The COVID-19 pandemic popularised remote work arrangements. While this work model has implications for employees’ personal income tax (‘PIT’), it can also significantly impact corporate income tax (‘CIT’) compliance for the employer. This is because when work is performed in a country other than the employer’s registered location, this may establish a foreign permanent establishment (‘PE’) in that country. 

In recent years, Polish tax authorities and Administrative Courts have frequently examined the issue of remote work and its implications. Importantly they have recently adopted positions that are increasingly unfavourable to taxpayers, including employers. 

A PE is defined as a fixed place through which the business activities of an enterprise are wholly or partially conducted. To classify as a PE, three conditions must be cumulatively met: 

• There must be a place where business activities are conducted; 

• The place must be fixed and have a certain degree of permanence; and 

• Business activities conducted through this place must not be of an auxiliary or preparatory nature. 

Traditionally, locations such as management offices, branches, factories, workshops, or mines are clear examples of PEs. However, assessing whether a PE is established by employees who perform remote work from abroad on behalf of the employer is far more complex. 

In recent decisions, both tax authorities and administrative courts in Poland have generally taken positions unfavourable to taxpayers. In one verdict, the court determined that the three conditions mentioned above were fulfilled in the context of remote work, leading to the creation of a foreign company’s PE in Poland. When looking at the application of those conditions to remote work, the following was noted: 

• Fixed place of business: Hiring employees who can perform their tasks from any location creates a dedicated space for the employer’s use. 

• Degree of permanence: Entering into indefinite-term contracts with employees who perform tasks continuously and regularly for the company constitutes a fixed establishment. 

• Core business activities: The work performed is not auxiliary or preparatory and, therefore, core business activities are carried out through this establishment. 

To determine whether remote work creates a PE in Poland, tax authorities and courts analyse factors such as the: 

• Type of contract (e.g. B2B agreements or employment contracts) and its duration;  

• Place where activities are performed (e.g. in a rented office or employee’s apartment); 

• Nature of the tasks performed (e.g. auxiliary, preparatory, or core business activities), 

• Employee’s level of authority (e.g. the ability to negotiate or sign contracts on the company’s behalf, or holding powers of attorney); 

• Way that tasks are carried out (e.g. ownership of equipment, tools, and software used). 

The assessment of remote work and whether a PE has been created is not yet fully consistent. In some cases, tax authorities have concluded that employing even a single person working from their own apartment with tools provided for by the company constitutes a PE for the foreign entity in Poland. In others, they have adopted more taxpayer-friendly positions. The outcome depends on the specific circumstances, but even minor differences in the facts can result in a different decision being made. 

However, this issue requires thorough examination, as the recognition of a PE in Poland has significant consequences, including: 

• Affecting tax and social security obligations in Poland and abroad for the individual performing the tasks;  

• Subjecting part of the foreign company’s income to taxation in Poland; and 

• Requiring the company to maintain separate accounting records and file appropriate tax returns, which can lead to additional costs and administrative burdens. 

It is crucial for employers with staff working remotely in Poland to carefully consider whether a PE could be established. This is by no means a simple area to navigate, with a complex and seemingly unpredictable assessment applied by the relevant authorities. It is therefore strongly recommended that organisations facing this situation seek professional advice to help mitigate the possible, significant tax implications associated with this area.