From the article you will learn:

  • the grounds on which Polish tax authorities decide that a permanent establishment of a foreign entrepreneur has been created
  • situations in which hiring an employee to work from home in Poland may have tax consequences for a foreign company
  • what is the auxiliary or preparatory nature of a business that precludes a permanent establishment


Foreign entities starting a business in Poland do not have to opt for setting up a local company. After all, running a business in Poland may take on different forms: you can set up a branch, hire local employees or merely partly transfer some processes (e.g., establish a warehouse or a design office). Sometimes foreign entrepreneurs decide to enter into close cooperation with an independent entrepreneur operating in Poland.


However, each of these forms of business has its own tax implications. Doing business in Poland and earning income here, even if you do not formally establish a local company, can trigger what is known as a permanent establishment. In such a case, the country where this company is doing business via its permanent establishment may claim the tax resulting from the income earned on its territory.

Below we discuss what triggers a permanent establishment and refer to the increasingly stringent practices of Polish tax authorities we have seen recently.


What is a permanent establishment?

The concept of a permanent establishment is fundamental for determining the country’s right to tax profits earned on its territory. As a rule, the profits of businesses are taxed only in their source country, unless the taxpayer has a permanent establishment in another country. Then, any income generated by the permanent establishment shall be taxed in the country where it is located.

In line with the Polish acts of law (and international agreements), a permanent establishment can mean:

  • a fixed place of business through which an entity performs all or part of its activities in Poland; in particular, this can be a branch, representative office, office, factory, workshop or place of extraction of natural resources;
  • a construction site, construction, assembly or installation carried out on the territory of Poland;
  • a person (including another company) who acts on the territory of Poland in the name of and on behalf of a foreign entity, provided that this person has a power of attorney to enter into contracts on its behalf and in fact exercises this power of attorney (in such case, it is a dependent agent).

However, the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention and double taxation treaties provide for certain exemptions concerning the permanent establishment. A permanent establishment shall not include:

  • use of facilities and maintenance of stocks of goods or merchandise solely for the purpose of storage, display or delivery;
  • maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise;
  • maintenance of a fixed place of business solely for the purpose of carrying on any other activity of a preparatory or auxiliary character.

What is important is the fact that any activity of a preparatory or auxiliary nature precludes the arising of a permanent establishment (dependent agent). Thus, even if the entrepreneur has a person in Poland who is their representative authorised to act on behalf of this foreign entity, this representative shall not trigger a permanent establishment if the activities performed by them merely support the taxpayer’s core business.


How do Polish tax authorities identify a permanent establishment in practice?


Permanent establishment triggered by working from home

Recently, one of the challenging aspects of a permanent establishment involves the implications of remote work and working from home. The OECD, the European Commission, as well as Polish courts and tax authorities have all given their opinions on this matter.

Many employees moved their work home during the pandemic, often crossing national borders. Therefore, a question has emerged: does this mean that all or part of the business activities are performed from the territory of another country? In other words: can an employee’s home become a permanent establishment of a foreign entrepreneur?

The OECD has issued its commentaries, stating that working from home may (in some cases) trigger a permanent establishment. If the employer has expressly stipulated that the employee is supposed to work from their home, the tax authorities may consider these premises to be a facility at the disposal of the foreign taxpayer. In such a case, especially if the employee is also provided with some technical resources (e.g., a laptop computer), an entity that employs a person working remotely from another country may meet the premise for having a taxable presence on the territory of the country in question.

Polish tax authorities are taking a stringent stance in this regard. For example, in a tax ruling dated 17 February 2022 (no. 0111-KDIB1-2.4010.655.2021.2.BD), the Director of the National Tax Information stated that working from home under an indefinite contract of employment may trigger a permanent establishment. This ruling states that:

“Although according to the case details, the Company has no intention of renting any premises in the territory of Poland, the transfer of computer equipment to the disposal of employees hired for an indefinite period of time creates a need for a fixed place of business, which may be, for example, the employee’s apartment. Thus, in the said case, a fixed place of business has been created. In view of the above, it shall be concluded that the Applicant has a permanent establishment in Poland”.

In our experience, hiring employees to work from home in Poland remains a risk for foreign entities.


Risk of permanent establishment vs. preparatory or auxiliary nature of activity carried out in Poland

According to the regulations, a permanent establishment is not triggered by establishments that perform auxiliary or preparatory activities in respect of the remaining business of the entrepreneur.

Polish authorities point out that the activities of an establishment are not preparatory or auxiliary if they constitute a substantial and significant part of the activities of the enterprise as a whole, and when there is a significant connection between the activities carried out by such an establishment and the income earned by the foreign enterprise. What is more, any auxiliary activities must be performed only for the headquarters of a given entity, and activities whose purpose is identical to the purpose of a multinational organisation as a whole will never be of an auxiliary nature.

Sometimes tax authorities are very restrictive on what constitutes auxiliary activities and what does not. The position of the Director of the National Revenue Administration dated 17 October 2022 (no. 0111-KDIB1-2.4010.472.2022.2.MZA) is noteworthy:

The Director of the National Revenue Administration investigated the activities of a foreign company providing software services (production, development and maintenance of software) and licensing. The office in Poland, established by this company, had employees responsible only for software development. There were no people among the staff with sales roles or the authority to enter into contracts on behalf of the foreign headquarters. The office performed all its services for the parent company. In analysing the case, however, the Polish authorities found that the activity in Poland was not of an auxiliary nature. As a result, the foreign company was obliged to tax part of its profits in Poland.

Some courts offer positions more favourable for foreign entrepreneurs. For example, the Provincial Administrative Court in Gliwice, in a ruling dated 31 January (ref. I SA/Gl 1340/21) did not share the position of the tax authorities regarding the recognition of an insurance company’s office in Poland as a permanent establishment. The court stated that a company that operates in the insurance sector does not have a taxable presence in Poland if its employees in Poland only perform technical ‘operational back office’ activities that merely support the execution of insurance contracts.

In our experience, Polish tax authorities take a more restrictive position on auxiliary activities, precluding a permanent establishment, which may be surprising for many foreign entities. For this reason, we recommend that entrepreneurs planning to start their business in our country should carefully analyse their planned business in Poland each and every time, and take into account any local considerations and the practice of Polish authorities.


Can a Polish sales representative be treated as a permanent establishment?

Staff employed by a foreign entity in Poland shall often be considered an agency-type permanent establishment (dependent agent). Polish tax authorities argue (in line with the commentary to the OECD Model Convention) that the following conditions must be met for an agency-type permanent establishment to be triggered:

  • an agent acts on behalf of the enterprise – which means that this person is authorised to represent the enterprise (and may act in external relations on behalf of and for the company);
  • an agent is not an independent entity acting in the ordinary course of business – remember here that an ‘independent agent’ is a professional representative conducting their own business and may work for a larger number of clients (hence cooperation with such an entity does not trigger a permanent establishment);
  • an agent habitually exercises the authority to conclude contracts on behalf of the company– if the agent negotiates all the relevant aspects for the conclusion of a contract, and the headquarters merely sign the contract, this condition is considered to be met.

Taking into account the above principles, from the perspective of the Polish tax authorities, a permanent establishment is triggered in the case of a person who, in the course of their duties, acquires customers, offers the company’s products and also negotiates prices, terms and conditions of contracts, while the headquarters only approves the transaction.

The Polish authorities take the position that playing a key role in bringing about the conclusion of the contract is essential, and not the formal signature of the contract as such (e.g., tax ruling of the Director of the National Revenue Administration dated 30 May 2022, no. 0111-KDIB1-2.4010.82.2022.2.BD). A similar view was presented in the tax ruling dated 9 January 2023 (no. 0111-KDIB2-1.4010.632.2022.2.BJ), in which the activities of the manager in charge of acquiring customers, collecting orders and setting the terms and conditions of transactions were considered crucial to the company’s business. Accordingly, the tax authority concluded that the company has an agency-type permanent establishment in Poland. Many of the same conclusions were presented by this authority in the tax ruling dated 27 June 2022 (ref. 0111-KDIB1-2.4010.186.2022.4.BD) concerning “local sales teams”.

One should also look closely at the tax ruling dated 30 May 2022 (0111-KDIB1-2.4010.82.2022.2.BD), where a person providing supplier search services to a company was considered a dependent agent. Although this person was not responsible for the sale of the foreign company’s products, in the view of this tax authority, their activities triggered a permanent establishment.


The activity of a branch of a foreign entity does not always trigger a permanent establishment in Poland

A popular way of doing business in Poland that does not require you to incorporate a separate Polish company is to register a branch. As a rule, such a decision triggers a permanent establishment; however, there are exceptional situations where the fact of having a branch does not result in a taxable presence in Poland.

Such a case was investigated in a tax ruling by the Director of the National Revenue Administration dated 27 October 2022 (ref. 0114-KDIP2-1.4010.22.2022.2.OK). The applicant was a German company that stored its goods in Poland, packed them there and shipped them to customers from there. This entity intended to set up a VAT group, but there is a precondition here of having either a registered office or a registered branch in Poland. As a result, the company challenged the fact that registering a branch that would only perform passive activities triggers a permanent establishment.

The authority agreed with the applicant that the permanent establishment should not be triggered in this case, as the scope of the branch’s activities is limited to passive operations only, namely the storage and distribution of goods.


Consequences of triggering a permanent establishment in Poland

If a permanent establishment is triggered, the foreign entrepreneur operating in Poland has a number of obligations under the regulations in force. First and foremost, the entrepreneur has to:

  • register for tax purposes;
  • keep separate records for the permanent establishment (in order to determine its taxable income in Poland);
  • determine the methodology for allocating costs and revenues to the establishment’s operations;
  • calculate advance income tax payments, submit any required returns and fulfil other reporting obligations.

Should the entrepreneur fail to meet these requirements, they risk not only having to pay any overdue taxes with interest, but also be held liable under the penal and fiscal code.


How do RSM Poland’s tax advisors help foreign entrepreneurs starting their businesses in Poland?

RSM Poland’s professionals have hands-on experience regarding permanent establishment risk. As a result, we can offer comprehensive support, including analysing the entity’s activity in terms of meeting the conditions that trigger the permanent establishment, and together plan what to do in order to minimise the identified risks. In addition, if the nature of the business done in Poland results in certain obligations, we offer comprehensive support to help you fulfil them properly as part of our compliance services.