Withholding tax (WHT) is a critical consideration for foreign investors and businesses operating in Poland.
This tax applies to specific categories of income earned in Poland by non-residents and is regulated by Polish tax law as well as applicable double tax treaties (DTTs).
Below, we outline the most important aspects of withholding tax in Poland to help you navigate its complexities.
Categories of income subject to withholding tax
Under Polish law, withholding tax generally applies to the following categories of income paid to non-residents:
dividends
interest
royalties
certain types of services (e.g., advisory, legal, advertising services)
The standard WHT rates in Poland are:
19% on dividends
20% on interest, royalties and services
Rates may be reduced or eliminated under applicable DTTs or EU directives.
Threshold of PLN 2 Million
WHT regime introduces specific rules for payments of dividends, interests and royalties exceeding PLN 2 million annually to a single recipient.
If payments to a single non-resident recipient, a related party, exceed PLN 2 million in a calendar year, the Polish payer is required to withhold tax at the standard statutory rate, even if exemptions or reduced rates apply under DTTs or EU directives.
To avoid withholding tax at source, the following measures can be utilized:
WH-OSC Statement: The Polish payer can submit a WH-OSC (Withholding Tax Statement) to the tax authorities, certifying that the recipient meets the conditions for exemption or reduced tax rates.
Opinion on the Application of Preferences: The recipient can obtain a formal opinion from the Polish tax authorities confirming their eligibility for treaty benefits or EU directive exemptions.
Reclaiming withheld tax
In cases where WHT is withheld but an exemption or reduced rate applies, the recipient may submit a refund application to the Polish tax authorities.
This process requires comprehensive documentation proving the recipient’s eligibility for tax relief (e.g., certificate of tax residency, agreements, evidence of actual business activity).
Key risks and compliance considerations
Navigating the Polish WHT regime requires careful attention to the following risks:
Beneficial ownership: The recipient must be the beneficial owner of the income. This means they must:
exercise actual control over the income received.
bear the economic risk related to the income.
Substantive activity requirement: The recipient must conduct genuine business activities in their country of residence. Shell companies or entities without economic activity are unlikely to qualify for tax relief.
Artificial group structures: Transactions structured solely to obtain tax benefits without economic substance may be challenged by the Polish tax authorities under anti-abuse rules.
Practical recommendations
Ensure detailed documentation of the recipient’s tax residency, beneficial ownership, and substantive business activities.
Review group structure to identify and mitigate potential risks of artificial arrangements.
Consider seeking professional advice to navigate the WHT refund process or to apply for a WH-OSC statement or an opinion on tax preferences.
By understanding the nuances of withholding tax in Poland, businesses can not only ensure compliance but also effectively manage tax costs and risks. Should you require further assistance, our team is here to provide tailored solutions based on your unique circumstances.