Many foreign companies leverage a common practice in the European Union: selling products in Poland while only registering for VAT. This allows them to comply with Polish VAT regulations without setting up a full subsidiary. While this operation itself is typically considered neutral for Polish corporate income tax (CIT), it’s crucial to ensure your activities don’t unintentionally create a “permanent establishment” (PE).

What is a Permanent Establishment (PE) and Why Does it Matter?

Poland’s tax treaty defines activities that, if exceeded, can establish a PE, subjecting your company to Polish CIT. Here’s where things get risky:

• Physical Presence: Owning or renting an office, warehouse, or even a product display area in Poland could be interpreted as a PE. Even temporary setups might be scrutinized by Polish tax authorities.
• Employees in Poland: Having staff in Poland, even remotely, can be a PE, especially if they have the authority to conclude contracts or play a key role in securing sales.

The Modern VAT Trap: Increased Scrutiny

The risk has grown even more real with Poland’s modern VAT electronic reporting system. Tax authorities now have a deeper look into your cost structure. For example, if they see invoices for warehouse rental, their algorithms might flag your company’s activity as a PE, triggering a tax audit.

Expanding Your Business in Poland? Consider a Subsidiary

If you plan to extend your activities beyond simple goods deliveries, such as opening a warehouse, office, hiring staff, or engaging in more complex sales activities, establishing a Polish subsidiary might be the best approach. This structure provides greater operational flexibility and reduces the risk of triggering a PE.

How can we help?

• PE Risk Assessment: We’ll analyze your activities to identify and minimize potential permanent establishment (PE) exposure.
• Tax Strategy Consultation: We’ll assess your specific tax situation, determine potential risks, and recommend the most appropriate course of action.
• Polish Subsidiary Establishment (if needed): If your business goals expand beyond simple sales, we can guide you through establishing a Polish subsidiary for optimal tax efficiency.

Don’t let tax worries stop you from succeeding in Poland. Contact us today for a tax consultation.

Author:

Jerzy Gaweł
Partner – Tax Advisor