Offering complimentary accommodation for an international job candidate

The topic of providing accommodation free of personal income tax (PIT) has raised many controversies for several years due to the lack of a consistent approach in tax rulings. In a recent tax ruling issued on 10 November 2023 (ref. 0114-KDIP3-2.4011.598.2023.5.MN), the Director of the National Tax Information (DKIS) ruled that a company offering free accommodation to job candidates who are not Polish tax residents does not need to withhold PIT advances. However, the company is still required to prepare a PIT-11 form.

The case reviewed by DKIS involved a company engaged in road transport services for goods, both domestically and internationally. As part of its operations, the company employed—and planned to employ—foreign nationals, specifically citizens of Ukraine, Georgia, Kyrgyzstan, Belarus, Turkey, and Uzbekistan, as drivers under civil law contracts.

During the numerous formalities associated with hiring foreign workers, the prospective employer provided free accommodation to job candidates. The company sought clarification from DKIS regarding its obligations under PIT concerning the provision of this free accommodation.

To determine the company’s obligations, it was essential to clarify the source of revenue for these foreign nationals and establish their tax residency.

Source of Revenue and Tax Residency Status

Generally, a taxpayer’s source of revenue is based on their legal relationship with the company. In this particular case, the company did not have any formal civil law contracts with the foreign nationals while processing the necessary documents and permits. Consequently, the revenue could not be linked to any potential future contracts.

The tax authority specified that covering accommodation costs for individuals not yet employed—i.e., job candidates for driver positions—falls under the category of “other sources” of revenue. This category is broadly defined and may include any revenue not explicitly listed in other sections of the PIT Act.

The company indicated that the job candidates it intended to hire were residents outside Poland. Therefore, these candidates are considered non-tax residents in Poland while awaiting the necessary permits to perform services within the country.

For clarity, a person is classified as a Polish tax resident if they:

• Have their center of personal or economic interests (center of vital interests) in Poland, or
• Reside in Poland for more than 183 days in a tax year.

Polish residents are subject to taxation in Poland on their worldwide income, including employment income, regardless of the source’s location. In contrast, non-residents are taxed only on income earned in Poland, including compensation for work performed there.

These principles are applied in conjunction with the relevant Double Taxation Treaties (DTTs), which may modify the tax obligations in Poland.

Provisions of DTTs

The provisions of the DTTs relevant to this case do not directly address revenue from “other sources”. Consequently, reference must be made to the provisions that cover revenue not categorized in other sections.

In the DTTs between Poland and Ukraine, Georgia, Kyrgyzstan, Belarus, Turkey, and Uzbekistan, there is a clause indicating that revenue from “other sources,” regardless of origin and not covered in previous articles, is taxable only in the taxpayer’s country of residence.

Scope of the Company’s Obligations

Entities paying revenue categorized as “other sources” are not required to calculate or withhold PIT advances. The taxpayer is responsible for determining the tax amount and remitting it directly to the tax office.

However, companies providing payments or benefits from “other sources” are still required to issue a PIT-11 form. According to Article 42a of the PIT Act, the requirement to prepare a PIT-11 form is not linked to withholding tax or tax advances but simply to the act of providing a specific benefit.

In this case, DKIS determined that the company does not need to withhold PIT advances. However, if free accommodation is provided, the company must still prepare and submit a PIT-11 form.

Practical Considerations

The obligations set out by the tax authority may present practical challenges. Completing and submitting a PIT-11 form requires the payer to obtain necessary data, such as a PESEL (Polish tax identification number). It’s worth noting that acquiring this information can be difficult if the planned employment of a foreign candidate falls through after free accommodation has already been provided. Currently, a PIT-11 form cannot be completed without a tax identifier.

Additional complications may arise after the tax year concludes, when the payer is obligated to provide the PIT-11 form to the taxpayer. Thus, maintaining an up-to-date email address or residential address for the foreign candidate is crucial.

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Legal Basis

• Article 10(1)(9) of the PIT Act
• Article 20(1) of the PIT Act
• Article 42a(1) of the PIT Act

Ruling

• Individual ruling by DKIS dated 10 November 2023, ref. 0114-KDIP3-2.4011.598.2023.5.MN