The Ministry of Finance in Poland has recently published the Draft Act to amend the Corporate Income Tax Act (CIT), the Personal Income Tax Act (PIT), the Tax Management Act and certain other acts. The proposed law introduces fundamental changes to the collection of withholding tax (WHT) in Poland.
The new treatment will apply to Polish-source income of non-residents (e.g. dividends, interest, royalties, intangible services) as well as certain incomes and payments to Polish residents (e.g. dividends and other profit distributions in corporate entities).
Withholding tax for payments not exceeding PLN 2 million
If taxable payments made to a taxpayer during a tax year do not exceed PLN 2 million (roughly EUR 460,000) in total, the withholding agent will still generally be to apply withholding tax exemption (under a relevant double tax treaty or provisions of the CIT Act implementing EU Directives) or a reduced withholding tax rate according to current rules.
Withholding tax for payments over PLN 2 million
Where taxable payments made to a taxpayer during a tax year exceed PLN 2 million in total, the amount above PLN 2 million will be subject to withholding tax at the relevant rate set out in the CIT Act (20% for interest and royalties, 19% for dividends).
If a withholding agent wishes to apply a double tax treaty rate or exemption, or an exemption under the CIT Act at the time of payment, then for the amount above PLN 2 million they have to declare that they:
- have the documents required by tax law as evidence that the reduced rate, the exemption or the decision not to withhold the tax is justified under tax law;
- are not aware of any circumstances that would prevent the application of such reduced rate, exemption or decision. This declaration includes applying the new definition of “beneficial owner” (definition also to be clarified) and confirmation that the taxpayer carries out “real economic activity” according to the CIT.
The declaration should be signed by the head of the withholding agent entity.
Alternatively, the exemptions for interest, royalties and dividends (based on domestic provisions implementing the Parent-Subsidiary Directive and Interest-Royalties Directive) can be applied to amounts over PLN 2 million if the relevant tax authority issues an opinion that the withholding agent may do so. Such opinions are issued at the request of taxpayers or withholding agents within six months for a fee of PLN 2,000 (roughly EUR 460).
If none of the above exceptions (declaration or opinion) applies, the withholding agent must calculate, withhold and remit the tax on the amounts over PLN 2 million using the rates provided for in the CIT Act.
If an exemption or reduced rate is applicable, the tax authority shall, if so requested by the taxpayer or withholding agent, refund the tax paid or the difference in the tax withheld without the reduced rate or exemption. A number of documents will have to be attached to such requests.
The mentioned amendments regarding withholding tax are currently being worked on within the Polish government and according to plans will come into force on 1 January 2019.
If you would like to know more about the new withholding tax collection mechanism or other tax issues in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative for Poland of WTS Global.