regulated.
There are no specific regulations or binding guidelines of the Ministry of Finance regarding the impact of remote work on PE issues in the post-pandemic environment.
In accordance with the standard wording of Double Taxation Treaties, profits of an enterprise of a contracting state are taxable only in that state if the enterprise continues with business in the other contracting state through a PE situated therein. If the enterprise conducts business in this way, the profits of the company may be taxed in the other state to the extent that they are attributable to a PE.
One of the ways in which the PE can be created is by the existence of a so-called ‘fixed place of business’. In this case, a PE arises if the following conditions are cumulatively met:
- There is a place used to conduct business,
- The place is fixed, and
- The place is used to conduct business activity that is not of a preparatory or auxiliary character.
There are several private rulings, which present the following interpretation of PE conditions in connection with remote working:
- Regarding condition (1), the prevailing view in current tax office rulings and decisions of Administrative Courts in Poland is that any place where remote/home-office work is performed can be considered a ‘place of business’. In this respect, it is sufficient for work to be carried out by an employee using equipment provided (or which is remunerated/compensated) by the employer.
- Regarding condition (2), for the recognition that a ‘place of business’ is fixed, the intention of use is decisive (whether the employer envisages or agrees that the ‘place of business’ is to be used on a permanent basis). In practice, it is also taken into account whether the form of employment (legal form, duration of contract) indicates the permanent nature of the work performed.
- Regarding condition (3), it is verified whether the work performed in Poland is part of the company’s core business or if it coincides with the objective of the company as a whole.
In practice, every case must be analysed individually to assess the possible tax consequences of having employees in a home office in Poland.
If a PE in Poland arises, it particularly involves the following consequences:
- The requirement to allocate income (revenues and expenses) to the activity of the PE,
- Registration for tax purposes in Poland,
- Obligation to file CIT returns, calculate and pay CIT advances and/or annual tax in Poland,
- Verification of Transfer Pricing obligations,
- PIT and social security consequences regarding employees residing in Poland,
- Other potential legal obligations.
The existence of a PE is important as its creation may have legal and tax consequences from the first day of activity in Poland. Thus, the optimal approach is to assess the tax aspects of hiring employees in their home offices before they commence employment.
