Returning to Poland: how to determine tax residency and avoid double taxation – a complete guide for those returning from emigration (Part 2)

Returning to Poland from emigration is a decision that brings not only emotional and life changes, but also very specific tax consequences. For many people returning from Germany, the United Kingdom or other EU countries, tax residence and the risk of double taxation become key issues.

In this part of the guide, we take a closer look at the practical and legal aspects of determining tax residence after returning to the country, with particular emphasis on changing residence during the year, so-called split tax residence, the hierarchy of criteria and the role of double taxation agreements.

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Returning to Poland from emigration and tax residence – why is this a key issue?

Tax residence determines the scope of tax obligations towards the tax authorities. It determines whether a person is subject to unlimited tax liability in Poland, and therefore has to settle all their income in the country – regardless of where it was earned – or only to limited tax liability, covering only income earned in the territory of the Republic of Poland.

For persons planning to return to Poland from abroad, incorrect determination of tax residence may lead to significant negative financial and legal consequences. In particular, this may result in:

• double taxation of the same income if two countries consider the taxpayer to be their tax resident or if the provisions of a double taxation agreement are incorrectly applied,
• the need to submit amended tax returns, often including a statement of foreign income and a reassessment of the method of taxation,
• the risk of disputes with tax authorities, especially in situations where the taxpayer’s personal and economic ties are spread between two countries,
• the obligation to pay outstanding tax with interest, and in extreme cases also criminal and fiscal liability if the authority considers that tax regulations have been violated.

For this reason, correctly determining the moment of change of tax residence and properly documenting it is crucial for the secure settlement of income earned both before and after returning to Poland.

In practice, determining tax residence upon return to Poland often requires an individual analysis of the taxpayer’s situation, especially when income was earned in several countries. getsix® supports people returning from emigration in the areas of tax advisory, residence analysis and secure planning of settlements after returning to the country.

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What is tax residence in Polish law?

Tax residence is a fundamental institution of tax law which determines in which country a natural person is subject to taxation on their total income. In the Polish legal system, the rules for determining tax residence are regulated by Article 3(1a) of the Personal Income Tax Act.

According to this provision, a natural person has their place of residence in the territory of the Republic of Poland – and thus Polish tax residence – if they meet at least one of the following conditions:

1. they have their centre of vital interests in Poland, understood as the centre of their personal or economic interests,
2. they stay in Poland for more than 183 days in a tax year.

It is important to note that the legislator used the conjunction ‘or’, which means that these conditions are alternative rather than cumulative. Consequently, it is sufficient to meet one of them for a person to be considered a Polish tax resident, regardless of whether the second criterion is met.

Fulfilment of any of the above conditions results in the taxpayer being subject to unlimited tax liability in Poland. This means that such a person is required to report and settle all their income in Poland, regardless of whether it was earned in Poland or abroad. This applies to income from employment, business activity and passive income, such as rent, dividends, interest and capital gains.

At the same time, it should be emphasised that in the practice of applying tax law – in particular in the case of persons planning to return to Poland from abroad – the mere formal fulfilment of one of the conditions does not always determine the final scope of taxation. In such cases, the provisions of double taxation agreements and the actual nature of the taxpayer’s personal and economic ties with a given country are also of key importance.

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Centre of vital interests – the most important criterion when returning to Poland

In the practice of tax authorities and administrative courts, the centre of vital interests takes precedence over the 183-day criterion.

When determining this, the following factors are analysed, among others:

• place of residence of the family (spouse, children),
• location of permanent flat or house,
• place of business or work,
• assets owned (real estate, investments),
• bank accounts and loans,
• social, cultural and social ties,
• place of actual asset management.

Returning to Poland from emigration with your family, starting work in the country or transferring your company to Poland often means that the centre of your life interests is already in Poland – even if you have not yet spent 183 days there.

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183 days in Poland – the myth of automatic tax residence

Although the literal wording of Article 3(1a) of the PIT Act may suggest that exceeding the threshold of 183 days of stay in Poland automatically leads to a person being considered a Polish tax resident, the practice of applying the law shows that in cross-border situations this is not always decisive.

Both the case law of administrative courts (including the judgment of the Supreme Administrative Court of 28 September 2018, ref. no. II FSK 2653/16) and the tax explanations of the Ministry of Finance in Poland indicate that in situations where a taxpayer meets the conditions for residence in more than one country, the criterion of the number of days of stay cannot be analysed in isolation from the overall personal and economic ties.

In practice, this means that a situation is possible in which a person:

• stays in Poland for more than 183 days in a tax year,
• and yet is ultimately considered a tax resident of another country on the basis of the provisions of a double taxation agreement, if they simultaneously meet the criteria for residence in both countries.

In such cases, the so-called tie-breaker rules contained in international agreements, which – as a source of law superior to the statute – allow the taxpayer to be assigned to a single tax system, are decisive. The purpose of this mechanism is to assign residence to the country with which the taxpayer has a genuine and permanent connection, and not solely to the country in which they spent the greater number of days in a given year.

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Change of tax residence during the year

A change of tax residence may occur during the tax year and is prospective, not retrospective. This means that a taxpayer is subject to unlimited tax liability in Poland from the moment of the actual transfer of the centre of vital interests to Poland, and not for the entire tax year.

As a result, in a given tax year, a person may remain a Polish non-resident for part of the year and become a Polish resident from a specific moment. This approach is confirmed both in the tax explanations of the Ministry of Finance and in the current interpretation practice of tax authorities.

Split tax residency – what does it mean in practice?

Split tax residency occurs when:

• you are a tax resident of another country (e.g. Germany) for part of the year,
• and from a specific point in time – a resident of Poland.

This change is prospective, not retroactive.

Example:

• January–June: working and living in Germany (non-resident in Poland),
• July: moving to Poland with your family,
• July–December: Polish tax residency.

In this case:

• in Poland, you only pay tax on income from the moment of your return,
• previous foreign income is not taxable in Poland (subject to international agreements).

Resident and non-resident – differences in tax obligations

Tax resident in Poland

• unlimited tax liability,
• declares all income (domestic and foreign),
• must apply methods to avoid double taxation.

Tax non-resident

• limited tax liability,
• settles only income earned in Poland in Poland.

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Returning to Poland and double taxation agreements

Double taxation agreements play a key role in returning from emigration, as their purpose is to prevent a situation where the same income is taxed in two countries at the same time.

Most of the agreements concluded by Poland are based on the OECD Model Convention, which ensures consistency in the solutions applied.

Tie-breaker rules – when there is dual tax residency

If a person meets the criteria for tax residency in two countries at the same time under their national laws, then the so-called tie-breaker rules provided for in the double taxation agreement apply. According to these rules, residency is determined in turn according to the following criteria:

1. permanent place of residence (home available for permanent use),
2. centre of vital interests (closer personal and economic ties),
3. place of habitual residence,
4. citizenship,
5. agreement between the competent tax authorities of both countries.

The application of these rules allows a taxpayer to be assigned to one country of residence for tax purposes. It should be emphasised that international agreements take precedence over national law, which is crucial in the event of disputes with tax authorities.

Methods of avoiding double taxation after returning to Poland

Depending on the provisions of a specific double taxation agreement, one of two basic methods of eliminating double taxation is applied:

• the exemption with progression method – income earned abroad is exempt from taxation in Poland, but affects the determination of the tax rate applicable to domestic income,
• the proportional deduction method – foreign income is taxable in Poland, but tax paid abroad is deductible from Polish tax (up to a certain limit).

The method applicable to a given income results directly from the content of a given international agreement and is not a matter of choice for the taxpayer. For persons planning to return to Poland from emigration, it is crucial to correctly assign income to the period of tax residence and to apply the appropriate method of avoiding double taxation.

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Tax residence certificate – a document that protects the taxpayer

A tax residence certificate is an official document issued by the competent tax authority confirming the taxpayer’s place of residence for tax purposes in a given country. In practice, it is key evidence in cross-border situations, in particular when applying double taxation agreements.

Certificate of residence:

• confirms the place of residence or registered office for tax purposes, which is essential for determining tax residence in international relations,
• enables the application of double taxation agreements, including appropriate methods of eliminating double taxation or preferential tax rates,
• is often required by foreign contractors, payers and tax administrations as a condition for the correct settlement of tax on income earned abroad.

In Poland, a tax residence certificate is issued by the competent tax office at the taxpayer’s request.

The application can be submitted:

• at the e-Tax Office (or e-US application),
• or via the ePUAP platform.

The document can be issued in both paper and electronic form. Having a valid certificate significantly increases tax security, especially when returning to Poland from abroad and settling income earned in more than one country.

Returning to Poland also involves formal and settlement obligations. The getsix® team provides support in ongoing tax settlements, document preparation and contacts with tax authorities after returning from emigration. Contact us.

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Returning to Poland without tax pitfalls

Returning to Poland from abroad requires not only life decisions, but also a conscious approach to taxes. Tax residence is not automatically assigned for the entire year, and the actual centre of your life is of key importance.

To avoid mistakes:

• analyse the moment of transferring the centre of your life interests,
• document the change of residence,
• apply double taxation agreements,
• if in doubt, seek the help of a tax advisor.

A conscious approach to these issues allows you to safely close the emigration chapter and start a new one in Poland – without the risk of tax surprises.

We encourage you to read the first part of the guide for returnees from emigration, where you can learn more about the return tax relief: Returning to Poland: tax relief for returnees – a complete guide for those returning from emigration (Part 1).

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If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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