Tax consequences following the creation of a foreign permanent establishment in Poland

This article will answer the following questions:

• What tax liabilities are imposed on a foreign company operating in Poland?
• When to submit an update to the NIP-2 notification?
• What are the other potential tax consequences for foreign entities with a permanent establishment in Poland?

Under the Corporate Income Tax Act ("CIT Act"), foreign entities are subject to tax in Poland only on income earned in its territory. Such income includes, among others, income derived from activities conducted in Poland through a foreign permanent establishment. Let us therefore take a closer look at the exact tax obligations a foreign company operating in Poland through a permanent establishment is subject to.

Registration obligations of entrepreneurs running a permanent establishment in Poland

A foreign company that has a permanent establishment in Poland is required to obtain a tax identification number (NIP), which will be indicated on documents related to the performance of tax liabilities. To this end, the entity must submit a NIP-2 notification to the head of the relevant tax office. Importantly, such a permanent establishment does not constitute a separate legal form from the company, therefore the registration application must include the data of the parent entity.

The registration application should be submitted no later than:

• on the day when the business entity is expected to file its first tax return, tax report, tax information or tax declaration, or
• together with the first tax payment or tax advance payment. 

Please note: VAT payers are required to register a Tax Identification Number (NIP) before performing the first activity subject to this tax. 

If the foreign business entity already has a previously assigned NIP, then in the event of the arising of each subsequent permanent establishment in Poland, the entity must submit an update application in which it will indicate the next business address. The timeframe for fulfilling this obligation is 7 days, counting from the day on which the data changed.

Taxation of income generated by a foreign permanent establishment in Poland

Given that a foreign business is subject to tax on income earned in Poland through a permanent establishment, it is necessary to keep documentation that will allow for the determination of income subject to tax in Poland. In addition, the foreign entity is obliged to pay income tax advances by the 20th day of each month for the preceding month, as well as to file annual tax returns on the CIT-8 form and recognise in them the income and costs linked to the activities in Poland.

The deadline for filing the annual tax return is the end of the third month following the end of the tax year (i.e. - for taxpayers whose tax year coincides with the calendar year - 31 March of the year following the end of the relevant tax year).

Other tax consequences and income tax obligations of a foreign permanent establishment in Poland

In addition to the above-mentioned obligations, the creation of a permanent establishment may entail a risk of extra income tax liabilities. A foreign company operating in Poland through a permanent establishment should also verify whether or not its activities trigger obligations in the scope of the tax on shifted profits¹ and domestic minimum tax².

If you would like to get our support as to preparing registration documents and tax settlements in Poland - and you need help in verifying whether or not your foreign company is subject to other tax liabilities - contact our specialists providing tax advisory services for businesses, and we will prepare a proposal tailored to your business needs.

¹ Article 24(aa)(13) of the CIT Act: The provisions of Sections 1-12 shall apply accordingly to taxpayers referred to in Article 3(2) conducting business through a foreign permanent establishment located in the territory of the Republic of Poland, including to transactions between the taxpayer and the foreign permanent establishment of the taxpayer in question. 

Article 24(aa)(10): The provisions of Sections 1-9 shall not apply to the extent that the costs referred to in Section 2 were incurred for the benefit of an affiliated entity, as referred to in Section 2, subject to tax on its entire income in a Member State of the European Union or in a country belonging to the European Economic Area and conducting material actual business activity in that country.

² Art. 24(ca)(17) of the CIT Act: Provisions of sections 1-16 apply accordingly to taxpayers as referred to in Article 3(2), conducting business activity through a foreign permanent establishment located in the territory of the Republic of Poland.