New regime in withholding taxation in Poland
Starting from January 1 2019, significant changes with regard to withholding tax (WHT) obligations came into force in Poland.
Beneficial owner, due diligence
First of all, a new definition of a beneficial owner was introduced, it means an entity that meets all the following conditions:
a) receives a receivable for own benefit, including decides on its use and bears the economic risk associated with the loss of the amount due or its part.
b) Is not an intermediary, representative, trustee or other entity legally or actually obliged to transfer all or part of the receivables to another entity.
c) Conducts a real economic activity in the country of residence, if the receivables are obtained in connection with the conducted business activity, while the assessment of whether the entity carries out actual economic activity is made in line with CFC regulations.
The obligation to exercise due diligence when verifying the possibility of applying an exemption or reduction of the WHT rate was introduced and is an important condition to benefit from lower WHT rate.
So far, the Polish regulations have obliged the Polish companies making payments to foreign entities (remuneration for among others: copyrights, rights to invention designs, trademarks, know-how, for performances of services in the field of advising, accounting, market research, legal services, advertising, management and control, data processing and performances of similar nature as well as interests, dividends and other similar revenues) to collect lump-sum income tax. The applied WHT rate used to be 19% or 20%, depending on the type of payment made. The law provides for the possibility to apply lower WHT rate or exemption if the payer holds a certificate of residence, which confirms the country of registration of the recipient. In addition, other documents may also be required to apply a lower rate or exemption.
Payments above PLN2 million. – WHT refund procedure
A significant change is the introduction of an additional documentation obligation required in order to apply preferential WHT rates for payments transferred to one entity during one tax year, with total value exceeding PLN2 million. The change came into force as of July 1, 2019, with regard to payments done to individuals or other entities where an individual is considered as beneficial owner, and will come into force from January 1, 2020, with regard to payments done to corporations.
Instead of applying reduced WHT rates or exemption, those payments (in excess of PLN2m) will be obligatory subject to WHT in Poland (19% or 20%, respectively), unless one of the two down listed conditions is met:
- holding an official opinion on application of WHT exemption, issued by a relevant tax authority (if the authority finds the application for opinion as an intended tax avoidance procedure – the opinion may not be issued).
- Holding specific documentation composed of various statements which shall be signed by the members of management board of the paying entity.
In case none of the above conditions is met, i.e. the relevant documentation is not available, then the payment is subject to WHT which can be then refunded via an application for WHT refund, filed either by the paying entity or by the payment recipient (depending on which one of them has incurred the WHT burden). The application shall be made electronically, the refund shall take place within 6 months from submitting the application.
When it comes to required documents, we note that the mentioned official opinion on application of WHT exemption can be issued in limited cases only (only if the entities qualify for WHT exemption resulting from Parent-Subsidiary or Interest-Royalties Directive).
Statements of management board members shall be made no later than on the day of payment: (i) confirming that application of WHT exemption or lower rate is authorized and also that the taxpayer has no information preventing him from taking advantage of preferential tax rules, (ii) confirming that all management board members have given such statement, and are valid for the period of two consecutive months. After expiry of that period another statement is required, confirming that the conditions for WHT exemption or application of lower rate have not changed during that period. All statements shall be made under penal fiscal liability and cannot be delegated to proxies.
The procedure for gathering the relevant documentation (i.e. an official opinion or statements) or applying for WHT refund is quite formalised. The relevant documents shall be submitted electronically, in a format provided by the Polish Ministry of Finance, undersigned with an electronic signature.
Despite the extended deadline for these changes (July 1 2019 instead of the initially planned date, January 1 2019), many companies are still not prepared to have the required additional documentation. Advicero Nexia specialists in offering support in preparing appropriate and tailored to individual needs internal procedures allowing to properly apply WHT taxation as well as to have all required documents in place. We also support in preparing and filing WHT refund applications.
Advicero Tax Nexia Sp. z o.o.
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