On 1 January 2019, a significant amendment to the Polish Corporate Income Tax Act came into force introducing restrictions in the application of withholding tax exemptions and beneficial rates.
The new provisions move the burden of proof in relation to withholding tax to Polish tax residents who pay interest, dividends, royalties and fees for marketing or advisory services. Certificates of residence and statements of beneficial ownership are no longer sufficient to apply preferential withholding tax rates or to be fully exempt from paying withholding tax.
The scope of the additional burden of proof depends on the accumulated annual amount of interest, dividend, royalty or service fee payments to one recipient. If this amount exceeds PLN 2 million (approx. EUR 500,000), the payer is obliged to withhold 20% (for interest, royalties and service fees) or 19% (for dividends) with respect to payments exceeding PLN 2 million (approx. EUR 500,000) and has to transfer this money to the tax office. To be in line with double tax treaties, the EU Parent/Subsidiary Directive and the EU Interest/Royalties Directive, the Polish tax authorities shall refund any withholding tax within six months of an application.
There are, however, two ways to avoid paying these withholding tax rates and to benefit from existing relief at source rules:
- The first option is receipt of a binding tax opinion, which is reserved for interest, royalties and dividends under the EU Parent/Subsidiary Directive and the EU Interest/Royalties Directive. This opinion is to be issued by the tax authorities at the request of the payer or taxpayer (to be sent electronically) and is valid for a period of three years.
- The second option is to notify the tax authorities electronically using the WH-OSC form. Such statement must be sent before the income is paid to the foreign recipient. For regularly occurring payments such as interest, royalties and service fees, the statement is valid until the end of the second month from the date of its submission. In the statement, the payer has to confirm that the recipient of the income is the beneficial owner of the payment and that the other requirements for a withholding tax reduction or exemption are met. The statement must be signed by management board members.
Non-compliance with these new rules can trigger personal penalties for the members of the management board as well as an additional tax liability for the Polish tax residents who pay interest, dividends, royalties and fees for marketing or advisory services.
Due to the number of procedures to be completed under the new withholding tax regime by both the tax administration and taxpayers, the tax authorities moved the starting date of the new obligations and procedures to 1 July 2019. Nonetheless, the threshold of PLN 2 million (approx. EUR 500,000) needs to be calculated already from the beginning of this year.