Polish tax regulations give special treatment to foreigners. This also applies to foreign board members of Polish legal entities. These issues are also adequately regulated in double taxation treaties (uupo) to which Poland is a party. These agreements, as provisions of international law, have - according to Article 91 of the Polish Constitution - precedence over Polish laws.
Bilateral double taxation conventions regulate the issue of which country has the right to tax particular categories of persons and the income they earn.
On the other hand, the tax laws of a country determine how - determining the nature of the tax liability - the categories of income that are allowed to be taxed, according to the relevant AoA, are taxed to that country.

Unlimited and limited tax liability.

According to Article 3(1) of the Personal Income Tax Law, hereafter referred to as the updof, "Individuals with residence in the territory of the Republic of Poland are subject to tax liability on all their income regardless of the location of the sources of income (unlimited tax liability)."

On the other hand," according to Article 3(2a) of the updof, "Individuals not residing in Poland are subject to tax liability only on income from work performed in Poland on the basis of a business relationship or employment relationship, regardless of the place of payment of remuneration, and on other income earned in Poland (limited tax liability).
As of January 1, 2003, in order to be subject to limited tax liability and be taxed in Poland only on income earned here, there is no condition of residing in Poland for less than 183 days in a calendar year or the need to be employed in companies established with foreign participation. Currently, in order for foreign individuals to have limited tax liability, it is sufficient to declare residence abroad.
The Polish tax law does not define the term "domicile." For this purpose, in my opinion, one can use the definition contained in the Polish Civil Code. The place of residence, according to Article 25 of the Civil Code, is considered to be "the place where the person resides with the intention of permanent residence."

However, in determining a foreigner's domicile for the purposes of the AUC, reference should be made to the provisions of those agreements defining the term "domicile." In most agreements, a person is considered to be "domiciled" in a country if he or she is subject to taxation in that country by virtue of his or her domicile, permanent residence or other criterion of a similar nature. If, based on this definition, a person has more than one domicile, then his domicile for tax purposes is determined sequentially according to the following rules:

• permanent residence,
• a place with which he has closer personal and economic ties (center of vital interests),
• The country where he usually resides,
• citizenship.

Determining domicile for the purposes of the APA is intended to determine the circle of persons who may be considered "domiciled" in the territory of a given country and thus subject to its tax jurisdiction. The provisions of the AUC determine which categories of income are taxable in Poland and which abroad. Polish regulations, in turn, determine the nature of tax liability (unlimited or limited) for particular sources of income. In the case of board members' income, most of the AoA grants the right to tax it in Poland. Poland exercises this right in different ways, i.e. depending on the legal title of the foreign board member of the Polish company.

Effective as of January 1, 2004, the regulations introduced by the Act of 12.11.2003 amending the updof (Journal of Laws No. 202, item.1956) did not change the rules of taxation of foreign individuals with limited tax liability, however, new rules for settlements with the tax office concerning them were introduced, such as deadlines for payment of lump-sum tax, deadlines for submission of tax returns and information, and there was a change in the form of the returns themselves.

Legal titles for performing the duties of a board member.

A member of the Board of Directors may perform his duties on the basis of:
(a) only appointing him to the board of directors by resolution of the shareholders, without entering into a separate civil law contract, or
(b) a contract of mandate/task order or
(c) a management contract or
(d) employment contracts.

Tax regulations provide for different tax rules for each of the above-mentioned forms of performing the duties of a board member.

Appointment

A foreign member of the board of directors subject to limited tax liability receiving remuneration resulting from the resolution will be subject to a flat income tax of 20 % under Article 29(1) of the updof. This is due to the fact that this provision's scope includes, among other things, income received by persons who are members of management and supervisory boards, regardless of how they are appointed (Article 13(7) of the updof).
According to Article 29(2), the provisions of Article 29(1) of the updof shall be applied taking into account the APA to which Poland is a party. The application of the provisions of the APA depends on the submission - to a Polish company, as the payer - by the foreign taxpayer of a so-called certificate of residence.

Until 31.12.2003, payers paying salaries to members of the board of directors were required to pay a lump sum tax to the relevant tax office by the 7th day of the month following the month in which the tax was collected on the amounts paid on this account.
Since 1.1.2004, there has been a change in the provision of Article 42(1) of the updof (aimed at unifying the deadlines for payment of advance tax payments and lump-sum tax), under which payers are required to pay the lump-sum tax to the tax office by the 20th of the month following the month in which the tax was collected.
Tax is paid to the account of the tax office with jurisdiction over the payer's place of residence. If the payer is not an individual then the tax is paid to the account of the tax office competent according to his seat or place of business.
At the same time (on the deadline for transferring the tax to the tax office's account), the payer is obliged to file the appropriate declarations.
Until 31.12.2003, there was an obligation to submit a PIT-8A return and IFT-1 information to the office. In addition, IFT-1 information was provided to the taxpayer.
Since 1.1.2004, it has been necessary to submit only one PIT-8A return to the tax office on the tax remittance deadline. The newly applicable IFT-1/IFT-1R form is not sent by the payer to the taxpayer and the tax office on the tax remittance deadline, but only once a year, i.e. by the end of February following the tax year.
It should be noted that the IFT-1/IFT-1R should be submitted to the tax office with jurisdiction over foreign taxation.

The new specimens of declarations and information, which were published in the Decree of the Minister of Finance dated 22.12.2003 on determining certain specimens of statements, declarations and tax information applicable to personal income tax (Journal of Laws No. 224, item 2225), will apply to income earned from 1.1.2004.

However, the legislator did not entirely abandon the obligation of the payer to prepare IFT-1/IFT-1R information during the tax year. In fact, according to the new provision of Article 42 paragraph 4 of the updof, in effect from 01.01.2004, the payer - at the written request of the taxpayer - is obliged to prepare and send such information to the taxpayer and the appropriate tax office. . Information should be prepared within 14 days from the date of application.

Appointment and employment contract.

A foreigner coming to Poland who is a member of the board of directors appointed and remunerated on the basis of a shareholders' resolution may at the same time be employed under an employment contract. At present, for a foreigner, entering into an employment contract may be of interest only if he wants to take advantage of social protection. Financially, this is a decidedly unfavorable solution, since tax must be paid on income earned under an employment contract according to the tax scale (19, 30, and 40%). Until the end of 2002, concluding an employment contract with a member of the board of directors in addition to appointing him by resolution to the position was advantageous due to the possibility of subjecting him - in accordance with then-current Article 3(2) of the updof - to limited tax liability, which meant that the foreigner was taxed indefinitely only on income earned in the territory of Poland, while income from appointment as a member of the board of directors was taxed only 20 % with a flat tax....
This applied to foreigners coming to Poland for employment in companies with foreign participation, staying in Poland for more than 183 days a year. As practice often showed, due to the more favorable taxation for serving as a board member (only 20% lump sum tax), board members received higher salaries on this account, while on the basis of the employment contract (they were often employed part-time) the remuneration was often symbolic.
Due to the change in regulations, entering into an employment contract with a board member coming to Poland to take up employment with a company with foreign participation has lost its raison d'etre. There are no tax preferences due to employment in such companies. According to the updof, it also doesn't matter how many days per year a foreigner stays in Poland. Now a board member living abroad can only receive remuneration for his function and be taxed 20 % with a flat tax, regardless of the period of stay in Poland in each calendar year.

Currently, incoming foreigners most often declare that they are domiciled abroad which results in their being subject to limited tax liability and the taxation of income earned only in Poland. Income earned abroad will not be taxed in Poland.

Employment contract

The rules of taxation under an employment contract are the same for those who are members of the board of directors and those who are not. A foreigner employed in Poland on the basis of an employment contract is treated for tax purposes as a Polish employee. He is also taxed according to the tax scale using the rates 19%,30%,40%, taking into account the deductible expenses established in Article 22 of the updof.

The payer, in whose workplace the board member is employed, pays advance payments under the employment contract and lump-sum income tax for serving as a board member to the tax office by the 20th of the month following the month in which the respective amounts were paid to the foreigner. On the same date, PIT-4 and PIT-8A declarations are sent to the tax office. As mentioned above, the payer does not prepare the IFT-1/IFT1/IFT-1R information every month if the taxpayer does not submit a request. Only by the end of February of the following year is the PIT-11 and IFT- 1/IFT-1R information prepared.
Foreigners employed under an employment contract are also required to make an annual settlement and file an annual return (PIT-37). In practice, they often use the annual settlement by the payer, who prepares the PIT-40. The payer's annual tax calculation must be prepared by the end of February and forwarded to the taxpayer and the tax office responsible for taxation of foreigners.

At this point it should be mentioned that the provisions of double taxation treaties provide for a situation in which, there is taxation of remuneration for work in the foreigner's country of residence, despite the fact that the work is performed on the territory of Poland.

This situation occurs when the following three conditions are met together:

• The employee stays in Poland for less than 183 days in a calendar year,
• wages are paid by or for an employer who is not domiciled in Poland,
• remuneration is not borne by the establishment - in the sense of uupo, which is held in Poland by the employer paying the remuneration.

If only one of these conditions is not met then the remuneration paid under an employment contract performed in Poland is subject to taxation in our country. This provision applies when it is an employee of a foreign company who is delegated to work in Poland. The employment contract is concluded with the foreign employer. The posted employee of the foreign company is also appointed as a member of the board of directors in the Polish company.

Management contract/ Contract of mandate/ Contract for specific work

A foreigner with whom one of the above agreements is concluded is subject to 20% flat tax in Poland under Article 29(1) of the updof.
Income from a management contract, a contract of mandate or a contract for specific work is income from personally performed activities listed respectively in Article 13, points 8 and 9 of the updof.
Preferential lump sum taxation of a foreigner for receiving remuneration from the above contracts is basically the same as for receiving remuneration by a board member serving only by appointment. The payer is required to pay the tax and prepare a PIT-8A return by the 20th of the month following the month in which the remuneration is paid and an IFT-1/IFT-1R by the end of February of the year following the tax year.
The above taxation rules apply to foreigners who are members of the board of directors as well as those who are not. When structuring a contract with a board member, it is important to ensure that the scope of duties under the contract does not overlap with the duties to which he is obligated as a board member. The same applies to consulting or management contracts often concluded by members of the management board, which are included in Article 29(1)(5) of the updof, introduced into the updof as of 1.1.2003.

Conclusions

1.Foreign members of the board of directors of Polish legal entities - like Polish persons - may perform their duties under various legal titles.

These may include:
(a) appointment to the board of directors pursuant to the articles of association or a shareholders' resolution,
(b) contract of mandate or contract for work,
(c) management contract and
(d) employment contract

Mixed regulations, such as appointment and employment contract, are also practiced.

2.Depending on the legal title under which the board member acts, the relevant provisions of the relevant AIA shall apply.
The place of residence in that country determines which AUC applies to the taxation of a person's income.
In most agreements, a person is considered to be "domiciled" in a country by virtue of his residence (tax domicile), permanent residence or other criterion of a similar nature, and is subject to taxation in that country.

In the case of acting by appointment, the provisions of the AIA on taxation of board members should be applied directly.
In most AUCs, Poland has the right to tax the income of board members acting under a contract of mandate or contract for work.
If a board member is acting and being paid under an employment contract, Poland is also entitled to tax the related income.

3.The nature ("limited or unlimited") of Poland's right to tax particular categories of foreign persons and the income they earn is determined by the country's tax law.
The Polish updof stipulates that persons with a residence abroad are always subject only to limited tax liability.
It should be noted here that this is not a residence according to the AUC, but according to Polish regulations. The Polish tax law itself does not define this concept. The definition in the Civil Code can be used for this purpose. In the case of an appointment, contract of mandate, contract for specific work and managerial contract, this means, according to Article 29(1) of the updof, a preferential 20% flat tax.

4.In the case of acting in Poland on the basis of an employment contract, only income from work performed in the territory of the Republic of Poland is subject to taxation, regardless of the place of payment of remuneration.
Thus, in practice, it is possible that, in accordance with the AoA that Poland has concluded with the country of residence of a given board member (employee), the right to tax his income - due to his stay in Poland longer than 183 days - is vested in Poland, while Poland does not exercise this right. In such a situation, it is possible to "exempt" from taxation both in one country and in the other.