New rules for settlement of withholding tax 

Agata Nieżychowska

The new rules for settling withholding tax will cover the following payments:

  • dividends,
  • interest,
  • royalties,
  • rmuneration for selected intangible services,
  • when total fees due to a single recipient exceed PLN 2 million in a tax year.
In this case, the tax payer will be required to disregard the reduced rates and withhold tax at the domestic rate, which is 19% in case of dividends and 20% in case of legal, accounting, advertising and consulting services. These rates shall be applied to the excess of over PLN 2 million. The foreign service provider will then need to apply for a tax refund (this proceeding may take up to 6 months but in justified cases it may be extended).

The Polish payer will still have the possibility to apply the reduced tax rate or tax exemption provided under the DTT under the following conditions:
  • a declaration on complying with the conditions to apply the reduced rate or tax exemption along with a statement confirming that this had been verified with due diligence is filed with the tax authority,
  • the payer obtained the tax authorities’ opinion on the right to apply the tax exemption (the cost of the opinion will be PLN 2,000 and it may take up to 6 months).
Still it will be necessary to confirm the tax residence of the receiving entity with a tax residence certificate.

Under the new regulations, the payer will be obliged to examine in more detail the status of the payment recipient as beneficial owner (a wider factual context will need to be taken into consideration).

Taking the above into account, it is highly probable that most of the taxpayers will decide to withhold the tax at the domestic rates rather the apply the reduced rates or tax exemption, and then the service provider will need to apply for a refund justifying his right to the reduced rate or exemption.

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Agata Nieżychowska
Agata Nieżychowska
Tax Director