How does the risk of creation of a permanent establishment affect taxation of foreign enterprises?

This article will answer the following questions:

• What is a foreign permanent establishment?
• When do foreign companies pay tax in Poland?
• How do foreign taxpayers carrying out business activity in Poland settle their tax liabilities?
• What are the positions of tax authorities and administrative courts on the regulations concerning foreign permanent establishments?

Accelerated globalisation means that more companies have a tendency to expand their business activities into countries outside those in which they are seated. A common practice is establishing foreign branches or new companies focused entirely on the activities in the other country. However, this is not the only solution. Another way to start business activity abroad may be transferring a certain number of employees to another country, establishing cooperation with a domestic entrepreneur, or opening a warehouse or office in that country. 

Such methods of conducting business activity are adopted by an increasing number of foreign entities setting up their representation in Poland. It is not free from risk, however, since such solutions raise doubts as to the country in which tax on the income from such an activity is to be paid. Taking the above into consideration, we have prepared answers to frequently asked questions concerning the topic of establishing representation in Poland.

Limited tax liability of foreign enterprises and other persons

As a general rule, if the taxpayer's residence or place of management board is not located in Poland, the taxpayer is subject to tax only on the income generated in Poland.

Income generated in Poland is deemed to be, for example, income from business activity carried out in Poland, including income earned by a foreign permanent establishment located in Poland. It should be now defined what the said foreign permanent establishment is.

This information can be found in the Polish CIT Act, whereby a foreign permanent establishment is deemed to be:

• a fixed place of business through which the business of an enterprise is carried out (in whole or in part) in Poland, in particular a branch, a representative office, an office, a factory, a workshop, or a place of extraction of natural resources,
• a building site or a construction, assembly, or installation project in Poland,
• a person who acts in the name and on behalf of a foreign company (provided that this person has authority to conclude contracts in the name of that company and actually exercises that authority).

An exception might be a situation where a double taxation treaty between Poland and another country sets out different rules. If such a treaty is in effect, its provisions are always superior to the general rules on taxation in Poland.

How should foreign entrepreneurs understand the concept of a foreign permanent establishment in Poland?

As it stems from the OECD Model Tax Convention (OECD Model) and from the Commentary to the OECD Model, the term "fixed place of business" should be understood as a place with a certain degree of permanency (importantly, that "permanency" should be based on the regularity of activities, not on the duration of the place of business) whose activity depends on a foreign entity.

The term "fixed place of business" refers to the premises and to the space utilised for business activity in Poland. Does it mean that it is necessary to hold a legal title to the premises? Not at all. To make it possible to levy tax on the business activity, the enterprise must genuinely use that space. A fixed place of business may be thus understood as certain warehouse or manufacturing space, but also as an office building in which an employee of a foreign company performs his or her tasks for the foreign company.

Taxation of business activity in the form of a building site

A building site or a construction, assembly, or installation project constitutes a foreign permanent establishment only if it exists for more than 12 months (this period runs for each construction / assembly / installation project separately).

Notably, the beginning of the 12-month period is not the actual start date of the construction-assembly-installation works, but the day on which the foreign enterprise undertakes first preparatory activities, and the end of this period is set on the completion date of the construction / assembly / installation works, for example, the day on which the certificate of final acceptance of the construction / assembly / installation works is signed¹. What is also relevant is that any interruptions in the construction, assembly, or installation works are included in the period of existence of the site or project where the works are carried out.

Important! The requirement of a 12-month period of existence of a building site is set out in the OECD Model Tax Convention and may be agreed upon differently in separate double taxation treaties. For instance, the treaty between Poland and China provides for a 6-month period, the treaty between Poland and Romania sets out a 9-month period, and the treaty between Poland and the United States includes an 18-month period.

When does representation result in taxation of a foreign company in Poland?

Persons who represent a foreign permanent establishment in Poland (also referred to as dependent agents) are those who have the authority to bind the foreign company's participation in business activity in Poland. Having the authority to act in the name of the company is a sufficient (but not the only) premise, as mere participation in negotiations, even if documents are eventually signed by other persons, may be deemed by officials carrying out a tax audit as activities of a dependent agent. 

The risk of creation of a foreign permanent establishment when running a business in Poland – several examples

Remote work has basically become a standard practice, with more and more people deciding to live as a so-called digital nomad or work in a different country than that where their employer's residence is situated.

The activities of an employee in a country in which the employer does not have a residence may involve the risk of creation of a permanent establishment. However, this issue is not always certain and should be each time considered individually. Thus, such cases where Polish courts and tax authorities have resolved whether an employee of a foreign company who worked remotely from Poland led to the creation of a foreign permanent establishment are worth reviewing.

In accordance with the Judgment of the Provincial Administrative Court in Gliwice of 31 January 2022, file no. I SA/Gl 1340/21², employment of persons who perform their duties consisting in simple administrative tasks from Poland by a foreign insurance company does not lead to the creation of a foreign permanent establishment due to the fact that the purpose of their work is different from the objects of the company as a whole. A foreign permanent establishment is also not created in the situation in which an employee works remotely from Poland for one week in a month for personal reasons, as stated by the Head of the National Revenue Administration Information Centre in the individual tax ruling of 4 July 2023, file no. 0111-KDIB1-2.4010.246.2023.1.AK.

Nevertheless, the situation of a company which has relocated its employees to Poland is different. This can be illustrated by the example of a Ukrainian company offering corporate, financial and digital advisory services, which, due to the outbreak of the war in Ukraine, temporarily relocated its employees to Poland, providing them with an office, equipment, and transport.

Regardless of the fact that the company oversaw the activities of the employees who were not authorised to act in its name, in the individual tax ruling of 19 October 2023, file no. 0114-KDIP2-1.4010.430.2023.4.MW, the Head of the National Revenue Administration Information Centre decided that the relocation of the employees had led to the creation of a fixed place of business in Poland. It occurred due to the fact that the activity undertaken by the relocated employees constituted a substantial and significant portion of the business activity of the enterprise as a whole (it was not just auxiliary activity).

As can be seen in the above examples, the concept of a foreign permanent establishment may be interpreted very broadly by Polish courts and tax authorities. Due to the absence of a precise definition (and differences which may be found in the provisions of certain double taxation treaties), entrepreneurs are advised to each time consult tax advisors and examine the circumstances surrounding the expansion of business activity into Poland.

If in the course of running a business in our country you find yourself in a position similar to the above, contact our experts straightaway. We will be happy to support you in analysing the risk of creation of a permanent establishment in Poland.

¹ Individual tax ruling of the Head of the National Revenue Administration Information Centre of 29 March 2023, file no. 0111-KDIB1-2.4010.24.2023.2.ANK.

² In its judgment of 19 February 2025, file no. II FSK 609/22, the Supreme Administrative Court dismissed both cassation appeals, ruling that a private dwelling unit of an employee working in the "home office" mode as well as any other area in Poland which is not in the disposal or possession of a foreign company does not constitute a place of business which creates a permanent establishment in Poland and that the fact that the foreign company does not generate revenue / income in Poland leads to the lack of creation of a permanent establishment.