When determining the tax base for the remuneration of an employee who has temporarily performed work abroad, the employer may reduce it by 30% of the value of the daily allowances. However, there are many conditions for benefitting of this exemption. It is worth knowing them in order not to expose oneself to inconveniences of the Tax Office.
1. Legal basis for the exemption
The legal basis for the partial tax exemption of the revenue of persons temporarily staying abroad is Article 21(1) of the Personal Income Tax Act of 26 July 1991 (i. e. OJ 2021, item 1128, as amended), hereinafter referred to as the Act. In accordance with that provision: the income tax exemption concerns part of the revenue of persons referred to in Article 3(1), temporarily staying abroad and receiving revenue from a business relationship, employment relationship, home based work and cooperative employment relationship, for each day of stay abroad, during which the taxpayer is in a business relationship, employment relationship, home based work and cooperative employment relationship, in an amount corresponding to 30% of daily allowance, specified in the regulations on the amount of and conditions for determining the receivables due to an employee in a state or local government budgetary unit for a business trip abroad, subject to paragraph 15.
2. Taxpayer entitled to benefit from the exemption
The exemption under Article 21(1) of the Act may be used by a taxpayer who has unlimited tax liability in Poland. Indeed, Article 3(1) of the Act, indicated in the text of the discussed provision, states: If natural persons reside in the territory of the Republic of Poland, they are liable to tax on all their income (revenue), regardless of the location of the sources of revenue (unlimited tax liability).
The taxpayer must only be temporarily abroad. Thus, the stay abroad can’t be permanent.
Moreover, the taxpayer should receive income from an employment or related relationships during the stay abroad.
3. Days spent abroad in an employment relationship or related relationships
The amount of the exemption depends on the number of days during which the taxpayer was abroad and at the same time remained in an employment or related relationship. The exemption is granted for each day of the taxpayer’s stay abroad durich which the employee remained in an employment or related relationship. These include Saturdays, Sundays, holidays, days of paid leave taken during the employee’s temporary stay abroad, if the worker was at that time abroad and in an employment or related relationship, days on sick leave for which sick pay is granted. The day of arrival in and departure from the country where the work is performed should also be taken into account.
However, days of stay abroad during which the employee is on sick leave and for which he or she receives social security allowance, as well as days during which the worker is on unpaid leave aren’t taken into account. During this time, no revenue is earned from the business or related relationships.
The above view will be confirmed by the Director of the Warsaw Tax Chamber in the individual interpretation of 21 August 2015, no. IPPB4/4511-590/15-5/JK. In his opinion: „Days of stay abroad include Saturdays, Sundays, holidays and days of paid leave during a temporary stay abroad provided that the employee was in an employment relationship and abroad at that time, as well as days devoted to travel there/back. On the other hand, the daily allowance isn’t payable for those days spent abroad during which the natural person is on sick leave (but only for the time in which he or she receives a social security cash benefit and not a sick pay referred to in the Labour Code) or on unpaid leave (due to the fact that in both cases the condition of earning income from the employment relationship isn’t fulfilled), as well as for those days which aren’t related to work abroad, but concern a business trip. If the employee is on unpaid leave or on sick leave (for the time for which he or she receives a social security cash benefit), the condition for earning income from the employment relationship isn’t fulfilled, and thus the abovementioned abovementioned period can’t be counted as part of the days of the worker’s temporary stay abroad for which the exemption is granted in accordance with Article 21(1)(20) of the abovementioned Act.”
The exemption isn’t granted for days of stay abroad during which the worker didn’t remain in an employment or related relationship (e.g. The employee worked in Belgium. On 15 November, his or her employment contract was terminated. However, the employee remained in Belgium until 30 November. When determining the tax base for the remuneration for November, the employer will be able to take into account only the days during which the worker was in Belgium and at the same time remained in an employment relationship, i.e. the period from 1 to 15 November).
4. Amount of daily allowances
The amount of the daily allowance per day of foreign business trip in the country where the work was performed is also extremely important in determining the exemption. The amount of daily allowances in different countries is determined by the Regulation of the Minister of Labour and Social Policy of 29 January 2013 on receivables due to an employee in a state or local government budgetary unit for a business trip (OJ 2013, item 167, as amended), hereinafter referred to as the Regulation.
The regulation specifies the amount of daily allowances in the currency of each country. It’s therefore necessary to convert the daily allowances into PLN. It should be done at the average exchange rate of the National Bank of Poland, announced on the working day immediately preceding the date of obtaining revenue (Article 11a(1) of the Act).
It results from the text of Article 21(1)(20) of the Act that 30% of daily allowances are tax-free. Therefore, when determining the scope of the exemption, it’s necessary to reduce the tax base by only 30% of daily allowances for each day of stay abroad during which the taxpayer remained in an employment or related relationship.
5. When the exemption isn’t available?
The exemption under Article 21(1)(21) of the Act isn’t available in each case of a temporary stay abroad in connection with being in an employment or business relationship. Indeed, the legislator provided for exclusions in Article 21(15) of the Act. This provision states that the exemption doesn’t apply to the remuneration:
- of an employee who is on a business trip outside the Republic of Poland;
- of an employee staying outside the borders of the Republic of Poland in order to participate in an armed conflict or to strengthen of the forces of the state or allied countries, to participate in a peacekeeping mission, actions to prevent acts of terrorism or their consequences, as well as in connection with the acting as an observer in peacekeeping missions of international organizations and multinational forces, as long as he or she receives benefits exempt from tax under Article 21(1)(83 or 83a) of the Act;
- received by a foreign service member;
- of an employee receiving revenue from an employment or related relationship exempt from tax under paragraph 1, point 148 of the Act, the so-called relief for young people.
6. No exemption for persons on a business trip
Employees who are on business trips outside the Republic of Poland can’t benefit from the tax exemption in question. The tax legislation doesn’t define what a business trip is. Due to the lack of the definition of a business trip in the provisions of the tax law, reference should be made to labour regulations. Article 775 § 1 of the Labour Code states: An employee who, at the employer’s request, performs a professional task outside the city where the employer’s head office is located or outside the regular place of work shall be entitled to receivables to cover the costs related to the business travel.
Therefore, a business trip constitute a departure which takes place at the employer’s request and is related to the performance of work outside the city where the employer’s head office is located or outside the regular place of work.
An employee who has been seconded may benefit from the exemption. The characteristic of the secondment is a change of the contractually specified place of employment. As explained by the Director of the National Tax Information in the individual interpretation of 11 September 2019, 0114-KDIP3-3.4011.265.2019.3.JM: „This exemption occurs when, in the connection with the temporary sending of the employee to work abroad, the employment contract specifies a place of work other than the current one (the employee’s regular place of work), i.e. a place outside the country where the employer’s head office is located. On the other hand, going on a business trip doesn’t require a change in existing contractual arrangements between the employee and the employer. The temporary performance of work outside the employer’s head office or the employee’s regular place of work is done in a less formalised manner, usually in a document of a business order.”
7. When can a soldier benefit from the exemption?
A cursory reading of Article 21(15) of the Act, which establishes situations when the exemption in question isn’t available, leads to the erroneous idea that a soldier can’t benefit from the exemption under Article 21(1)(20) of the Act. In fact, the exemption applies to professionnal solders who temporarily stay abroad and:
- who receive income from remuneration for work or from a business relationship,
- who don’t obtain salaries earned by foreign service members,
- whose stay isn’t related to a business trip,
- who don’t receive benefits exempt from tax under Article 21(1)(83 or 83a) of the Act.
The above conditions must all be fulfilled (see individual interpretation of the Director of the National Tax Information of 8 March 2019, 0114-KDIP3-3.4011.17.2019.1.JM).
8. Legal notice
The study is a work within the meaning of the Act of 4 February 1994 on Copyright and Related Rights (OJ 2006, No. 90, item 631, consolidated text, as amended). Publishing or reproducing this study or its part, quoting opinions, as well as disseminating in any other way the information contained therein without the written consent of Crede sp. z o.o. is prohibited.
