More and more often, entrepreneurs conduct business activity in a country other than their company’s registered office. This may result in the foreign entrepreneur’s need to create a permanent establishment in Poland. Does corporate residence in Poland require special permits? How is the foreign entity taxed? Find answers to these questions in the article below.
Table of Contents
- Corporate residence in Poland – what is the permanent establishment of a foreign entrepreneur in Poland?
- Corporate residence in Poland – formation of a permanent establishment
- Responsibilities of a foreign entrepreneur running a permanent establishment in Poland
- Corporate residence in Poland – special taxation for construction-type establishments
- Permanent establishment of a foreign entrepreneur in Poland – summary
Corporate residence in Poland – what is the permanent establishment of a foreign entrepreneur in Poland?
From 1 January 2022, it is assumed that the taxpayer has management in Poland when he conducts current business activities here in an organized and continuous manner. The basis for action may be, for example, a contract or a court decision. There are four types of foreign establishments:
- A fixed place of business (basic type). In this type, an entity operates in one country while having headquarters or management in another. It can take the form of a branch, representative office, office, factory, workshop or place of extraction of natural resources.
- Construction site (construction type). It refers to construction, assembly or installation carried out in one country by an entity with headquarters or management in another country.
- Activity of a person (agency-type). It is conducted by a person in one country on behalf of an entity with headquarters or management in another country. The representative must have a power of attorney to conclude contracts on behalf of the entity.
- Provision of services by an enterprise (service type). It includes advisory or managerial services. It refers to the provision of services by a company, employees, or other personnel involved for a period exceeding a total of 6 months within a year.
An agreement on double taxation avoidance to which Poland is a party may set exceptions to this rule.
Corporate residence in Poland – formation of a permanent establishment
The formation of a permanent establishment in a country does not equate to the creation of a new tax entity. It is the foreign entity operating the establishment that remains the taxpayer.
The prerequisites for the formation of a permanent establishment of foreign enterprise include:
- The creation of a facility.
- The permanent nature of the facility.
- The conduct of economic activities wholly or partially through the facility.
The development of work systems and the prevalence of home office mode and remote work led to changes. The European Commission and Polish courts have considered this issue in the context of corporate residence in Poland. They acknowledged that working from home may lead to creating a permanent establishment in certain cases.
However, such an establishment will not occur in the following situations
- One company controls the operations of another entity in a different country. It applies even if the control is exercised by the parent company, and the companies are related by capital (even up to 100%). A permanent establishment may arise if the subsidiary provides a permanent facility through which the parent company conducts business activities. This concerns only the actual occupation of the premises. The allocation of a specific area for the purposes of providing services to the related entity does not qualify.
- This is crucial in international capital groups. In such cases, boundaries between foreign subsidiaries and parent companies are often unclear.
- Business needs often lead a subsidiary to share premises with the parent company. In such cases, the parent company often conducts business within the subsidiary’s country.
2. Employees of a foreign entity appear. They may appear, for example, to perform a service. Courts assume that if they are authorized to negotiate and sign contracts with clients, decision-making is transferred to another country. This leads to creation of a permanent establishment and corporate residence in Poland. See the judgment of the Provincial Administrative Court in Warsaw of 28 September 2018, ref. no. III SA/Wa 3593/17). At the same time, the operations of brokers, agents, or similar professionals do not create a permanent establishment.
3. For entities providing auxiliary or preparatory activities for the remaining operations of enterprise. In Poland, the activity of the facility does not have the above-mentioned character when it constitutes a significant and substantial part of the overall business activity of the enterprise and when there is a significant connection between the activity carried out by such a facility and the income obtained by the foreign enterprise.
Responsibilities of a foreign entrepreneur running a permanent establishment in Poland
The responsibilities include:
- Registration with the relevant Tax Office. Usually, it results from the country of origin (location of the permanent establishment). If a foreign entrepreneur has an establishment in Poland and runs a business in more than one voivodeship, the relevant authority is the Head of the 1st Tax Office of the Masovian Voivodeship.
- Applying for a Tax Identification Number (NIP). One should do it within 7 days of the establishment of the foreign facility. The number will be assigned to the foreign entity as the data concerns a legal entity operating in Poland in the form of a permanent establishment.
- Reporting the address details of the foreign establishment.
- Monthly payment of CIT advances on income earned in Poland by the 20th day of each month following the month in which it was earned. The entrepreneur may use a simplified form of paying advances on CIT in a given tax year. The CIT Act specifies the required terms and conditions.
- Keeping accounting records to determine income (loss), tax base, and accuratelycalculate taxes.
- Submission of an annual tax declaration. An entrepreneur is subject to a limited tax obligation. Therefore he can submit a declaration covering only the revenues and costs of running the establishment.
Corporate residence in Poland – special taxation for construction-type establishments
Apart from the mentioned limits on foreign establishments’ tax obligations in Poland, the legislator also introduced other special solutions. They apply to a construction-type establishment. They state that the registration and declaration obligation starts 12 months after the first construction and/or assembly works commence.
This means that a foreign legal entity is not obliged to submit an identification report to the Polish tax office until:
- It has a facility in Poland.
- It operates in Poland as a taxpayer.
Permanent establishment of a foreign entrepreneur in Poland – summary
A permanent establishment of a foreign entrepreneur in Poland is a complex institution. Corporate residence in Poland is subject to national regulations and international agreements. This is why it requires an individual approach and detailed analysis in each case.