The approach of Polish tax authorities to the status of branches of foreign entities in Poland is very specific and causes a lot of confusion not only for taxpayers but also for the tax authorities themselves. Below you will find a short summary of what foreign entities may expect when establishing a branch in Poland.
Branch of a foreign entity in Poland
Pursuant to Polish regulations, a branch of a foreign enterprise is a separate and independent part of economic activity, performed by the entrepreneur outside its seat or main place of business. A foreign mother company and its’ Polish branch is therefore treated as one entity – a foreign entrepreneur. Registration of a branch means the registration of a foreign entrepreneur. The branch has organizational independence (it is separated from the structures of the parent company) but does not have separate subjectivity. Therefore, it cannot run a business in its own name and on its own account – the activity conducted by a branch is only a part of the economic activity of a foreign entrepreneur.
The lack of separate legal subjectivity of a branch results in a lack of its fiscal subjectivity. It means that the foreign entrepreneur, not a branch, is a taxpayer of corporate income tax, value-added tax, and other taxes. This is a general rule. However, there are some exceptions.
Tax authorities and the ZUS (Social Insurance Institution) have developed a practice under which the branch that employs employees is recognized as separate from the foreign enterprise remitter of social security contributions and employee contributions to personal income tax.
Identification of a foreign entrepreneur and its Polish branch
The above-mentioned practice, in effect, developed an unusual approach under which:
1) the foreign entrepreneur who is a legal person, as a taxpayer of VAT and CIT, is granted one TIN, and
2) the Polish branch of that entrepreneur, as a remitter of PIT advances and social security contributions, is granted a separate TIN for the purposes of these settlements.
In effect, entities operating in Poland through their branches struggle with the problems of having two separate TIN numbers. This generates a lot of doubts not only on the part of taxpayers but also the tax authorities.
It needs to be said that Polish administrative courts present a completely opposite approach in this matter, according to which a branch of a foreign company that is a taxpayer is not obliged to register, even as a PIT or social security contributions remitter. In business transactions, according to the courts, due to the lack of legal separation from the company – it should use the TIN assigned to the foreign company. This approach however is not widely accepted by the authorities.
How to act in the safest way?
A foreign company intending to start its activity in Poland and setting up a branch should:
- identify itself for the purposes of VAT/CIT/other taxes – for this purpose, it should submit a VAT registration application (VAT-R) and, in the scope of supplementary data, a general tax registration application (NIP-2);
- identify its branch for the purposes of PIT/social insurance contribution – this additional TIN should be given along with the registration of the branch in the National Court Register; however, in the scope of supplementary data, the branch should submit the additional application (NIP-8).
Issues with contractors
Entrepreneurs operating in accordance with (not very logical) guidelines of the tax authorities will, most likely, face a number of problems and difficulties related to the use of a two TIN numbers.
This is due to the fact that:
- TIN assigned to a foreign company and the name and address of the foreign company should be used on VAT invoices and issued receipts;
- TIN assigned to the branch and the name and address of the branch must not be used for settlements with contractors, i.e. they must not appear on the issued invoices.
Many entrepreneurs find it difficult to understand this specific of Polish regulations. In particular, they may ask why the entity uses its foreign data and its Polish TIN instead of the branch data and TIN of the branch. Therefore, a foreign entity must prepare for many explanations; an effective solution to this problem may be a standard explanatory letter attached to the agreement with the contractor or sent together with the first invoice.
The lack of unification of the rules of registration and TIN granting in practice raises many problems that significantly hinder the efficient conduct of business in Poland under a branch. There is also a lack of consistency in the approach of tax authorities and administrative courts with regard to assigning a separate TIN for a branch.
If you want to start a business in Poland and think of establishing a branch, please contact us – we will help you to choose the best approach for your business.
Tax Manager – Tax Adviser
Senior Tax Consultant