NEW RULES FOR WITHHOLDING TAX PAYMENTS IN POLAND IN 2022
7 October 2021
Withholding tax (WHT) in the “Polish New Deal”
A series of changes in the law, collectively referred to as the “Polish Deal”, pushed through by the Polish government under the banner of introducing the largest tax reliefs and exemptions in many years, also includes the expected changes in withholding tax rules. The changes relate to, among other things, the mandatory withholding tax (pay & refund) regulations introduced from 2019, the application of which has been suspended by the Minister of Finance several times since coming into force. The current suspension is in force until 31.12.2021.
The suspended regulations envisage, as a rule, the obligation to collect the withholding tax regardless of the exemption resulting from the regulations or provisions of the double tax treaty in each case when the total amount of payments covered by WHT to one entity in one tax year exceeds PLN 2 million. According to the proposals of the Polish Deal concerning withholding tax, the obligation of its collection (pay & refund) is to be the rule with regard to payments exceeding in a tax year the amount of PLN 2 million to one recipient despite the exemption resulting from special regulations or double tax treaty provisions. In the remaining cases it will be possible to apply either the exemption or the rate or the exemption under the double tax treaty (“relief at source”).
Duty to collect withholding tax (pay & refund)
The proposed solutions limit the application of the “pay & refund” principle to receivables which:
- constitute passive income for their recipients (interest, royalties and dividends), and
- are paid to related entities within the meaning of transfer pricing regulations, and
- entities which are not Polish tax residents.
Pay & refund rule will not, therefore, apply to payments for intangible services (consulting, accounting, advertising, accounting, management). With respect to payments referred to in items 1-3, withholding tax will have to be paid on the excess over PLN 2 million. The withholding tax rate for payments relating to interest and royalties is to be 20% and for dividends 19% of the amount paid.
The “pay & refund” rule will not apply if the taxpayer obtains an opinion from the Polish tax authority on the application of the preference. The opinion on the application of preferences will be issued both in relation to the possibility of using the exemption from withholding tax provided for in the provisions of the Corporate Income Tax Act (art. 21 sec. 3 or 22 sec. 4) and on the basis of provisions of the agreement on avoidance of double taxation. As a result of obtaining an opinion on the application of preferences with regard to the paid amount, it will be possible:
- not to charge tax under the double tax treaty,
- application of a reduced rate resulting from a double taxation convention,
- application of an exemption resulting from the Corporate Income Tax Act.
An opinion on the application of preferences is to be issued upon request by the head of the tax office. A tax remitter, a taxpayer or an entity making payments through entities keeping securities accounts or collective accounts will be entitled to submit the request.
- The second possibility to exclude the withholding tax obligation is to be the submission by the payer of a special declaration for the purpose of applying the withholding tax exemption. The payer must then declare that:
it has documents entitling it to apply the withholding tax exemption or to apply the provisions of a double tax treaty (in practice: a certificate of residence, a statement by the recipient that it is the beneficial owner of the payments and confirming that the condition of non-exemption from income tax and holding a certain number of shares for a certain period of time is met);
- has no knowledge justifying the assumption that there are circumstances excluding the possibility of application of the tax rate or exemption or non-collection of tax resulting from special regulations or double taxation treaties.
The declaration may be signed in accordance with the rules of representation of the taxpayer, however, signing this declaration by an attorney is excluded. The statement will be able to be submitted only in an electronic form. This means that persons authorised to make the statement will have to have an electronic signature or another digital tool fulfilling the conditions of such a provision.
If the statement is not submitted, the taxpayer and the payer will still be entitled to submit an application for a refund of the withholding tax.
Relief at source
With respect to payments of receivables not subject to withholding tax (i.e. also payments for intangible services), exemption from withholding tax under the provisions of the Corporate Income Tax Act or non-collection of tax in accordance with a double tax treaty will be possible provided that
- documenting the taxpayer’s residence with a certificate of residence obtained from the taxpayer,
- due diligence is exercised in applying the exemption or non-collection of tax on the basis of the convention on avoiding double taxation.
As regards due diligence, the draft regulations require in particular that relations between entities should be examined and properly documented.
Furthermore, it should also be documented that the recipient of the receivable to which the withholding tax exemption is to be applied is its beneficial owner. The proposed regulations specify that an intermediary, representative, trustee or other entity obliged to transfer the whole or part of the receivables to another entity cannot be deemed a beneficial owner. Currently, in order to exclude intermediaries, representatives, trustees or other entities obliged to transfer all or part of the receivables to another entity from the category of beneficial owners, it is necessary to have a legal or actual obligation to further transfer such receivables.
The proposed regulations discussed in this article are, at the time of publication, at the stage of the draft being discussed by the Polish Senate and, therefore, there is no certainty as to the final shape of these regulations.
Partner, tax advisor
Tax advisor and lawyer with over twenty years of experience gained in reputable law firms, where he advised domestic and foreign clients in the areas of tax law and running a business. He specializes in issues in the field of corporate income tax (CIT) and personal income tax (PIT), in particular regarding the avoidance of double taxation, transfer pricing, withholding tax, tax aspects of restructuring entities (transformations, divisions and mergers of companies) and financing of activities, transfer pricing, real estate tax and VAT. He represents clients in tax and control proceedings before tax authorities of all instances and before the administrative court.