US technology firms are looking abroad for expansion opportunities as the corporate world becomes more international. With its expanding IT sector and talented people, Poland is one such location that has attracted interest. However, familiarizing oneself with the complexities of taxes is a must for entering Poland’s IT market since Poland ranks 57th in the world regarding the degree of complexity of tax systems.

This article explores the intricacies of Polish taxes in the IT industry, which is vital for international tech companies seeking ways to expand their software development in Poland. We’ll delve into the financial advantages, tax regulations, and possible pitfalls to better inform your choices. Given the complexity and daunting nature of compliance and tax payments in a foreign environment, partnering with an experienced legal or EoR provider can take this burden off your shoulders. 

Understanding Poland’s Taxation Landscape

Here, we examine the nuts and bolts of Poland’s tax system, focusing on the country’s corporate and personal income tax rates and social contributions.

Corporate Income Tax

Poland has a competitive and business-friendly tax environment. The standard corporate income tax rate in the country is 19%, which can fluctuate depending on the company’s revenue. This is a much lower rate than in most Western European countries. US technology businesses may benefit greatly from this modest tax rate, freeing up capital for more productive use.

Startups and small firms (with less than 2,000,000 EUR in annual turnover, including VAT) may get 9% preferential taxes. Qualified revenue from specified IP rights may also get a 5% CIT or IP Box tax reduction.

Personal Income Tax

Different kinds of cooperation with Polish programmers are subject to the Personal Income Tax (PIT). A programmer’s income is subject to Polish Income Tax (PIT) deductions following Polish law in cases where an employment contract (Umowa o Prace) exists. The concept guarantees worker’s entitlement to social security and other labor protections.

Contrarily, the Umowa Zlecenia (Business to Business Contract) is akin to a contract with a freelancer. As a sole proprietor, the programmer in this scenario is responsible for paying their own taxes. Instead of paying income tax on a regular wage, they must do it as a firm and report their earnings as such. With this setup, the developer has more freedom but is responsible for taxes.

Income brackets and Polish law both influence the PIT rate. Employers typically withhold PIT from an employee’s paycheck, but a B2B contractor is responsible for determining and remitting their own income tax. Consult official tax resources and get advice from tax specialists to guarantee full tax compliance.

Social Security Contributions

When talking about taxes in Poland, the employment contract requires the remittance of a social security contribution of up to 35%. The employer pays 19.21% to 22.14% (depending on work accident insurance), and the rest is deducted from a developer’s salary.

Incentives for US Tech Companies

Let’s explore the opportunities in Poland for US tech firms that contribute to growth inside its borders.

Special Economic Zones

Poland utilizes Special Economic Zones as a strategy to entice international investment. American technology businesses that establish operations inside these zones can gain advantages such as up to 50% corporate income tax, property tax exemption, company development space, and support with public investment of up to €9 million. The above rewards are carefully thought out to encourage innovation and boost economic growth.  Special Economic Zones are a good option for American tech companies that want to expand into Poland and want to do business there.

Research and Development Incentives

Poland offers enticing incentives for IT businesses that prioritize research and development. Engaging in these endeavors has the potential to provide tax credits and deductions, therefore bolstering a company’s financial standing. The relief provides 200% R&D expense deductions: 100% operational costs and 100% tax base (revenue). These incentives not only facilitate and encourage the development of new and creative ideas but also enhance the overall competitiveness of the information technology sector within the country.

Challenges and Considerations

It’s time to explore two crucial aspects of Poland’s taxation framework that need careful consideration.

Transfer Pricing Regulations: Balancing the Arm’s Length Principle

The concept of arm’s length is critical in international taxes. It assures that transfer prices (the prices at which goods, services, or intellectual property are transferred) are fair and accurate reflections of market circumstances. 

Understanding Poland’s transfer pricing law is crucial for American IT companies with international operations. To prevent a dispute with the relevant tax authorities, transactions between related organizations must comply with the arm’s length principle. Maticular paperwork and compliance are necessary to successfully manage this intricate facet of foreign taxes. 

In this case, the professional assistance of an experienced lawyer can prevent future profit losses.

Double Taxation Agreements

Finding a workaround for the potential issue of double taxation is crucial for American technology enterprises expanding to Poland. To address this issue, Poland has entered into double taxation avoidance agreements with several countries, including the United States. These agreements give a measure of security to enterprises involved in cross-border operations because they offer clarity on tax responsibilities and prevent the same income from being taxed in both countries and jurisdictions.

Empower Your Team Expansion Journey 

Are you an executive of a technology business based in the US that wants to expand to Poland or other Eastern European and/or Latin American countries? A local provider of R&D center services, Alcor can become your reliable partner. The company specializes in building software R&D teams via its all-in-one solution, which comprises the following services: 

• the full-cycle tech recruitment of senior and lead software engineers in Poland, Romania, Bulgaria, Ukraine, as well as in Latin America;
• the employer of record service that allows you to hire local programmers without the establishment of your own legal entity;
• tax, legal, and compliance assistance;
• comprehensive back-office support, including office leasing, IT infrastructure setup, procurement of necessary equipment for your team, etc. 

Operating for over 6 years, Alcor guarantees swift and top-quality tech recruiting. They are committed to hiring 5 developers in a month, 20 in three months, and 100 in a year. If they don’t meet the agreed deadlines, Alcor will hire the rest at no charge. It’s worth mentioning that 98.6% of their hires pass probation with flying colors, while their average tenure is 2.5 years. 

Conclusion

With generous incentives, moderate corporate income tax (CIT), and the option to cooperate with local developers via B2B contracts, there are significant financial opportunities for foreign tech businesses expanding to Poland. However, ensuring smooth and financially secure operations requires meticulous management of taxation payments and compliance with local laws and regulations, such as transfer pricing laws and double taxation agreements. Working with the local law firm or even with a full-cycle service provider, who will hire needed developers and take care of the legal and compliance matters, sounds viable.