Residency Abroad and a Company in Poland

Where should taxes be paid when you are a tax resident abroad and run a company in Poland? According to the Director of the National Revenue Information (KIS), in this case: in Poland.

In today’s world, where borders are becoming increasingly less visible and business is taking on an international character more often, tax residency is becoming a key issue for many entrepreneurs. One of the most important aspects that every international entrepreneur should consider is the taxation of income earned in another country. We had the opportunity to observe such a situation with an Irish tax resident, who decided to run a business in Poland.

Tax Residency Abroad

This woman, involved in wood processing and the sale of manufactured products in Poland, registered her company in Ireland. The activity was conducted seasonally, for no longer than 183 days a year, within Poland. Although the company was registered abroad, the fact that Polish real estate and equipment located in Poland were used to conduct the business met the definition of a permanent establishment, which, according to the Director of the National Revenue Information (KIS), was subject to taxation in Poland.

Taxes Only Abroad? Not So Fast!

The Irish entrepreneur believed her income should be taxed exclusively in Ireland. However, according to Polish tax law and the Polish-Irish Double Taxation Avoidance Agreement, the presence of a permanent establishment in Poland means that the income derived from the activity conducted by that establishment should be taxed in Poland. The definition of a permanent establishment encompasses various forms of economic activity, such as branches, factories, subsidiaries, representative offices, offices, or workshops, which undoubtedly applied to this entrepreneur’s situation.

It’s a Permanent Establishment, Not a Seasonal Activity

In light of these regulations, the Director of the KIS stated that the woman’s activity in Poland qualifies as having a permanent establishment, resulting in the obligation to tax the income earned in Poland. The legal basis in this case is Article 7, Section 2 of the Polish-Irish international agreement, which unambiguously points to Poland as the country for taxing income related to activities conducted through a permanent establishment.

This example perfectly illustrates how crucial it is to understand the principles of income taxation in the international arena. In today’s times, when many businesses decide to expand beyond their country’s borders, conscious management of tax matters becomes key to avoiding unnecessary complications and additional costs.

Although this process may seem complicated, proper preparation and knowledge of the applicable regulations allow for effectively avoiding tax traps and optimizing tax burdens on the international scene.

Olga Bielecka, Partner Biuro Rachunkowe Precyzja Sp. z o. o.

Source:

Individual Interpretation of the Director of the National Revenue Information (KIS) of March 22 2024 r., sygn. 0114-KDIP3-2.4011.64.2024.1.JM