Are you a cross-border employee from Poland/Germany? Check where you will pay your PIT (personal income tax).

The Polish Ministry of Finance has published information regarding an agreement concluded between Poland and Germany on the taxation rules applicable to remote work performed by cross-border workers during the COVID-19 pandemic. This constitutes a significant simplification for employees, as the pre-pandemic taxation rules have been maintained.

Poland and Germany have entered into a mutual agreement concerning the application of Article 15(1) and Article 19(1) of the Double Taxation Agreement on income and capital. The document, signed in November this year, applies to the taxation of income earned by cross-border workers.

New rules

The agreement introduces a legal fiction for the purposes of applying Article 15(1) of the treaty. It is assumed that, due to measures taken by Poland and Germany to combat the COVID-19 pandemic, work performed from home (i.e. in the state of residence) by an employee on behalf of an employer from the other state may be considered as work performed in the state where the employee would have carried out their duties if no anti-crisis measures had been implemented. This solution significantly simplifies matters for cross-border workers. The taxation rules that applied prior to the outbreak of the COVID-19 pandemic remain in effect, despite changes in the factual circumstances that would otherwise justify a different treatment.

Who is covered by the provisions?

The agreement applies solely to those cross-border employees who, due to COVID–19, were assigned by their employer to work remotely — that is, from home in their country of residence.

The solution does not apply to:

• employees who performed remote work from their country of residence or a third country, and who would have done so regardless of the pandemic-related crisis, and
• employees who, under the terms of their employment contract, are obliged to work remotely from their country of residence.

 
Rights and obligations

Cross-border workers making use of this solution must apply it consistently in both countries and maintain appropriate documentation (i.e. written confirmation from the employer specifying which remote workdays were due solely to the measures introduced in response to the COVID-19 pandemic).

The provisions of the agreement apply only insofar as the corresponding remuneration for days worked remotely from home would, in fact, be taxed by the country in which the cross-border worker would have performed their duties if the anti-pandemic measures had not been introduced.

The legal fiction adopted for interpreting Article 15(1) also applies to income from public service, in accordance with Article 19(1).

The agreement is temporary and covers the period between 11 March 2020 and December 2020. It will be automatically extended month by month unless terminated by either of the countries.

The full text of the mutual agreement is available on the Ministry of Finance website:

https://www.podatki.gov.pl/podatkowa-wspolpraca-miedzynarodowa/wykaz-umow-o-unikaniu-podwojnego-opodatkowania/