Tax residence of war refugees from Ukraine during their stay in Poland

The special "law on assistance to Ukrainian citizens in connection with the armed conflict in the territory of that state" published on March 12, 2022, made it possible for Ukrainian war refugees to legalize their stay on the territory of Poland.

Pursuant to the special act, a citizen of Ukraine who has legally entered the territory of the Republic of Poland in the period from February 24, 2022 and declares the intention to stay in Poland, obtains the right to stay legally in Poland for a period of 18 months from February 24, 2022.

Ukrainian citizens, after legalizing their stay in accordance with the special act, obtained, after meeting certain additional conditions (including the need to obtaining a PESEL number), full access to the Polish labour market and the possibility of free undertaking business activity in the territory of the Republic of Poland.

In this situation, the issue of determining the tax residence of these persons for income tax purposes has become of particular importance.

According to Art. 3 sec. 1a of the personal income tax Act, the status of tax resident in Poland may be obtained by a person who has a centre of his personal or economic interests in Poland (centre of vital interests) or who stays in Poland for more than 183 days in a tax year. In a similar way, by referring to the criterion of "the centre of vital interests", the issue of residence is regulated by the Polish-Ukrainian convention on the avoidance of double taxation of January 12, 1993.

The above criteria were not met by the beneficiaries of the special act, even despite the PESEL number granted, due to the temporary nature of their stay.

The issue of the place of tax residence is important both for employers who are obliged to pay PIT advances, and for the refugees themselves, because the taxation method and the scale of the tax burden on them depend on the established residence.

For example, according to Art. 29 sec. 1 point 1 of the PIT Act, income tax on income obtained in the territory of the Republic of Poland by non-residents subject to limited tax liability for activities performed in person, including those specified in Art. 13 points 2 and 6 – 9, i.e. for contracts of mandate and for specific task, is collected in the form of a lump sum in the amount of 20% of revenue. In such a case, it means that the taxpayer does not have right to a tax-free amount and it is not possible to deduct tax deductible costs (20% for contracts of mandate and 50% for contracts for performance of specific tasks).

The problem was noticed by the Parliament which in the act amending the special act of April 8, 2022. at the same time, he amended the Act on Personal Income Tax by adding Art. 52zj, according to which a person who has legalized his stay in Poland on the basis of the special act, acquires the status of a Polish resident in the period from 24 February 2022. until 31.12.2022 – on the basis of a written declaration of having a centre of personal or economic interests (centre of vital interests) in the territory of the Republic of Poland.

According to the announcement published on 11/04/2022 on the governmental website www.gov.pl, submitting to the employer or another remitting agent a declaration on the transfer of the centre of personal or economic interests to the territory of Poland (centre of the vital interests) means that from the first day of arrival in Poland the taxpayer will be recognized as a Polish tax resident

The Ministry of Finance further explains that when collecting the tax, the tax remitter is not obliged to make detailed arrangements as to the actual and legal situation of the taxpayer and independently determine the country of his tax residence. If the taxpayer submits a declaration of having a centre of vital interests in Poland, the remitting agent is therefore not obliged to verify the truthfulness of this declaration, unless the information and documents in his possession indicate the opposite.

To conclude, the solution adopted in the Polish legal system allows for temporary circumvention of statutory restrictions. Currently, a Ukrainian citizen temporarily staying on the territory of the Republic of Poland in connection with the ongoing armed conflict, after submitting a relevant declaration, will be recognized by the Polish tax administration as a Polish resident. This means that in the example presented above, instead of the 20% lump sum, he will be able to pay 17% income tax. (after the amendment it is to be even 12%.), moreover, he will be able to take advantage of tax-deductible costs and the tax-free amount, just like a Polish citizen.

It remains an open question how the Ukrainian tax authorities will deal with the solutions adopted in Poland in practice. The Polish-Ukrainian bilateral treaty on the avoidance of double taxation still refers to the real and not to the declared centre of life interests.