Interest, royalties, and others
Interest and royalties paid to a non-resident and fees for certain intangible assets and legal services (e.g. consulting, accounting, legal and technical services, advertising, data processing, market research, recruitment, management, inspection services and guarantees, etc.) are subject to 20% withholding tax, unless the rate is not reduced under the agreement on the avoidance of double taxation, or the EU Directive on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
Requirements for exemption from withholding tax on interest and royalties
The condition for exemption from the withholding tax, in the case of interest and royalties arising between affiliated companies, is that the recipient of the claims is the actual beneficial owner of these claims.
For the exemption to be applied, the Polish taxpayer must obtain a certificate which, in addition to the previous elements, contains a statement that the company or the foreign enterprise, which is the recipient of the creditor claims, is the actual economic owner.
The taxation of dividends runs up to 19% respectively, or the particular double taxation treaty rate or the application and adherence of the EU-Parent-Subsidiary Directive for the taxation of parent and affiliated companies.
The so-called dividend exemption:
- exemption from withholding tax for payments done by a Polish resident
- withholding tax exemption for dividends that a company with a tax residence in Poland pays to a company with a tax residence in another country.
the entitled party to the dividends must dispose of a minimum 10% of the shares of the liable to pay dividends corporation for an uninterrupted period of 2 years.
The beneficiary of the dividends shall not make use of a tax exemption with respect to his whole income independent from the source of its realization (declaration of the beneficiary of the dividends required).
The obligation to collect withholding tax on the purchase of flight tickets (in the amount of 10%) was abolished, if the purchase of such flight ticket concerns a regular scheduled passenger flight.
WHT Pay and Refund mechanism
If payments to the same related party, within the meaning of the transfer pricing regulations, in respect of interest, dividends, and royalties exceed an amount in the amount of PLN 2,000,000.00, the payer is obliged to collect the tax in the full amount (19% or 20%) at the rate resulting from the Polish regulations, regardless of whether he is entitled to apply
a reduced rate.
The tax collected in this manner is refunded upon request:
- to the taxpayer or
- payer – if the payer has paid the tax from his own resources and has borne the economic burden of this tax.
The application is submitted electronically and the regulations indicate the information that should be included and the list of attachments.
The application of the WHT pay and refund mechanism applies to payments to related parties as defined in the transfer pricing legislation and to payments of a passive nature – the aforementioned interest, dividends, and royalties. The mechanism does not apply to dividends paid to Polish residents.
This implies that taxpayers will still, as a rule, be obliged to pay WHT once the PLN 2 million threshold is exceeded, and only after withholding tax is deducted will they be able to claim a refund, but this will only apply to the payments to related entities that are not Polish tax residents.
Importantly, the pay and refund mechanism will not apply if:
- the taxpayer obtains a binding opinion on the application of the exemption issued by a competent tax authority,
- or he verifies on his own the applicability of the tax exemption on the basis of the aforementioned EU directives and submits an appropriate declaration within the statutory deadlines to the tax authorities.
The statement indicated should specify that the taxpayer:
- is in the possession of the documents required by tax law for the application of the rate of tax, its’ exemption or non-collection of tax resulting from special provisions or double taxation treaties;
- after verification, has no knowledge of circumstances excluding the possibility of applying a tax rate or exemption or non-collection of tax resulting from the application of special provisions or double taxation conventions.
This statement, shall be signed by the management board of the entity.
Due diligence criterion
When verifying the conditions of the application of an exemption or a tax rate resulting from special regulations or double taxation conventions, the payer is obliged to exercise due diligence.
As of 2022, the criterion of due diligence has been changed: when assessing due diligence, now not only the nature and scale of the payer’s activity is taken into account, but also its relationship with the taxpayer.
This change is intended to clarify the requirements related to the verification of due diligence and will enable differentiation of due diligence requirements in relation to the related and the unrelated entities.
Use of copy of certificates of residence:
An element of any verification process for withholding tax issues is the possession of a certificate of residence. It is now permissible, in any case, to use a copy of the residence certificate if the information contained in its’ copy does not raise a reasonable doubt as to its compliance with the real facts.
If you have any questions regarding this topic or if you are in need for any additional information – please do not hesitate to contact us:
CUSTOMER RELATIONSHIPS DEPARTMENT
Head of Customer Relationships
Department / Senior Manager