Workations and tax returns for sole traders – what do you need to know?

Workation, a combination of work and leisure, is gaining popularity among entrepreneurs and freelancers – however, many of them wonder about key tax and legal issues. In this article, we will cover all financial aspects of workation, compare them with traditional business trips, and highlight the most common mistakes, so you can enjoy both work efficiency and well-deserved relaxation without worrying about settlements.

What is a workation – a new trend in remote working

A workation is an innovative work model that combines professional duties with travel and relaxation. The term is a portmanteau of the words „work” and „vacation”. In practice, this means carrying out your work from anywhere in the world – this could be an exotic beach, a mountain cabin, or an apartment in the centre of a European capital.

This trend gained particular popularity after the COVID-19 pandemic, when remote working became the norm in many industries. Workation differs from traditional holidays in that we continue to perform our work duties while staying in our chosen location, while maintaining flexibility and the opportunity to draw inspiration from our new surroundings. For entrepreneurs running a business, workation can be not only a way to achieve work-life balance, but also an opportunity to optimise tax costs.

A workation differs from a business trip in that its primary purpose is leisure or personal enrichment, while work is a secondary activity. A business trip's primary purpose is work, with leisure or personal time being secondary.

The key differences between a workation and a traditional business trip are fundamental for tax settlements. A business trip is a journey commissioned by an employer or necessary for the performance of specific business tasks at a particular place and time. It is characterised by a rigid schedule, predetermined objectives, and limited temporal and locational flexibility.

A workation, on the other hand, is a voluntary decision to carry out daily professional duties from a different location, often combined with leisure. The employee or entrepreneur has full control over the choice of location, length of stay, and work schedule. During a workation, specific tasks requiring presence at a particular location are not undertaken, but rather standard duties are simply transferred to a new environment.

These differences have significant tax implications. Business travel is subject to strict regulations concerning allowances, accommodation limits, and documentation of business purposes. Workation requires a more flexible approach to documentation and cost accounting, while still adhering to requirements associated with revenue generation costs.

Qualifying expenses for a workation – what can be deducted?

When planning a workation, it's worth thoroughly understanding the rules for qualifying deductible costs. Correctly accounting for expenses allows for effective company budget management, the utilisation of tax reliefs, and the avoidance of problems during tax audits.

Under Polish tax law, the costs of a workation can be included in income-generating expenses, provided they meet the basic criteria: they are incurred for the purpose of generating revenue, preserving or securing the source of revenue, and are reasonably justified by the nature of the business activity.

Typical company expenses During a workation, you should include:

Accommodation for remote work – stays in apartments, hotels, or rented flats

Transport, including travel, air tickets, rail, or car hire

Equipment necessary for work, such as a laptop, printer, extra monitor, or ergonomic office furniture

Internet and telephone costs necessary for the performance of professional duties

However, it is important to remember that not all expenses incurred during a workation will be eligible. Purely private expenses, such as tourist attractions, entertainment, or non-work-related meals, cannot be included in tax-deductible costs. It is crucial to properly separate business and private expenses and document them accordingly.

How to properly document the costs of a workation?

Workation cost documentation requires particular diligence and systematicity. To be able to effectively account for incurred expenses, invoices with full details including date, detailed description of the service or goods, and amount must be collected. It is advisable to store all documents electronically, using secure cloud solutions like Dropbox or Google Drive.

It is very important to systematically separate business and private expenses from the moment they are incurred. It is worth keeping a detailed expense diary, in which not only the amounts are recorded, but also the business justification for each cost. Regularly backing up documents protects against their loss and facilitates cooperation with the accountant.

Experts at Open Profit recommend using modern online document management systems, which not only facilitate invoice storage but also automate the process of categorising them and preparing them for accounting. Such solutions help maintain order in costs and significantly simplify the workation settlement process.

Tax limitations when settling a workation

The Polish tax system provides for specific limitations concerning the tax deductibility of expenses related to business trips, which to some extent also apply to "workations". The basic principle is that only expenses directly related to the conducted business activity may be recognised as tax-deductible costs.

Specific limits apply to the costs of food and daily allowances. In accordance with tax regulations, expenses for meals during a workation are subject to specified monetary limits, which are updated annually by the Ministry of Finance. Exceeding these limits means that the excess must be covered from one's own funds or classified as taxable income.

Accommodation expenses, though generally eligible, must be reasonable and justified by the nature of the business. The tax office may question excessively high overnight stay costs, particularly if they are disproportionate to the scale of the business or the type of tasks performed.

Full documentation and correct classification of costs into appropriate categories helps with tax optimisation and avoiding misunderstandings with the tax office. Regular consultations with an accountant or tax advisor are particularly important when planning longer workation trips.

Workation vs. Traditional Business Trip - A Comparison

Aspect	Business trip	Workation
Accommodation	Standard business hotel	Flat, apartment or holiday hotel
Working hours	Fixed working hours	Flexible schedule tailored to the time zone
Purpose of the trip	Specific business tasks	Remote work from a new location
Tax deductions	Strictly defined limits	Greater optimisation possibilities with proper documentation
Employer's control	Full schedule control	Greater employee autonomy
Documentation	Standard delegation forms	Detailed business case

Find out more: Business trips and income-related expenses

Tax issues relating to workations

Accounting for a workation within the Polish tax system requires particular attention to several key aspects. First and foremost, one must remember the obligation to document every expense associated with the conducted business activity. The tax authorities may request proof justifying incurred costs at any time.

It is also important to keep accurate records of your work location and time spent in each place. This is particularly important for long-term trips covering multiple locations. Any change of residence should be properly documented along with a business justification.

Regular consultations with an accountant or tax advisor are essential, especially for entrepreneurs planning frequent or long-term workation trips. Tax regulations are subject to change, and their interpretation can vary depending on the specific nature of the business.

See what comprehensive online accounting services look like, which can relieve you of burdens during trips and ensure the correct settlement of all workation costs.

The most common mistakes when accounting for workation costs

Practice shows that entrepreneurs settling 'workations' make several characteristic mistakes, which can result in problems during tax audits. The most common mistake is the lack of proper documentation – without invoices, receipts, or other proof of expenses, it is impossible to substantiate the expenditure before the tax office.

Another common problem is the improper mixing of business and private expenses. Many entrepreneurs do not clearly separate work-related expenditures from leisure costs, which can lead to the tax office questioning the entirety of the expenses.

The third significant error is relying on outdated knowledge of tax regulations. Regulations concerning the costs of obtaining revenue are subject to change, and their interpretation evolves with the case law of administrative courts.

To avoid the most common problems, it's worth observing the basic rules:

• Collect complete documentation for all expenses related to the workation.
• Clearly separate business expenses from private ones as soon as they are incurred.
• Regularly update your knowledge of tax regulations and consult with experts
• Keep a detailed log of activities during your workation with business justification

You can find regular tax advice and up-to-date information on regulations on the Open Profit blog: Tax mistakes in tax returns.

FAQ – Frequently asked questions about workations and business expense claims