Foreign employer and place of taxation of income

The place of taxation of income from work, in accordance with the double taxation treaties, depends not so much on the place of seat of the employer as on the place of performance of work. The place of work should be considered to be the place where the individual resides when he/she performs the work for which he/she receives remuneration. Therefore, as a general rule, the priority for taxation of income from gainful employment is given to the country where the work is carried out.

Example:

A Polish tax resident (a person with a centre of personal and economic interest in Poland) has signed an employment contract with a company based in China. The company does not have a permanent establishment or a branch in Poland. In the contract of employment, the parties agreed that:

1. the place of work will be the place of residence of the employee (home-office in Poland) - which is consistent with the provisions of Article 29 of the Labour Code, which leave the choice of place of work to the parties to the contract, and at the same time this place does not have to coincide with the seat of the workplace, because these notions are not the same,
2. frequent travel by the employee to other countries around the world (including China) shall be treated as employee business travel undertaken at the employer's request outside the regular place of work for the purpose of performing a business assignment.

Which country should I pay income tax on my income from my Chinese employer?

To answer this question, reference should be made to the Agreement of 7 of June 1988 signed between Poland and the Government of the People's Republic of China on the avoidance of double taxation and the prevention of tax evasion with respect to taxes on income, and more specifically to Article 15 thereof regulating the taxation of income from paid employment.

According to this article (Article 15(1)), salaries, wages and similar wages that a person residing in Poland achieves from paid employment will be subject to taxation only in Poland, unless the work is performed in China, in which case the remuneration earned for it may be taxed in China.

Referring to the above example, it should be stated that, as a rule, revenue from the employment of a Polish employee with a Chinese employer with an option to work home-office in the territory of Poland will be taxed exclusively in Poland. An employee, as an income earner directly from abroad, without the payer's intermediary, will be obliged to calculate monthly advances for income tax on his own.

Author:

Renata Ryzak
Tax Specialist