On 1 January 2019, there was a significant change in the withholding tax regulations. This change involved the implementation of a pay-and-refund mechanism, which consists in the compulsory withholding of WHT for payments above PLN 2 million (with no statement of Management Board members to be signed under the threat of the Penal Fiscal Code or an opinion on the right to apply the exemption). However, the application of this mechanism has been postponed until 31 December 2021.
Moreover, taxpayers are required to exercise due diligence when verifying the right to apply an exemption or a reduced rate of tax, and the definition of the so-called beneficial owner has been amended.
Withholding tax covers payments made to foreign entities for dividends, interest, licence fees or a range of intangible services (e.g. know-how, advisory services, advertising, accounting). According to the provisions of the CIT Act, the standard tax rate amounts to:
The payer may apply a reduced rate or a tax exemption if certain conditions specified in the regulations are met. At the same time, the introduction of the pay and refund mechanism means that tax should be paid in a situation in which payments made to the same foreign recipient in a given year exceed the amount of PLN 2 million.
It should be noted that, according to the regulations, there are two options of not charging tax at the rate resulting from Polish law, even if the limit of PLN 2 million is exceeded:
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