Publication date: 28.05.2025
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Taxation of Polish Businesses in the U.S.: How to Avoid Double Taxation and Penalties
Entering the U.S. market is a significant step for Polish companies, but it comes with new legal and tax obligations. Without proper structuring, foreign businesses may face double taxation—where the same income is taxed both in Poland and the U.S.
A Polish entrepreneur who had opened a branch in the U.S. sought assistance from attorney Miraziz Khidoyatov. Despite successful operations, the U.S. financial authorities requested additional documents, and the Polish tax office began questioning the sources of income. The business risked sanctions both in America and at home.
Case Summary
The entrepreneur provided IT services to American clients through a legal entity registered in Poland and a support office in the U.S. Revenues were received in dollars, partially processed locally, but all reporting was conducted in Poland. Due to the lack of tax planning, the U.S. tax service recognized the income as originating in the U.S., automatically triggering obligations to submit additional documentation and the risk of penalties.
Resolution Steps
1. Tax Audit and Risk Assessment
Miraziz analyzed the entire structure: sources of income, client contracts, and the interaction between the Polish and American parts of the business. A risk was identified that the enterprise could be classified as operating in the U.S. through a "permanent establishment," which automatically entails obligations to the IRS.
2. Application of the Double Taxation Avoidance Agreement
Provisions of the tax treaty between Poland and the U.S. were utilized. The entrepreneur was advised to avoid creating a "permanent establishment," and the American office was registered as an independent "disregarded entity." Additionally, Form W-8BEN-E was prepared and submitted to confirm non-resident status for American clients.
3. Submission of Mandatory Reporting to the IRS
To meet U.S. tax requirements, Form 5472 was prepared and submitted—a report for foreign companies conducting business in the U.S. or having transactions with American entities. Simultaneously, transfer pricing between the Polish company and the American subsidiary was established.
Key Forms and Documents:
- Form W-8BEN-E
- Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation)
- Transfer pricing documentation
- Income structuring report in accordance with the tax treaty
Result
- The entrepreneur avoided double taxation through proper structuring and forms.
- The IRS accepted the reporting without inquiries or audits.
- Polish tax authorities had no objections regarding the source of income.
- The business continues to operate in the U.S. market with a clear tax compliance model.
Proof of completion of Form 5472
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Frequently Asked Questions
Question
Why is it important to submit Form 5472?
Answer
It is a mandatory document for foreign companies with operations in the U.S. Failure to submit it can result in penalties starting from $25,000.
Question
Is a Polish business required to pay taxes in the U.S.?
Answer
Only if there is a permanent establishment or if the income is considered "effectively connected" with the U.S. This can be optimized through the agreement between the countries.
Question
What is W-8BEN-E and why is it needed?
Answer
It is a form to confirm the status of a foreign income recipient. It is submitted to avoid withholding tax in the U.S.
Business between Poland and the U.S. requires not only legal but also competent tax coordination. Thanks to the consultation with Miraziz Khidoyatov, the entrepreneur managed to avoid financial risks, preserve profits, and continue international operations in compliance with the regulations of both countries. Tax planning is not an option but a necessity for stable operations in the global market.
