Contractor’s guide to contracting in Poland
Heading east from mountainous Austria to considerably flatter Poland is a path many a contractor might understandably be interested in due to the Eastern European country’s burgeoning opportunities, writes Kevin Austin, managing director of Access Financial.
But it’s not flat economically. Quite the opposite in fact -- Poland is one of the economic success stories of the EU. It was the only EU country to have averted recession during the global financial crisis between 2007 and 2009. Cumulative GDP growth from 2008 to 2016, equal to an impressive 32.4%, placed Poland 3rd among EU member states for economic growth during that challenging period.
The robust performance of the Polish economy, conducive business environment, and resilient financial markets makes the country an attractive business destination today in 2018. Crucially, unemployment in Poland is very low (by EU standards), which is exacerbating skills shortages, leading to high pay growth and driving demand for expat workers.
What are the benefits of working in Poland?
A recent McKinsey forecast on the Polish economy indicates that there is enormous growth potential in terms of employment. The service sector could add another 450,000 to 600,000 jobs over the next 10 years, with a further 90,000 to 150,0000 in related support services.
Two other points which the forecast touches on contractors in IT and other sectors will welcome:
- Growth in Poland's advanced manufacturing sector has created opportunities for skilled workers across the EU. This growth is supporting knowledge development and stimulating the formation of new businesses.
- Poland ranks second highest in foreign investment among the EU countries, just after the UK, and it has the advantage of being centrally located and close to the Western European market.
What about take-home pay when working in Poland as a Brit?
An individual is a resident of Poland for income tax purposes, if his/her centre of personal or economic interests is located in Poland or, his/her stay in Poland exceeds 183 days in a tax year. If he/ she is a tax resident in Poland, then they are subject to tax on their worldwide income but, if a non-resident, then the tax liability is limited only to the Polish-sourced income.
In Poland, a flat-rate tax of 19% applies to individuals engaged in small-scale business, such as freelance professionals, such as IT/Computing professionals, physicians, engineers and architects. Under the flat-rate tax system, there are no personal allowances and tax credits, except credits for the obligatory health insurance contributions.
All self-employed contractors are taxed at a flat rate of 19%. A progressive tax rate, ranging from 18% to 32% applies to income derived from employment.
Can I pay taxes back at home because my stay is less than 183 days?
In Poland, the contractor will form a fixed base, if he/she carries on professional activities in the country for a period of more than 183 days. Thus, self -employed contractors will be liable to pay taxes in Poland on their worldwide income, if their stay exceeds 183 days.
What are the social security requirements?
Self-employed contractors must pay PLN 846.91 (£172.9) monthly towards their social security; PLN 65.31 (£13.33) towards Work Benefit Fund and PLN 319.94 (£65.37) towards their Health Care contribution, irrespective of their income levels.
For new businesses, the social security contribution is reduced to PLN 200.16 (£50) for the first two years while the health insurance contribution remains at PLN 319.94 (£65.48).
How do I register locally in Poland?
The contractor (an EU national) will have to register in Poland no later than the 30th day of their stay in Poland. Non-EU nationals are required to register their temporary address no later than the 4th day of their stay in Poland. The registrations need to be done in a local commune office, nearest to the place of residence in Poland.
The social security registration should be done at ZUS office, and tax registration at the tax office within the next few weeks of arrival in Poland. The contractor will get a Tax Identification Number after registering in the tax office.
Contractors must register for VAT purposes in Poland.
How can I work in Poland?
Most contractors choose to work as self-employed professionals in Poland. This is because the net retention is higher via this method, and also because minimal administrative work is involved.
The net retention rates that can be expected when working as a self-employed person, range between 71% and 74%.
Can I just use my own limited company?
It is possible to use your own Personal Service Company in Poland and it is a perfectly valid method for a Polish contractor to use their own Polish company.
However, the strict practice of creating a permanent establishment by a foreign PSC and the Polish tax authority’s resistance to this method of working by foreign workers means that for most foreigners, this is a bureaucratic and not very financially-rewarding route to take.
In this case, the contractor will be locally employed and will pay his/her social security and salary taxes in Poland. The contractor is liable for both the employer’s and employee’s social security contributions and so the net retention will be lower than via self-employment.
Where residents work under an employment contract with a Polish company and perform the work in Poland, the employer (tax remitter) withholds tax at progressive tax rates of 18% and 32%. These rates are applied if the employee’s remuneration exceeds the respective income tax threshold.
Where individuals perform work in Poland as employees of a foreign (non-Polish company), the foreign employer does not have a withholding tax obligation, and the employees themselves should pay the tax advances not later than the 20th of the month following the month in which the income is derived.
What about expenses, tax credits?
The expenses incurred in acquiring and maintaining income may be deducted from the Polish-generated income, if supported with receipts.
A tax credit is allowed for contributions to the obligatory health insurance.
Taxpayers who have minor children (or children under the age of 25), who continue to study, are eligible for a credit. The amount of the credit depends upon the number of children and, in the case of a single child, also on the level of income of the parents.
The following are the tax credit amounts:
- PLN 92.67 (£18.99) per month for families and single parents with one child, and an income not exceeding PLN 112,000 (£22,954.23) each year (PLN 56,000 for cohabiting parents);
- PLN 92.67 (£18.99) per month for families with two children (PLN 1,114.04 annually);
- PLN 166.67 (£34.16) per month for families with three children (PLN 2,000.04 annually);
- PLN 225 (£46.13) for the fourth (and any further) child (PLN 2,700 annually).
For families with three or more children, the tax credit for the first two children remains PLN 92.67 (£18.99) per child per month.
Know before you go…
Poland may not offer the highest pay in Europe but it’s growing appeal to foreign and UK contractors is a combination of its vibrant economy, low tax burden and significantly lower cost of living compared to most of the UK. The public health system is arguably not the best, but that is more than compensated for by the availability of inexpensive private healthcare, which is comparable to most other European countries in terms of quality -- and at a fraction of the cost.
For those bringing children, the education system in Poland is highly regarded and private tuition is available at relatively minimal cost. The Poles usually speak very good English, so adapting to the life in the country is relatively easy. Its location in Europe also makes Poland a convenient base for travel across the continent (the flight time from Warsaw to London is just 2 hours 25 mins). For these reasons and more, Poland is an increasingly desirable destination for international contractors.