Revenues derived by the foreign entities on the territory of Poland may be taxed in Poland. This applies in particular to situations when the Polish entities pay to foreign entities remuneration for certain intangible services, dividends, interest, royalties. As a rule, such payments are subject to withholding tax (WHT) in Poland.
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However, it is possible to benefit from the reduced tax rate resulting from the double tax treaty (DTT) or to apply the WHT exemption (eg. under EU Parent-Subsidiary Directive), but for this purpose it is necessary to meet substantive and formal conditions and keep specific documentation (eg. a due care condition, and – in some cases – confirmation of the beneficial owner status).
Summary:
- The Polish provisions on WHT have been changed since 2022.
- The Polish companies making payments to foreign entities should verify whether the conditions for applying tax preferences, such as the WHT exemption or the reduced tax rate resulting from the DTT, are met.
Changes in withholding tax in Poland
First, it is necessary to assess whether payments made by the Polish companies to foreign entities are subject to withholding tax in Poland. If the verification confirms the obligation to collect WHT and the tax remitter (paying entity) does not collect the obligatory withholding tax, the tax remitter is exposed to penal fiscal penalties.
The obligation of withholding tax collection usually applies to dividends, interest and royalties.
However, it is possible to take advantage of the reduced tax rate resulting from the double tax treaty or to apply the WHT exemption (i.e. the exemption resulting from EU Parent-Subsidiary Directive or EU Interest and Royalties Directive).
In order to apply WHT preferences, certain conditions must be met. One of them is that the tax remitter should meet conditions of the due care (the due diligence), e.g. by gathering relevant documentation regarding beneficial owner. One of the solutions to reduce the risk of challenging the fulfilment of the due care condition is the implementation of a WHT procedure.
As of January 1, 2022, a new withholding tax (WHT) collection mechanism was introduced into the Polish tax regulation. According to it, as a rule, if payments being subject to WHT exceeds the threshold of PLN 2 000 000 to one entity per year, the Polish tax remitters paying out remuneration are firstly obliged to collect WHT at a standard rate.
However, even if the threshold is exceeded, it will still be possible to benefit from the WHT exemption or reduced rate resulting from DTT. There are 3 options:
- The official opinion confirming the tax preferences (a kind of a tax ruling),
- Pay & refund mechanism,
- The WH-OSC statement.
The provisions on WHT have been tightened since 2022. Many entities face difficulties in verifying the beneficial owner status or assessing the correctness of the documents collected in the course of the due diligence process. Doubts apply in particular to holding companies whose status under Polish tax law is uncertain. Therefore, it is worth considering taking steps that may protect against a dispute with tax authorities or at least minimize this risk.
AUTHOR: Jacek Lechna
