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Distribution of profits from permanent establishments


by Dominika Tyczka

3 March 2019


To decide if the activities carried out by a sales representative of a foreign enterprise in Poland trigger a permanent establishment of that enterprise, those activities must be thoroughly examined. If the examination shows that a permanent establishment has been triggered, the foreign enterprise is obliged to determine which part of its revenues is attributable to the sales representative's activities and to pay income tax on those revenues in Poland.


The revenue taxed in Poland will normally not be taxed again in the country of the foreign enterprise because most of the double taxation treaties signed by Poland exempt the profit earned by a foreign enterprise through its permanent establishment in Poland from taxation in that enterprise’s country of residence.

Sales network and collecting information

The fundamental task of a sales representative is to build a sales network. The sales representative distributes the goods by, among other things, acquiring customers or collecting information about their business situation and expectations. It is not uncommon for the sales representative also to inform the foreign enterprise about the market situation and the profitability of running or developing business in Poland. An office is sometimes opened for the sales representative in Poland, but usually there are no official premises here.


It seems that the sales representative's activities show a low level of permanency and are weakly tied to the territory of Poland, especially when there are no official premises here. Still, they may create a foreign permanent establishment in Poland, and consequently, the obligation to pay income tax on the income attributable to the sales representative. Whether a permanent establishment comes into existence in Poland depends on the scope of powers vested in and actually exercised by the sales representative.

Authority to conclude contracts

Pursuant to Article 5(5) of the OECD Model Convention, the sales representative's duties and powers which may trigger a foreign permanent establishment include, among other things, having and exercising an authority to conclude contracts on behalf of the foreign enterprise. The sales representative should exercise this authority habitually, which is the case when the enterprise accepts the terms of collaboration agreed between the sales representative and a new customer, and does not modify or question any of those terms.


Formal absence of the authority to conclude civil-law contracts does not protect the foreign enterprise against the risk of sales representative's activities being regarded as a permanent establishment in Poland. The risk exists even if a contract is signed by the headquarters' representative but the negotiations in the name of the enterprise and the terms and conditions of the contract belong to the representative's duties and are performed in such a way that the signature approving the terms is a mere formality. Negotiations may cover prices, discounts or payment facilities in dealings with new customers. Fixing those terms is a key point in collaboration with a customer. Consequently, by assigning this duty to a representative the enterprise transfers to him a significant part of its business.

Processing warranty claims

A permanent establishment may be also created if the sales representative is authorised to handle warranty claims from customers. In such a case, tax authorities may find that a part of the enterprise's operations has been transferred to Poland and, therefore, the profit attributable to that part should be taxed here.

Auxiliary activities

If the sales representative's tasks include exclusively auxiliary tasks in the meaning of Article 5(4) OECD Model Convention, there is no ground to assume the existence of a permanent establishment. Auxiliary activities may include collecting information about the Polish market or prospective customers, or presenting the enterprise's portfolio and business opportunities. By performing only auxiliary activities the sales representative will not create a permanent establishment even if he is formally authorised to conclude contracts on behalf the foreign enterprise.

You can consult any issues concerning a permanent establishment with Rödl & Partner experts available in Cracow, Gdansk, Gliwice, Poznan, Warsaw and Wroclaw.


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Dominika Tyczka-Szyda

Tax adviser (Poland)


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