Changing Tax Residence

Tax residence determines the place where the taxpayer is obliged to pay taxes on the income obtained. In order to establish tax residence in Poland, it is enough to meet one of the conditions, i.e., the people who stay here for more than 183 days in a calendar year or have a centre of personal or economic interests in the Republic of Poland may settle their tax in our country. If, on the other hand, there are strong reasons to have a centre of interests in a country other than Poland, such a person will be a tax resident of another country – even if he/she owns several real properties in Poland.

A change of tax residence is possible after demonstrating that the centre of personal and economic interests has been lost. The change of tax residence is also determined, above all, by the change of permanent residence with the family, i.e., the change of the place of where the “household” is.

Everyone It should only be remembered that it is not enough to stay only a certain number of days in the target country of tax residence, but, quite importantly, your centre of vital and economic interests should be installed there. Changing the tax residence is a good solution for those who do not have to live in Poland for family or professional reasons, but, for various reasons, perceive some potential in another destination.

In other words, the relocation tax, also called the tax on unrealised gains, because hypothetical gains are subject to taxation. It may occur as a result of changing tax residence or transferring the assets related to business activity abroad. In the case of natural persons changing their tax residence, it applies only to the assets for which Poland loses the right to impose tax after the change of tax residence (e.g., shares in companies) and only if the market value of such assets exceeds a total of PLN 4 million.

The tax residence certificate is intended to prevent evasion of obligations in the tax office and incorrect application of the provisions of international agreements on the avoidance of double taxation. This is a certificate issued by competent tax administration of the country specifying the place of residence or stay of a natural person for tax purposes. It defines the country in which the taxpayer is obliged to pay taxes to the country in which they earn income. It allows for avoiding double taxation if the source of the income originates in a country other than the country of residence.In order to obtain a tax residence certificate in Poland , it is necessary to complete the CFR-1application. The taxpayer must provide their identification details, the reason for requesting the document, the number of copies and the method of receipt. Subsequently, an application should be submitted to the tax office assigned by virtue of the address of the company’s registered office or residence.

WHAT INFORMATION SHOULD A TAX RESIDENCE CERTIFICATE CONTAIN?  DOCUMENT SAMPLE

Unfortunately, there is no unified international form on which a certificate of tax residence would be issued. Therefore, state tax administrations issue certificates of fiscal residence according to their own adopted form and at their discretion. Polish regulations indicate that such a certificate should contain at least:

• Data of the issuing authority
• Date of issue
• Identification data of the entity to which the certificate pertains
• Certification of the place of residence/registered seat

Optionally, expiration date information.

WHAT SHOULD I PAY ATTENTION TO WHEN APPLYING FOR A TAX RESIDENCE CERTIFICATE?

It is necessary to clearly distinguish the certificate of tax residence from any other documents issued by administrative authorities. Specifically, certificates issued by, e.g., municipal authorities confirming the place of residence within the territory of a given country, are not certificates of tax residence. 

Many countries require a notification when moving to settle in their territory, at a municipal office or a police station. A document issued on this occasion may be helpful, e.g., in the process of applying for the status of tax resident in a given country.

Therefore, a certificate of issuing a tax identification number, a certificate of registration as a VAT payer or a certificate of no tax arrears are not certificates of tax residence. In the case of entities conducting business activity, an extract from the National Court Register of entrepreneurs cannot be used as a certificate of tax residence either.

The loss of tax residence consists in the fact that one loses the relationship with Poland in such a way that we no longer have a place of residence in Poland, i.e., we do not have our household  (our immediate family does not live in Poland). We do not run business here. And our stay on the territory of Poland is short enough to prevent us from being considered a tax resident in the Republic of Poland.

Please note that it is possible to have a double tax residence. This is particularly important in the case of natural persons, where individual states may have different internal regulations determining residence. For example, in the United States, a tax resident is considered to be a person who has the so-called “green card”, regardless of whether that person resides and lives in the United States or not. If, in addition, such a person resides in Poland for more than 183 years, they hold a double tax residence, i.e., they would potentially be subject to taxation on all their income both in Poland and in the USA. A similar situation may also occur in the case of companies. Some countries accept the place of effective management (such as Poland) as the criterion of residence, while others may accept the criterion of formal registration (i.e., where the company was registered).

Double residence issues are settled by agreements on the avoidance of double taxation. In the case of natural persons, the criterion which most often prevails is the so-called centre of vital and economic interests, while in the case of companies, the place of actual management.

We have a centre of vital interests in the country where we live together with our immediate family (husband, wife, minor children…). When you are single, you take into account social relationships, family, place of employment, political or cultural activities and any other activity (owned real properties where we spend our free time, e.g., if we have a dog or cat in a given country).

A highly important premise determining the establishment of tax residence in Poland may be the fulfilment of one of the criteria (they are separable). This means that if you stay in the territory of the Republic of Poland for more than 183 days in a given year or have a centre of personal or economic interests in Poland, you may be considered a Polish tax resident. These premises must be observed, because the regulations clearly state that all natural persons who reside in the territory of the Republic of Poland are subject to unlimited tax liability.

The persons who work abroad and stay in Poland for less than 183 days may also be considered Polish tax residents. On the other hand, they have their immediate family and personal property here – in such a situation, their centre of vital interests is located in Poland. However, it is worth noting the agreements on the avoidance of double taxation concluded between Poland and the second destination – then, when determining the residence, the so-called conflict rules apply, and they are resolved in a specific order:

1. has a permanent residence (household). If it exists in two countries, it should be determined in which country there is a stronger personal and economic link;
2. if the first one does not ensure clarity. It will be checked in which country the person resides habitually. If the same applies to both destinations, the next criterion is taken into consideration.
3. that is, in which country the taxpayer holds citizenship. 

In the absence of a definitive answer, the tax authorities of both countries shall conclude a mutual agreement.

The Common Reporting Standard (CRS) is the requirement of reporting and gathering information, being obligatory for financial institutions worldwide.

Acting in the light of the CRS regulations, a Bank is obliged to determine where its customers should pay taxes (which is often associated with determining the tax residence). The bank collects the data which it already has about its customers, and it can also request missing data to be delivered.

If it turns out that the customer is a tax resident of a country other than that in which the bank accounts are held, the Bank will forward such information to the local tax authorities. The tax authorities may then exchange this information with the tax authorities of the country of residence.

If the real property performs investment functions and is not our place of residence, then yes, such properties can be owned. Property income tax is payable in the country where the property is located – that is, you will pay taxes for this property in Poland. However, care should be taken to ensure that the mere fact of owning real estate is not a prerequisite for establishing a centre of vital interests in a given country and official determination of a double tax residence.

The fact that you do business in Poland means that you have a centre of economic interest in Poland. Therefore, when changing the tax residence, one should be careful about this fact. It may be likely that the form of the business will need to be changed.

Recently, my customers have chosen Portugal and Spain most frequently (a favourable climate is of importance for them, but not only). Other destinations also include countries like:

• United Arab Emirates (Dubai);
• United Kingdom 
• Italy;
• Cyprus;
• Germany
• Luxembourg
• Malta;
• Monaco;
• Estonia
• USA
• Czech Republic
• Slovakia
• Romania