Seconding foreign employees to Poland, permanent establishment and PIT implications

Seconding foreign employees to Poland is a common feature of cross‑border operating models, particularly within international groups. In many cases, employees remain formally employed by foreign entities while performing their duties physically in Poland for the benefit of business activities carried out locally through a foreign enterprise’s permanent establishment (PE) in Poland.

Such arrangements require a careful assessment from a Polish personal income tax perspective. In particular, it is necessary to determine whether the employment income related to work performed in Poland is subject to Polish taxation and to identify the resulting compliance obligations.

Employment income under double tax treaties

Under double tax treaties, which are generally aligned with the OECD Model Tax Convention, employment income is taxable under “pay where you work rule”. Accordingly, remuneration attributable to work carried out in Poland is, as a general rule, subject to Polish personal income tax.

An exemption from Polish taxation may apply only where all of the following conditions are met:

• the employee’s stay in Poland does not exceed 183 days (in calendar year or in 12-month period),
• the remuneration is paid by, or on behalf of, an employer that is not tax resident in Poland,
• the remuneration is not borne by a permanent establishment which the employer has in Poland.

Economic employer approach

In practice, the application of the above exemption requires an analysis of the employer concept based on economic substance rather than legal form, in line with the OECD Commentary.

From a tax perspective, the decisive factor is which entity effectively benefits from the employee’s work and assumes the related economic risks and responsibilities. When assessing this, tax authorities typically consider a range of factual elements, including:

• who exercises day‑to‑day supervision and gives instructions regarding the work,
• which entity controls the workplace,
• who provides the tools, equipment and infrastructure,
• the extent of involvement in the selection and qualification of personnel,
• how employment costs are allocated within the group,
• who approves absences.

Where these factors indicate that the entity benefiting from the work differs from the formal employer, that entity may be regarded as the economic employer for tax purposes.

Employees working for a permanent establishment in Poland

In arrangements where foreign employees perform their duties physically in Poland, carry out tasks that form an integral part of the business conducted through a Polish PE, report to management operating in Poland and use tools and resources made available locally, it is often concluded that the entity operating through the Polish permanent establishment acts as the economic employer. In such cases, the employment costs are typically considered to be borne by the PE.

As a result, the treaty exemption does not apply, even if the employee does not exceed the 183‑day threshold. Consequently, remuneration attributable to work performed in Poland is taxable in Poland, also in cases when the employee performs work in Poland for short period of time.

Polish personal income tax compliance obligations

If it is determined that the employees’ remuneration for work performed in Poland is subject to taxation in Poland, certain registration obligations as well as obligations related to the calculation of Polish tax liabilities (on both a monthly and annual basis) will arise on their part. The employees will also be required to file a Polish personal income tax return, also in case their income for work performed in Poland falls within the tax‑free amount, i.e. is lower than PLN 30,000.

Additional areas requiring attention

In addition to personal income tax considerations, cross‑border employment arrangements of this nature may give rise to further tax and regulatory implications, including:

• the potential creation of a permanent establishment in Poland (for corporate income tax purposes),for the related entity or entity for which the work is indeed provided
• obligations arising under Polish regulations implementing the Posted Workers Directive, including notification requirements towards the National Labour Inspectorate.

These aspects should be assessed individually, considering the overall scope and nature of activities carried out in Poland.

Key takeaways

The personal income tax treatment of foreign employees working in Poland depends on the actual substance of the working arrangement. Identifying the economic employer and determining whether employment costs are borne by a Polish permanent establishment are critical to assessing Polish tax exposure.

Given the increasing scrutiny of cross‑border employment structures by tax authorities, a thorough tax review is strongly recommended when designing or operating models involving foreign employees working in Poland. We encourage you to contact Deloitte’s advisory who have experience with the international projects.