Contractors with contracts in Poland will typically find that the self-employed solution is the easiest and most cost-effective way of operating. Trading through a contractor’s own limited company is not advised, as single person companies are not recognised as businesses in Poland.
This is according to CXC Global’s overseas expert Charles Daw, who explains: “Contractors in Poland benefit from a relatively low flat rate of tax, whilst social security payments are effectively capped, making it a potentially lucrative place to work.
“However, contractors shouldn’t underestimate the importance of hiring a local accountant to ensure that they follow protocol and are able to take home a high percentage of their gross fees.”
What forms of registration will contractors require to work in Poland?
Under the European Union’s (EU) free movement of labour, UK citizens do not require a visa to live and work in Poland. However, non-EU nationals would need to acquire a work visa.
Aside from this, contractors are also typically advised to register as self-employed before contracting in Poland as it offers the most seamless transfer, as well as the fewest tax complications.
Daw explains that one important aspect of registering as self-employed is the requirement that the contractor has a registered address within the country that they are conducting business:
“This has to be a permanent or named address, meaning you can’t use a hotel for instance. Virtual offices are available in Poland and contractors often make use of these.
“Local accountants sometimes offer that as a solution as well. So, if you register through an accountant, they may allow a contractor to use one of their virtual addresses, for a suitable fee of course. It’s a bit like using your accountant’s address in the UK for your limited company’s registered address.”
Can contractors trade in Poland using their UK-based limited companies?
Much like any other country in the EU, contractors aren’t encouraged to operate in Poland through their limited companies, not least because of the fact that overseas one-man limited companies aren’t recognised as such.
“Ultimately, with a one-person limited company, the place of business of that company is where the contractor is working, and so if the contractor goes to Poland, the company effectively also goes to Poland,” continues Daw.
“As a result, the Polish authorities won’t recognise the company as being an overseas company, and they would simply turn around and insist that the contractor pays their taxes as a self-employed individual.”
What’s the most effective trading vehicle in Poland?
Most tax experts consider the self-employed solution to be the easiest, most convenient and most financially viable method of trading in Poland. As Daw highlights, there are multiple benefits to this working arrangement:
“The self-employed solution is a particularly cost-effective solution for contractors as there are no set-up costs involved, meaning there is no financial outlay from the start.
“This method also allows the contractor to use their business expenses to reduce their tax liability. So in the same way that a UK limited company would process expenses for a tax return at the end of the year, the same can be done in Poland.”
How contractors are taxed in Poland
Another significant benefit to the self-employed solution comes courtesy of Poland’s relatively low flat rate of tax, which is 19% [correct at the time of writing]. The social security rate of 33% sounds very high, but as Daw explains it is against a ceiling of 112,000 Polish Zloty (roughly €25,000 / £19,100).
“In any case, the assessment is based on the amount declared by the taxpayer. As long as it is at least 60% of the officially published average monthly salary of the previous quarter, then it’s fine. So, you ultimately have a situation where the contractor is almost choosing the level of social security that they’re paying, as long as it fits the criteria.”
Daw estimates that, in real terms, a contractor will end up paying approximately €200 each month in social security payments, which works out relatively cheap compared to many expat contracting locations in Europe.
What contractors should do when starting a Poland-based contract
Before beginning a contract in Poland, contractors would be best advised to first set up with a local accountant with whom they should work through the local registration process.
Acquiring the local registration documents would generally entail visiting the local town hall within a set period of time of arrival, but as Daw points out, UK service providers will have local management companies that will typically ensure that everything is as straightforward as possible:
“The point of engaging with a service provider is to try to group all of these requirements in one place, and the local management company endures that the contractor doesn’t have to carry out all of the administration and legwork that they would otherwise need to.
“Also, often the contractors don’t have the local language skills, which makes it more important that they follow standard protocol, as opposed to doing everything themselves.”
What expenses can be claimed when contracting in Poland?
Rules concerning expenses in Poland don’t differ greatly from those in the UK. Daw notes that contractors can claim expenses on anything that is genuinely purchased for business purposes, although the proportion of expenses claimed does need to be reasonable:
“For example, if you have a contractor earning the equivalent of €10,000 a month and they’re trying to claim €5,000 in expenses, the likelihood is that will generate an enquiry from the Polish tax office. 10-25% of the gross income would generally be considered an acceptable amount to claim in expenses.”
Daw does warn that contractors need to ensure they complete the deregistration process upon leaving Poland, as failure to do so can incur unnecessary fees.
“We occasionally have contractors coming to us with problems having failed to deregister correctly after working abroad,” he concludes.
“Subsequently, they find themselves overdue on VAT returns and tax returns simply because they hadn’t thought about the fact that they have had this solution set up for them and so they are obliged to close it all down when leaving the country.”