When concluding a contract of mandate with a foreigner, it should be remembered that the general principles laid down in the provisions of Polish law don’t always apply to it. Some cases require the use of the appropriate lump sum and others will be taxed in the foreigner’s country of origin. Below we will try to present you the rules of taxation of mandate contracts concluded with foreign nationals.
1. Taxation of remuneration under a contract of mandate and tax residence
In order to settle the tax on remuneration under a contract of mandate performed by a foreign contractor, it’s necessary to establish the tax residence of the person executing the order. According to Article 29(2) of the Personal Income Tax Act of 26 July 1991 (i.e. Official Journal of 2021, item 1128, as amended), hereinafter referred to as the Act, the provisions of double taxation conventions to which the Republic of Poland is a party apply to, among others, revenue received by foreigners under a contract of mandate. However, the application of the tax rate resulting from the appropriate double taxation convention or non-collection (non-payment) of tax in accordance with such an agreement is possible provided that the taxpayer’s place of residence is documented for tax purposes with a certificate of residence obtained from him/her.
The aforementioned provision shows that the principal may tax the contract of mandate entered into with a foreigner – contractor in accordance with the rules resulting from the double taxation convention concluded by the Republic of Poland with the contract holder’s country of origin only after obtaining a foreign certificate of residence from the foreigner. Pursuant to Article 5a(21) of the Act, the certificate of residence consitutes an attestation of the taxpayer’s place of residence for tax purposes, issued by the competent tax administration authority of the taxpayer’s country of residence.
Double taxation conventions usually adopt a solution according to which a person residing in one State who earns income from being engaged in a liberal profession or from other activity of an independent nature in the other State is subject to tax only in a country of residence, unless he/she has a permanent establishment for performing his/her activities in the other State. If the foreigner has a permanent establishment in the other country, the income may be taxed in that State, but only to the extent that the income can be attributed to this establishment.
The above means that if it follows from the appropriate double taxation convention and the foreign national presented a certificate of residence, the Polish principal doesn’t have to collect income tax on the remuneration paid under the contract of mandate.
2. Taxation of contracts of mandate concluded with foreigners according to the general rules
The method of collecting of tax on the revenue of a contract holder – a foreigner who hasn’t presented a foreign certificate of residence depends on whether his/her centre of vital interests is located in Poland and on the duration of stay in this country. In the event that the foreign national has a centre of vital interest on Poland or stays there more than 183 days, i.e. has a tax residence in this State, the principal is obliged to collect advance payments of income tax on the remuneration of this contract holder according to the general rules. He must also prepare a PIT-4R declaration and PIT-11 information for the period during which advances on income tax were collected from the foreigner’s salary.
3. Lump sum
If a foreigner – contract holder doesn’t have a centre of vital interests in Poland and stays on the territory of this country for less than 183 days in a tax year, Article 29(1)(1) of the Act applies. According to this provision: Income tax on revenue earned in the territory of the Republic of Poland by persons referred to in Article 3(2a): from the activities specified in Article 13, points 2 and 6-9, and from interest other than those listed in Article 30a(1), from copyright or related rights, from rights to inventive projects, trade marks and decorative designs, including also from the sale of these rights, from receivables for making available the secret of a recipe or a production process, for the use or the right to use industrial, commercial or scientific equipment, including a means of transport, and for information related to the experience gained in the industrial, commercial or scientific field (know-how) – is collected in the form of a lump sum of 20% of the revenue.
Therefore, the principal should collect a flat-rate tax of 20% of the revenue from the foreign contractor’s remuneration. Moreover, the principal is obliged to prepare a PIT-8AR declaration and the annual flat-rate income tax declaration IFT-1/IFT-1R for the period during which a lump sum was collected from the foreign contractor’s salary.
It should be noted that the principal should collect a flat-rate tax on the remuneration of a foreigner – a contractor who doesn’t have a centre of vital interests in Poland, only until the 183rd day of stay in the territory of the Republic of Poland in a tax year. After exceeding 183 days of stay, the tax should be charged according to general rules. Moreover, for the period up to 183 days of stay, the principal will have to prepare the PIT-8AR and IFT-1/IFT-1R declarations, and for the period of over 183 days, the PIT-4R declaration and PIT-11 information.
4. Legal notice
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