In 2020, remote work became a daily reality due to the pandemic. In times of crisis, even employers who had previously been reluctant to adopt remote work were forced to implement it.

Remote work offers many benefits for employees, such as combining work with child care, reducing commute time and expenses. As a result, it is likely to be widely used in the future as well.

Remote work carried out within Poland does not differ, in terms of tax and insurance, from work done at a location under the employer’s control. However, remote work performed from another country may bring additional obligations for both the employer and the employee. For this reason, employers should be aware of every instance of remote work performed from abroad.

Personal Income Tax

Tax Residency

The consequences of performing remote work in another country primarily depend on the employee’s tax residency, i.e. their place of residence for tax purposes, and the Double Taxation Agreement (DTA) between Poland and the country where the remote work is performed. Poland has signed over 80 DTAs, including with all EU and EEA countries.

As a rule, a tax resident is required to pay taxes on their worldwide income in the country where they are tax resident, using the appropriate methods to avoid double taxation. By contrast, a non-resident is taxed only on income derived from sources within the country.

The tax residency of an employee working remotely from another country should be assessed based on the Personal Income Tax Act („PIT Act”) and the relevant DTA. An employee may be considered a Polish tax resident under the PIT Act and a resident of another country under that country’s internal laws. In that case, the provisions of the relevant DTA should apply.

Taxation of Income from Work under the DTA

DTAs generally state that income from work earned by a tax resident of one country is taxed in their country of residence, unless the work is performed in another country. In that case, income associated with work performed in the other country will be taxed there, if the domestic tax laws of the other country impose such an obligation.

Income from work may only be taxed in the country of residence if the following conditions are met:

• The employee stays in the other country for no more than 183 days in a year or a 12-month period.
• The salary is not paid by or on behalf of an employer located in the other country (an „economic employer”).
• The cost of the salary is not borne by a branch or permanent establishment of the employer in the other country.

In the case of remote work, the key factor in triggering the tax obligation in a country other than Poland will be the employee’s length of stay in that country. If the stay exceeds 183 days, their salary will be subject to taxation in that country for the entire period, not just the salary received after the 183-day threshold.

Salaries for remote work performed in another country and paid by an employer not considered a Polish tax resident should not be taxed in Poland.

If the employee is working remotely from a country that has not signed a DTA with Poland, the tax consequences of salary payments will be directly governed by the laws of that country. In such cases, the salary will likely be taxed in the other country from the outset of remote work. The tax regulations in the second country may impose obligations on both the employee and the employer.

The Employer’s Obligations Regarding PIT in the Case of Remote Work Abroad

The PIT Act requires payers to refrain from withholding tax on the salary paid to an employee working outside of Poland if the income is subject to foreign taxation. However, at the request of the employee, the employer is obliged to continue withholding taxes.

If the salary of an employee working remotely in another country is still subject to Polish taxation, the employer should reduce the tax base for withholding tax by an amount corresponding to 30% of the daily allowance set out in business travel regulations for each day the employee stays abroad. The employer should also determine what obligations apply in the country where the remote work is performed.

Social Insurance

The social insurance consequences of remote work depend on the country in which it is performed. For these purposes, countries can be divided into three categories:

• Countries applying EU regulations on social security coordination, i.e. the EU and EEA Member States, Switzerland, and in 2020, the United Kingdom (referred to as „member states”),
• Countries that have bilateral social security agreements with Poland,
• Other countries (referred to as „third countries”).

The creation of social security obligations in another country means that the employer must register as a payer of contributions in that country’s system. EU regulations allow for the conclusion of an agreement with the employee, transferring the responsibility for paying contributions to the social security system of the country where the work is performed.

If the employer does not either register as a payer or conclude an agreement with the employee to take on the responsibility of paying contributions, arrears may arise in the second country’s social security system, which must be settled with interest on the delay, along with potential additional financial penalties for violating the local regulations.

Some countries have declared that, due to the COVID-19 epidemic, periods of work from their territory will not be considered when determining the social security implications.

Performing Work in Member States

The rules resulting from the EU regulations on the coordination of social security systems (Regulation (EC) No 883/2004 of the European Parliament and Council on the coordination of social security systems) state that an employee is subject to the social security laws of only one country, namely the country in which they perform the work.

Both EU regulations and national laws do not directly answer the question of how long an employee must work abroad for the social security obligation to arise in the host country. Therefore, even short-term remote work in another country may trigger social security consequences there.

Exceptions to this general rule include employees temporarily posted to another Member State and employees working in two or more Member States.

None of these exceptions will apply to remote work from abroad. As a result, an employee performing remote work in another Member State should be subject to the social security regulations of that country unless an exceptional agreement is made and the employee obtains an A1 certificate in Poland.

Performing Work in Countries with Which Poland Has Signed a Social Security Agreement

Poland has signed several social security agreements to regulate the social security consequences for cross-border workers performing work in: Yugoslavia (now Serbia, Bosnia and Herzegovina and Montenegro), Canada, Quebec, the United States, South Korea, Australia, Israel, Moldova, Turkey, Mongolia, and Ukraine.

Most agreements stipulate that the social security system of the country where the work is performed applies, but it is possible to remain in the Polish social security system if the conditions specified in the agreement are met. The equivalent of the A1 certificate in these cases is, for example, PL-UA1 (for Ukraine), PL-USA1 (for the United States), PL-AU1 (for Australia), etc.

In the case of remote work, there is no posting in the sense of bilateral agreements. In this case, the correct procedure for obtaining the appropriate certificate is an agreement between the relevant authorities of both countries. Not all agreements foresee the possibility of such an agreement, meaning the employee may be subject to mandatory social security in the country from which they perform remote work.

Performing Remote Work in a Third Country

If there are no coordinating regulations for work performed in a third country, it means that the social insurance regulations of both Poland and the third country apply simultaneously. This can create a social security obligation in the third country, despite the employee still being subject to mandatory insurance in Poland.

Therefore, the employer should always determine the social security obligations in the country where the remote work is being performed.

The Employer’s Obligations Regarding Social Security Contributions in the Case of Remote Work Abroad

If the employee is insured in Poland then, during the period of remote work from abroad, the employer should reduce the contribution base for the employee’s insurance by the amount equivalent to the daily allowance for business travel to the given country for each day spent there. The determined base for insurance contributions cannot be lower than the average monthly wage in the national economy for the given year.