WITHHOLDING TAX FROM THE PERSPECTIVE OF FOREIGN ENTREPRENEURS IN POLAND

Navigating the complexities of withholding tax in Poland can be daunting, but NTAX is here to guide you every step of the way.

Withholding tax from the perspective of foreign entrepreneurs in PolandWithholding tax is one of the more complex areas of tax law faced by foreign entrepreneurs operatingin Poland. The term is used to describe lump-sum income taxes levied by payers based in the countrywhere the income arises on payments to foreign entities. Although the concept of withholding taxseems simple, its practical application poses many challenges.

The legal basis governing WHT in Poland is Articles 21, 22 and 26 of the CIT Act, as well as Articles 29,30a and 41 of the PIT Act. These provisions are consistent with Council Directive 2003/49/EC on acommon system of taxation of interest and royalties. Polish regulations requiring taxpayers to accountfor WHT should be applied taking into account changes resulting from double tax treaties.

The standard WHT rates are: 20% for interest, royalties and other intangible services, 19% fordividends and 10% for income from the provision of air or sea transportation services. The Polishpayer is required to collect WHT on the excess above the threshold of PLN 2 million as the sum ofpayments to one foreign entity in the tax year.

One of the main challenges for foreign entrepreneurs is the pay and refund mechanism. It relies onthe fact that the Polish payer must collect and remit WHT on the payments made, and the foreignentrepreneur can then apply for a refund of some or all of the tax collected, provided that certaindocumentation requirements are met.

In addition to paying the tax and requesting a refund, it is also possible to apply a withholding taxpreference. This preference is based on the relevant double tax treaty between Poland and othercountries and may consist of reducing the rate, applying a 0% rate or not charging withholding tax. The preference can be exercised by obtaining an opinion from the tax authority on the application ofthe WHT preference or by submitting a statement from the payer WH-OSC (with respect to CIT) orWH-OSP (with respect to PIT) that all conditions for the application of the preference have been met. Work is currently underway on changes to the templates for these statements, which are aimed at, among other things, abolishing the obligation for non-resident board members to have a PolishPESEL/NIP number.

An important document for the application of preferential rates under the WHT is the certificate ofresidency. It confirms that the foreign entrepreneur is a tax resident in the country. Taxpayers mayalso use a certificate of residence in electronic form and also in the form of a copy of this document,provided that the information contained therein does not raise any doubts as to its accuracy.

According to Polish regulations, in order to benefit from preferential WHT rates, a foreignentrepreneur must prove that he is the so-called beneficial owner, i.e. the real owner of the income.This means that the entrepreneur must have full right to the receivables received, and the incomecannot be transferred in whole or in majority to another entity that does not meet the requirementsfor benefiting from preferential WHT rates.

It should be remembered that the payer does not have to collect tax if all the conditions set forth inArticle 22(4) of the CIT Act are met, and therefore the dividend is paid by a company with itsregistered office or management in Poland, and is received by a company subject to taxation of itsentire income in Poland, another EU country, the EEA or Switzerland, holding directly at least 10% of the shares in the paying company (in the case of Swiss companies – at least 25%), and not benefiting from an exemption from taxation of its entire income. An additional condition is an uninterrupted two-year period of holding the required amount of shares by the company receiving the dividend.

Withholding tax in Poland poses significant challenges for foreign businesses. Differing rates, the pay and refund mechanism, the need to prove beneficial owner status, and the formalities associated with the certificate of residence, preference opinions and WH-OSC/WH-OSP statements are the main difficulties to be considered. A thorough understanding of Polish tax regulations and cooperation with experienced tax advisors is essential to successfully meet these challenges. This allows you to minimize tax risks and optimize the costs of doing business in Poland.

Partnering with NTAX ensures that you have expert support to navigate these complexities and optimize your business operations in Poland.