It is becoming more and more common for employees to perform work remotely from a country other than Poland. This has specific tax consequences with regard to tax treatment of this type of work, of which employers will often not be aware.
A factor making analysis of tax treatment especially difficult in this case is the need to analyze double-tax treaties applicable in each individual case, and the national law if no double-tax treaty applies. Unlike in the case of the compulsory social security elements of salary, there is no EU-wide legislation governing tax treatment of work performed in a different EU member state.
While double-tax treaties have to be analyzed separately, treaties of this kind are often very similar. To illustrate the situation according to law, the example of the Polish-German double-tax treaty (PGT) on income and property tax of 14 May 2003 will be used. Under art. 15(1) of the PGT, in principle double taxation can apply to salaries, pay, and the like gained by an employee from working in one of the member states.
No double taxation will apply if all three requirements specified in art. 15(2) of the PGT are fulfilled, i.e. if the points below apply to a Polish employee who works remotely from Germany:
- they do not spend more than 183 days in the aggregate in Germany within a period of twelve months beginning or ending in the tax year in question;
- the salary is paid by an employer or on behalf of an employer that does not have its registered office in Germany, and
- the salary is not paid by a plant or permanent outlet that the employer has in Germany.
If double taxation occurs, the consequences of double taxation can be eradicated in one of two ways, which are exclusion from a progressive tax system or proportionate deduction. Under the first method, income gained outside of Poland is exempt, while that income is included when determining the tax rate. This is the method provided for in the PGT. This means that a Polish employee working from Germany remotely is not required to pay tax in Poland on the pay received as an employee, but if they obtain income from a different source such as an agreement for a specific task, the salary from employment has to be added to the income generated by that agreement for a specific task when establishing the progressive tax rate. The other of the two methods is proportionate deduction. This applies for instance in the treaties with the Netherlands or Ireland. Under this method, there is true taxation of salary in Poland as well, while at the same time tax paid abroad is deductible, and tax paid in Poland for which the proportional deduction rule was applied previously is deductible. To conclude, when an employee works remotely from a country other than Poland, careful analysis of the relevant bilateral double-tax treaty is required.