Can Ukrainian contractors avoid paying Polish taxes?

2018.08.30

Tax residents of Ukraine, who perform work in Poland on the basis of a contract of mandate (umowa zlecenia) and who do not have the so-called permanent location in Poland (stała placówka) are not subject to Polish taxes on income from this source, regardless of the length of their stay in Poland during the tax year. The Director of National Tax Information (‘DKIS’) has recently issued a number of individual interpretations that confirm this approach.

This interpretation should be approached with caution. The DKIS approach could encourage Polish employers, who are recruiting Ukrainian citizens more and more often, to select a contract of mandate instead of a contract of employment. This makes it possible to reduce costs. It should be remembered, however, that this applies to income obtained from the so-called independent professions (wolne zawody). This notion applies to work activities performed independently. The mere fact of conclusion of a civil law agreement (contract of mandate) does not make the work 'independent’ if it is performed within the ordering party’s undertaking and for their account. Meanwhile, according to DKIS, this is what happens with work on production or assembly lines or with simple physical labor based on a contract of mandate. 

Many new tax treaties do not include any separate provisions for independent professions. Instead, these are covered by provisions on the taxation of the profits of companies. Thus, independent activities should have a certain organized, separated form (although it does not necessarily require registration as sole proprietorship). Therefore, the DKIS interpretations should be approached with caution and a possible further change its view should be taken into account.