When analyzing the risk of creating a permanent establishment (PE), which entails the obligation for a foreign taxpayer to pay tax on part of its income in Poland, the following situations are most commonly indicated:

  • employees working from Poland for a foreign company (including remotely – so-called home office),
  • operation of a construction site in Poland belonging to a foreign entity,
  • activities of a Polish agent acting on behalf of a foreign entity.

In this article, however, we will look at a less typical situation: can a foreign ship that regularly moves between a Polish port, Poland’s exclusive economic zone (EEZ), and possibly ports of other countries—stopping in each of these places for a certain time—lead to the creation of a PE in Poland?

Have a question or need support?

Contact us

Limited Tax Liability in Poland

Foreign entities that do not have their registered office or place of management in Poland may be subject to so-called limited tax liability for corporate income tax (CIT), meaning they are taxed only on income earned from Polish sources — including income from activities carried out in Poland through a PE.

Application of the Relevant DTT and Definition of ‘Polish Territory’

For tax residents of countries with which Poland has concluded a double tax treaty (DTT), the provisions of that treaty apply to determine where and under what rules tax should be paid. To determine whether a specific DTT applies, one must refer to the definition of the territory of the contracting states. A typical DTT states that ‘Poland’ means ‘the territory of Poland’ as defined under Polish domestic law.

Geographically, the EEZ, being outside the territorial sea, is not formally part of Poland. However, under the CIT Act, for application of its provisions purposes, the territory of Poland also includes the EEZ where rights to explore or exploit the seabed and its subsoil and natural resources are exercised. This wording creates doubts — should the EEZ be treated as Polish territory, and does the relevant DTT apply?

Conditions for PE

Assuming the DTT applies, three conditions must be met for a PE to arise in Poland:

  • there must be a place of business in Poland,
  • this place must have a permanent character,
  • the business activity must be carried out through that place.

This indicates that both geographical and temporal aspects are crucial for PE creation. A movable or purely temporary place of business does not constitute a PE. The OECD Model Tax Convention Commentary[1] further states that a ship moving in international waters or between countries is not considered a fixed place of business unless its operation is limited to a specific area with a coherent commercial and geographical structure. Regarding the time aspect, practice suggests that activity lasting more than six months is considered sufficiently permanent — although this period is indicative. Temporary breaks or unintended extensions (even beyond the taxpayer’s control) do not exclude PE creation.

How about international transport?

If the above conditions indicate the existence of a PE, Article 7 in conjunction with Article 5 of a typical DTT applies — income attributable to the PE will then be taxed in Poland. However, in some cases, Article 8 of a typical DTT may apply, which is a special provision (lex specialis) compared to Article 7. In such a situation, the income of the company owning the ship will — regardless of the potential existence of a PE — be taxed according to the rules for international transport, i.e., in the state of the company’s effective management.

Charter versus international transport

International transport generally covers carriage between countries. Polish tax authorities confirm that remuneration for voyages of ships sailing outside Polish territorial waters but remaining in the EEZ, where the shipowner does not earn income from exploiting the seabed and its subsoil and natural resources but from chartering ships, constitutes profits from international transport[2].

It is also worth noting the difference between international transport performed on one’s own account and chartering, e.g., a ship with or without crew. The OECD Commentary indicates that chartering a ship with crew is treated as carriage, while a ‘bareboat’ charter (without crew and equipment) is taxed under Article 7, not Article 8 — unless it constitutes an auxiliary activity of an enterprise engaged in international shipping.

Summary

Although in many cases the OECD Commentary indicates that a ship does not constitute a PE, the business activity of a foreign enterprise using ships requires an individual and detailed analysis in each case. One must consider not only geographical and temporal aspects but also the purpose and manner of using the ship, its equipment, presence of crew, and the nature of activities carried out in ports or within/outside the EEZ.

CRIDO experts offer support in conducting such analysis and determining the appropriate tax model — including transfer pricing (allocating income between the foreign headquarters and the PE in Poland), VAT, and settling individuals for PIT and social security (ZUS) purposes in Poland.

[1] OECD (2017), Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing.

[2] Individual tax ruling dated February 13th 2024, ref. 0114-KDIP2-1.4010.681.2023.2.DK and ref. 0114-KDIP2-1.4010.716.2023.2.KW