Tax Supervisor at RSM Poland
In previous posts, we presented a handful of basic information that may be useful for foreign investors planning to start their business in Poland. Undoubtedly, a crucial thing here is the the choice of the legal form of such business, as we discussed e.g.: here. The next big step on the way towards developing a business in Poland is to hire employees. This, in turn, involves an entire range of additional obligations for the employer, such as occupational health and safety, personal income tax and social insurance.
Employer’s obligations in Poland
Pursuant to the provisions of the Act of 13 October 1998 on the Social Insurance System (Journal of Laws of 2019, item 300, as amended; hereinafter the SIS Act), the obligations of the employer as the contribution payer shall include filing a notification of participation of the employee in the social insurance scheme (Article 36 par. 2 of the SIS Act) as well as calculating and sending any and all due contributions for social insurance, health insurance and the Labour Fund to the Social Insurance Institution (among others, Article 17 par. 1 and 2 of the SIS Act). Furthermore, the employer, being the payer, shall be obliged to calculate and charge advance payments throughout the year for income tax from persons who earn revenue from this employer because of a service relationship, employment relationship, outwork relationship or co-operative employment relationship (see Article 31 of the Act of 26 July 1991 on Personal Income Tax, Journal of Laws of 2018, 1509, as amended, hereinafter: the PIT Act). Obviously, we could go on and on enumerating examples of employer’s obligations, as the aforementioned are just the tip of the iceberg.
Branch of a foreign entrepreneur as an employer in Poland
It should be noted here that within the meaning of Article 3 of the Act of 26 June 1974 – the Labour Code (Journal of Laws of 2019, item 1040, as amended; hereinafter the LC), both an organisational unit (even if it does not have a legal personality) and a natural person can be an employer, provided that it employs employees.
Thus, a branch of a foreign entrepreneur established in Poland can be an employer, as well, provided that in-house regulations allow for this, i.e. the foreign entrepreneur grants a formal authorisation to the branch to acquire rights and incur liabilities in the field of labour law. This may be provided for under a contract, Articles of Association or a Memorandum of Association of the branch.
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Foreign entities hiring employees in Poland
A foreign entity that does not have any structures in Poland may also be an employer within the meaning of the provisions of the Polish Labour Code. In such case, the contract of employment is concluded between the employee and e.g. a foreign company. In practice, such a solution tends to be used if the employee’s obligations focus on finding new Clients in Poland, promoting the brand of the foreign entity or developing the sale of goods and services offered by the foreign entity which does not have its branch or a subsidiary in Poland yet.
In such a case, there may be doubts as to how to frame the employment relationship to make the obligations resulting from it the least onerous for each party, i.e. the employee and the foreign entrepreneur who does not have any structures in Poland.
Assuming that a given employment relationship will be subject to Polish social insurance regulations, the answer to this question can be found, among others, in the provisions of Article 21 par. 2 of the Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems, which reads: “an employer who does not have a place of business in the Member State whose legislation is applicable and the employee may agree that the latter may fulfil the employer’s obligations on its behalf as regards the payment of contributions without prejudice to the employer’s underlying obligations. The employer shall send notice of such an arrangement to the competent institution of that Member State.”
In other words, in accordance with the European Union legislation, the employer (a foreign entity which does not have a place of business in Poland) can conclude a contract with the employee, under which the employee shall assume the obligations of the contribution payer, i.e. shall submit a notification of participation in the social insurance scheme and calculate and transfer any contributions in due amounts to the Social Insurance Institution. Such a solution is practical and allows the foreign employer to avoid numerous obligations towards the SII. What is more, the Act of 26 July 1991 on Personal Income Tax (Journal of Laws of 2018, item 1509, as amended; hereinafter: the PIT Act) provides for situations where advance payments for personal income tax shall be paid to the Tax Office directly by employees (see Article 44 of the PIT Act).
In the case of employing employees in the country where the employer does not have a place of business, there is a separate but extremely important issue, namely considering if the so-called foreign establishment is not created as a result of this. The reason behind it is that if a foreign establishment is created, the revenues it generates will have to be taxed in Poland.
Choice of law applicable to a given employment relationship
In the case in which the contract of employment is concluded by a foreign entrepreneur and a natural person whose place of residence is in another country, it may be problematic to decide on the law that will guide the employment relationship in question. As a rule, it is regulated by Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).
As there are more and more cases where the employment relationship is connected with the legislations of different countries, the topic of the law applicable to the contract of employment and its international dimension certainly must be addressed in more detail. For more information on this aspect please read our upcoming post.
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