Does a stay in Poland make me a Polish tax resident and why it is important to know this?

A Polish tax residency implies an unlimited tax liability in Poland, i.e. the necessity to report and tax all income in Poland, regardless of where such income is earned. While in most cases, Polish taxation of foreign incomes may be avoided or reduced by application of rules of a respective double taxation treaty, it may still be necessary to report such a profit to the Polish tax authorities. The failure to do so, may result in penalties.

According to Polish tax law, to become a Polish tax resident a person must either:
• have a center of personal or economic interests on the territory of Poland (so-called center of vital interests) or
• the person should stay in the territory of Poland for more than 183 days during a calendar year.

While the 183-day is an objective and measurable term, the criterium of the so called center of vital interests should be determined with consideration of the following circumstances: family and social ties, employment, political, cultural and any other activity, place of performing paid activity, sources of income, investments, real and movable property, loans taken, bank accounts, place from which a person manages his property.

The above rules may be modified by an applicable double taxation treaty and so called tie-breaking rules, which help to determine tax residence in disputed cases. In ambiguous cases, there are methods to defend against obtaining Polish tax resident status. However, due to unclear criteria they require proper preparations throughout the tax year. Mere presentation of a tax residency certificate of another country may not be sufficient for Polish tax authorities.

There are at least two reasons, why Polish tax authorities in the nearest future, may take a closer look at foreigners living in Poland and Polish citizens settling in Poland after longer stay abroad. These are:
– cancelation of so-called abolition relief on incomes which are not tax exempt according to applicable tax treaty – change already applicable for incomes in the year 2021;
– new Personal Income Tax rate of 4% applicable if the yearly income exceeds PLN 1.000.000,-. The basis for determining this tax includes also the income earned abroad. This new tax was imposed starting 2020.

To summarize, from the perspective of Polish tax authorities, if you stay in Poland longer than 183 days a year, or if your stay is shorter, but you have your center of vital interest here, you may be deemed as Polish tax resident, with all its legal consequences. If you accept this fact, register at the tax office, and make sure to conduct your tax filings within statutory deadlines.

 

Author:

Jerzy Gaweł
Partner – Tax Advisor