The Polish withholding tax (WHT) regime has been substantially amended with the 2019 corporate income tax reform. Under the new rules, WHT is obligatory for certain cross-border payments. A summary of the significant changes can be found here.
In this regard, the Polish Minister of Finance has issued a decree that will have a significant effect on the application of the new WHT regulations. The key features of the decree are summarized below.
Exclusion of obligatory collection of WHT
The decree exempts from the obligatory collection of WHT payments made to entities such as international organizations and entities exempt from income tax referred to by name in double taxation treaties concluded by Poland and the Polish State Treasury (ie, for payments of interest or discounts on government bonds issued and offered on foreign markets). The decree also exempts payments for the use of (or the right to use) industrial (including transportation), commercial or scientific equipment.
Temporary exclusion of new WHT regime
In the case of other payments that are subject to WHT (eg, dividends, interest, royalties), the obligation to collect WHT at the statutory rates' has been deferred until the end of June 30, 2019 in order to allow taxpayers to properly prepare for the new WHT regime.
Requirement of due diligence and new definition of beneficial owner
Although the decree has postponed the obligation to collect WHT until June 30, 2019, the new regulations have come into force, and they require taxpayers to exercise due diligence with respect to whether the WHT exemption requirements have been met. When assessing whether taxpayers have met this obligation, the tax authorities will take into account the nature and scale of the taxpayer's business.
The decree has also introduced a new, more complex, definition of "beneficial owner", which is now considered to be any entity that meets the following conditions:
- it receives the payment for its own benefit (it may decide on how to use the money and bears the economic risks related to the potential loss thereof
- it is not an intermediary, representative, trustee or other entity legally or factually obliged to transfer all or part of the payment to another entity and
- it conducts business activity in the country of its registered seat − if the payment(s) are related to that activity.
The new decree offers a temporary reprieve for the WHT agents, as they will have until June to prepare for the obligatory WHT. Most importantly, this will allow non-residents (for whom the WHT obligation also applies) to prepare for the new WHT regime.
However, meeting the stringent beneficial ownership condition under the new decree could prove to be challenging. Although some elements of the beneficial ownership tests are consistent with international standards, the requirement that the foreign entity conduct business activity in the country of its registered seat could be challenging for many non-resident taxpayers. Whether this additional requirement is consistent with treaty obligations is a legal question that has not yet been resolved.