During the pandemic, remote work has become a fact of everyday life in 2020. Faced with this threat, even employers formerly reluctant to embrace this form of work were compelled to introduce it. 

Remote work entails a host of benefits for employees; it facilitates combining work with caring for children; it reduces the time and cost of commuting to and from work. That is also why it will probably be widely used in the future, too. 

The remote work done in Poland does not differ from work in terms of taxation and social security from work done on site under an employer’s supervision. However, remote work done from another country may result in the employer and the employee having additional obligations. For that reason, an employer should be aware of every instance of remote work done from abroad. 

Personal income tax

Tax residence
 

The consequences of doing remote work in another country primarily depend on an employee’s tax residence, i.e. his or her place of residence for fiscal purposes, and the double tax treaty (“DTT”) concluded by Poland and the country in which remote work is performed. Poland has entered into more than 80 DTTs, including all of the member states of the EU and the EEA. 

In principle, tax residents have to pay tax in the country of their residence on their worldwide income while applying the relevant methods for the avoidance of double taxation. In turn, non-residents are subject to taxation in a given country only on the income generated from sources located in that country.

The tax residence of an employee working remotely from another country should be determined on the basis of the personal income tax act (“PIT Act”) and the applicable DTT. An employee may concurrently be deemed to be a Polish tax resident on the basis of the PIT Act and a resident of another country on the basis of its internal regulations. The regulations of the pertinent DTT should be applicable in such situation.

Taxation of income on work in DTTs
 

DTTs provide a general rule according to which  income on work generated by a tax resident of one country is taxed in the country of residence unless work is done in another country. In that case income related to work performed in another country will be taxed there if the internal tax regulations of the other country impose such an obligation. 

Income on work may be taxed only in the country of residence if the following conditions are jointly satisfied:

• an employee is present in another country for a total of no more than 183 days in a year or a 12-month period and
• remuneration is not paid by an employer or on behalf of an employer whose place of residence or domicile is situated in another country (“economic employer”) and
• the cost of remuneration is not incurred by the work establishment or permanent establishment which an employer has in another country.

What is of crucial significance for the occurrence of a tax obligation in a country other than Poland is the length of stay of a remote worker being a Polish tax resident, in that country. If his or her stay in another country exceeds 183 days, his or her remuneration for work will be subject to taxation in the other country for this entire period, and not just remuneration received after exceeding that limit.

Remuneration for work done in another country paid by an employer to an employee who is not a tax resident should not be taxed in Poland. 

If an employee performs remote work from a country that has not concluded a DTT with Poland, the tax consequences of paying remuneration for that work stem directly from the domestic regulations of that country. It should be assumed that employee’s remuneration should be taxed in this country from the very moment of starting to perform remote work. The regulations of another country may impose duties not just on an employee but also on the employer paying out the remuneration. 

Duties of the personal income taxpayer for work performed outside Poland
 

The PIT Act says that a taxpayer should not withhold tax advances on the remuneration paid to an employee working outside Poland if this income is subject to taxation abroad. However, the employer must continue collecting tax advances in response to an application submitted by an employee.

If the remuneration of an employee performing remote work in another country is still subject to Polish taxation, the employer should reduce the taxable income for the tax advances by an amount constituting 30% of the per diem specified in the business travel regulations for every day of an employee’s stay abroad. In addition, the employer should determine which duties it has in the country in which remote work is performed.

Social security
 

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

1. countries applying EU regulations on the coordination of social security systems, or the member states of the EU and EEA, Switzerland and the United Kingdom in 2020 (hereinafter referred to as “member states”),
2. countries that have concluded bilateral social security agreements,
3. other countries (hereinafter referred to as “third countries”).

The occurrence of a social security obligation in another country means that an employer should register there as a payer of social insurance contributions in the foreign system. EU regulations allow for an agreement to be concluded with an employee who takes over the obligation of paying social insurance contributions to the insurance system of the member state in which he or she works. 

If an employer fails to register as a payer of social insurance contributions or fails to enter into an agreement with an employee for the employee to take over the payer’s obligations, there will be overdue amounts towards the social security system of another country that must be paid with penalty interest. At the same time, they are at risk of facing additional financial sanctions for breaching those regulations. 

Some countries declare that the periods of work in their territory triggered by the epidemic caused by COVID-19 will not be taken into consideration when determining the consequences for social security. 

Performing work in member states
 

Under the rules stemming from the provisions on coordinating social security systems in the EU (Regulation (EC) No 883/2004 of the European Parliament and of the Council on the coordination of social security systems, hereinafter referred to as “Regulation 883/2004”), an employee is subject to social insurance regulations of only one country and that country is the one in which he or she performs work.

Neither EU nor domestic regulations respond directly to the question on how long an employee must work abroad for a social security obligation to be triggered in the host country. For that reason, one should assume that even if an employee performs remote work abroad for a short period, this may trigger insurance consequences there.

Workers temporarily posted to another member state and employees working in two or more member states are among the exceptions to the above rule. 

Neither of the above exceptions will be applicable to remote work from abroad. As a consequence, an employee performing remote work in another member state should be subject to the social security regulations of that country unless an application is filed to enter into an exceptional agreement 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 a number of social security agreements to regulate the insurance consequences for cross border employees doing work in the following countries: Yugoslavia (at present Serbia, Bosnia and Herzegovina and Montenegro), Canada, Quebec, the United States of America, South Korea, Australia, Israel, Moldavia, Turkey, Mongolia and Ukraine. 

The rule of being subject to the social security system in the country in which work is performed is in force in most of these agreements, but it is possible to remain in the Polish insurance system if the conditions prescribed by the applicable agreement are satisfied. The counterpart of the A1 certificate in that case is PL-UA1 (for Ukraine), PL-USA1 (for the United States of America), PL-AU1 (for Australia), etc., respectively.

Posting within the meaning of these bilateral agreements does not take place when it comes to remote work. For this reason, the proper path to obtain the certificate is the agreement of the competent authorities of the interested states. Not all of the social security agreements provide for the possibility of entering into such an agreement, which means that an employee may also be subject to compulsory social insurance in the country from which he or she does remote work.

Performing remote work in a third country
 

The absence of coordination regulations when doing work in a third country means that the social security regulations of both countries, i.e., Poland and the third country are simultaneously applicable. This may trigger the occurrence of an insurance obligation in a third country even despite still being subject to compulsory social security in Poland. 

For that reason, an employer should determine in every instance which social insurance duties it has and which ones the employee has while performing remote work in that country. 

Obligations of the payer of social security contributions for work performed outside Poland
 

If an employee is subject to social insurance in Poland, the employer should reduce the base for calculating that employee’s social insurance contributions for the term of doing remote work abroad by the equivalent amount of the per diem due for business travel to a given country for every day of a stay in that country. The base for calculating social insurance contributions established in this manner cannot be lower than the average monthly salary in the national economy in a given year.

More articles in the PRO HR Year Book 2020.