Taxation of a branch in Poland
Delegating employees to work abroad, or activities in a different country may result in creation of permanent establishment in the country to which the employees are sent or in which activities are performed e.g. in Poland. This involves the need to tax profits attributed to a foreign permanent establishment in the country in which they were obtained.
Main features of the permanent establishment :
1. place of business,
2. time constancy,
3. running a business through a branch office,
4. geographical stability,
5. conducting business activities of the enterprise,
6. being at the company’s disposal.
In case the PE is created, the company may be obliged to register a branch and part of the company’s profits (generated by the branch) is taxed in a country other than the country of the company’s registered office, under a different tax system. Establishing a branch also involves additional administrative obligations :
• registration in the court
• registration at ZUS and at the tax office for tax purposes – there will be two tax numbers granted
• keeping separate books in Polish language for the branch (in order to determine taxable income in Poland) including all purchase invoices and sales invoices, bank statements, salaries etc.
• determining the methodology for allocating indirect costs (e.g. management costs) and revenues (if any) to the activities of the branch in Poland,
• calculating advance income tax payments for CIT, filing required returns and fulfilling other reporting obligations
• filing annual CIT report and financial statement of the branch
Registration of a branch in Poland can be made by a lawyer/attorney and requires for example:
• resolution of establishment of a branch in Poland,
• submission of an application for entry of the branch into the court register,
• submission of appropriate companies documentation with translation in Polish,
• the company needs to also establish a representative of branch in Poland.
On the invoices the branch will use the same data as the central company with translated legal form, address and additionally it is advised to put note “Oddział w Polsce” (branch) and its address in Poland. This will be applicable when the branch is registered.
A branch should also hold own bank account in Poland for business activity in Poland. Even if a parent company has an active bank account in Poland, branch should hold separate bank account for settlements.
Furthermore income generated through business activities Poland will be taxed with local corporate income tax CIT. There are two CIT rates:
1. 9% – for companies with revenue below 2 000 000 EUR
2. 19% – for companies with revenue above 2 000 000 EUR
Finally there is also transfer pricing issue.
If a taxpayer concludes transactions with a foreign permanent establishment and its value exceeds the documentation thresholds in the financial year, there is an obligation to create local transfer pricing documentation. Thresholds: PLN 10,000,000 – in the case of a goods transaction, PLN 10,000,000 – in the case of a financial transaction, PLN 2,000,000 – in the case of a service transaction, PLN 2,000,000 – in other cases.
The issue of taxation of a branch in Poland is quite complex and first of all it shall be analyzed taking into account the provisions of the conventions regarding avoidance of double taxations with a given county as well as Polish tax law and current tax rulings.
Read more about our Business Consulting Services Business Consulting – Intertax – Tax services & Tax Advisory Poland | Tax Office (polishtax.com)