Starting from January 1, 2019, an obligation to collect withholding tax was introduced in Poland without the option of not collecting the above tax on the basis of the relevant agreement on the avoidance of double taxation, as well as without taking into account exemptions or rates resulting from special provisions or agreements on the avoidance of double taxation in the case of payments to one recipient exceeding the amount of PLN 2 million.

Stricter conditions of collection of the withholding tax

Withholding tax is imposed in Poland on payments to some non-residents due to, among others, dividends, interest, royalties, consultancy and accounting services, market research, legal services, advertising services, management and control, data processing, recruitment services, guarantees and sureties, and similar services. In case the total amount of receivables paid for the same taxpayer in a given tax year does not exceed PLN 2,000,000, the current withholding tax rules apply, i.e. those taking into account the use of reduced tax rates or exemptions resulting from the CIT Act or agreements on the avoidance of double taxation. Exceeding this threshold will, in principle, result in the taxpayer’s obligation to collect and pay tax at the rates specified in the national law, i.e. without taking into account the tax rates, exemptions or conditions for not collecting tax resulting from special provisions or agreements on the avoidance of double taxation.

Exceptions

In order to apply the reduced tax rate or exemption resulting from the statutory or international regulations, the remitter making payments exceeding the total amount of PLN 2,000,000 will have to submit to the tax authorities a declaration signed by the management board (not by an attorney-in-fact) in which he states that:

1. he is in possession of documents required by regulations confirming the legitimacy of applying a reduced tax rate or exemption or non-collection of tax, and
2. he conducted a verification of the contractor and there are no circumstances arising from it that preclude the application of a reduced tax rate or exemption or non-collection of a tax.

As regards tax exemptions under the Polish CIT Act regarding interest payments, royalties and dividends, it will be possible to obtain an opinion of the tax authority, against payment, issued at the request of the taxpayer or remitter regarding the application of the withholding tax exemption. Based on the opinion, the remitter is entitled not to collect tax on payments covered by the opinion within 36 months from obtaining the opinion, unless the opinion expires earlier, e.g. in connection with a significant change in the factual circumstances that may affect the fulfillment of the conditions for using the exemption.

Claming refund of the unduly collected tax

Any excess of the withholding tax collected over the amount due to the tax authorities can be refunded. For this purpose, one has to file an appropriate application.

An application for a withholding tax refund can be filed either by the taxpayer receiving the claim or the remitter, i.e. the entity paying the claim, but only if the remitter has borne the economic burden of the tax, i.e. he has paid the tax from his own funds.

Sanctions

If the statement made by the remitter, on the basis of which he did not collect the withholding tax is not true, or the remitter did not perform the required verification or the verification carried out by the remitter was not adequate to the nature and scale of his business, an additional tax liability of 10% of the taxable amount with respect to receivables in relation to which the remitter applied a lower tax rate or did not collect tax shall be imposed.

Postponement of the entry into force

The Minister of Finance, by way of an ordinance, excluded or limited the application of Art. 26 item 2e of the CIT Act. The period of suspension of application of Art. 26 item 2e of the CIT Act has been extended until June 30, 2020.

This means that when exceeding PLN 2 million of the total amount of receivables paid under the titles mentioned in Art. 21 item 1 and Art. 22 item 1 of the CIT Act, the obligation to collect withholding tax without the option of not collecting it on the basis of a relevant agreement on the avoidance of double taxation, and without taking into account the exemptions or tax rates resulting from special provisions or agreements on the avoidance of double taxation will not be used for the following payments:

1. receivables to taxpayers from countries with which Poland has concluded agreements on the avoidance of double taxation – provided that there is a legal basis for exchanging tax information with the country of the seat or management of these taxpayers (it concerns the payment of dividends, interest and royalties);
2. dividends and other revenues (income) from participation in profits of legal persons for the benefit of the domestic CIT taxpayers (having their seat or management in Poland).

​Therefore, until the end of June 2020, neither WH-OSC statement nor an application for an opinion regarding application an exemption is necessary. However, the introduced change does not release the remitters from the application of the requirements being in force from January 1, 2019 (Art. 26 item 1 of the CIT Act) regarding:

• exercising due diligence while verifying the conditions for applying a lower tax rate, exemption or conditions for non-collection of tax;
• determining of the beneficial owner.