Substance related to assets and personnel as a key element of actual economic activity in light of the 2025 Withholding Tax Explanations

Asset and personnel substance is one of the most important elements in determining the status of the beneficial owner [hereinafter: ‘BO’] for the purposes of withholding tax [hereinafter: ‘WHT’]. The tax explanations published on 3 July 2025 by the Polish Ministry of Finance concerning the application of the so-called beneficial owner clause for withholding tax purposes [hereinafter: ‘Explanations’] clarify the criteria for verifying this status, which in practice may significantly affect the possibility of foreign entities receiving payments from Poland to benefit from preferential WHT rates or exemptions.

What is an asset and personnel substance?

The concept of an asset and personal substance includes both property elements (including assets, office, equipment) and personal elements (staff, management) that are necessary to conduct actual economic activity. An entity that does not have its own resources (property and personnel) enabling it to conduct actual economic activity (subject to the concept of a shared asset and personal substance within a group) cannot meet the condition of actual economic activity.

The requirements for the asset and personnel substance may vary depending on the nature of the business. For example, they will be different for manufacturing/trading companies than for holding companies or investment entities.

Assets elements of the substance

According to the Explanations, the existence of an asset substance requires, among other things:

• Having an actual office – not just a registered address or a so-called ‘virtual office’.
• Equipping the office with the equipment and infrastructure necessary to conduct day-to-day operations.
• Incurring operating costs – including, for example, rental costs, utilities or service costs.
• Holding and using an own bank account.

It is important to actually use these resources and incur the relevant costs – the formal right to use them is not sufficient.

Personnel elements of substance

Verification in this regard applies to both staff and management:

• Staff – there is no requirement to employ staff solely on the basis of an employment relationship. Other forms of cooperation (e.g. civil law contracts, management contracts, global mobility agreements) are also acceptable, provided that the persons concerned have the appropriate skills relevant to the type of activity carried out. Formal employment without real involvement in business processes will not be sufficient. What is crucial is not so much the form of employment as the actual costs incurred by the entity and the use of these human resources for its business activities.
• Management board – should have knowledge and experience in the industry and make real operational decisions. Their function cannot be purely service-related (so-called nominee directors).

The actual existence of the substance is evidenced by the incurring of personnel and management costs in a manner justified by the type and scale of the business.

Examples of circumstances that may indicate a lack of assets and personnel substance

The assessment of whether a foreign payment recipient has assets and personnel requires an analysis of the context of the specific payment. The mere fact that a company conducts extensive business activities does not determine that it will be considered the BO of each receivable received.

Similarly, even a company conducting limited business activity may be considered the BO if the scale of its business is proportional to the type of receivables received and enables it to independently perform economic functions related to those payments.

The explanations contain examples of circumstances in which the tax authorities may question the ownership of assets and legal personality by a foreign payment recipient, e.g.:

• Employing only (or almost only) administrative staff.
• The members of the management board of the audited entity are natural persons/other entities performing these functions exclusively on a service basis, also in parallel for other clients, with no professional experience in the industry.
• There is no assignment of responsibilities/competences to individual members of the management board.
• Operating costs are inadequate for the scale and type of business.
• Extensive use of trust services.
• Outsourcing of most basic aspects of operations.

In such cases, the BO status may be challenged and, as a result, the possibility of applying the exemption or reduced withholding tax rate may be denied.

Lower substance threshold requirements for holding companies

In the case of holding companies, the level of required assets and personnel may be lower than for entities conducting operational activities. This is due to the specific nature of holding activities, which often do not require significant material resources or numerous staff to achieve their economic objectives.

However, even in the case of holding companies, it is still necessary to meet the minimum criteria for having assets and personnel, including in particular:

• Having personnel with appropriate qualifications and competences.
• The ability to make independent economic decisions, including the ability to freely dispose of and bear the economic risk associated with the payments received.
• Incurring management costs – these costs should be adequate to the scale of the activity and include expenses related to office maintenance and staff remuneration.

If the level of costs related to office maintenance or staff remuneration is grossly low (e.g. salaries are significantly below market levels), this may indicate a lack of economic substance and a transfer of economic risk to other entities within the capital group. This situation may ultimately lead to the refusal to recognise a foreign holding company as the actual owner of receivables paid from Poland.

Summary

Substance related to assets and personnel is one of the basic elements of the BO for WHT purposes. The 2025 explanations indicate that the lack of adequate material or human resources on the part of the foreign recipient may result in the inability to apply the exemption or preferential WHT rates.

When making payments abroad, the tax remitters should therefore verify whether the foreign entity receiving the receivables from Poland is not only the BO but also has the sufficient economic substance in terms of assets and personnel.