Withholding Tax (WHT)

What is withholding tax?

Withholding tax (WHT) is a lump sum income tax (PIT and CIT). Those obliged to collect withholding tax in Poland are the payers, i.e. Polish entities that make certain but very numerous types of payments to foreign recipients. Withholding tax is complex and it is the payer who is responsible for correctly calculating and remitting the tax to the tax office.

What types of payments are subject to withholding tax?

Withholding tax applies to payments made by Polish taxpayers to entities that are not Polish tax residents and includes, among others, the following revenues:

Interest;
Dividends and other revenues derived from interest in profit of legal persons
Receivables from copyright or related rights;
Receivables from rights to invention projects; trademarks and ornamental designs;
Receivables for the provision of formula or manufacturing process secrets;
Receivables from the use or right to use an industrial facility (including a means of transport, commercial or scientific equipment);
Receivables from the provision of information relating to experience acquired in an industrial, commercial or scientific field (so-called know-how);
Charges for services rendered in relation to performing, entertainment or sporting activities;
Receivables from intangible services such as, inter alia:
- consulting and legal services,
- accounting,
- market research,
- advertising,
- management and control,
- data processing,
- staff recruitment and acquisition of personnel,
- guarantees and warranties,
Receivables from charges for the export of cargo and passengers accepted for carriage in Polish ports only (with the exception of cargo and passengers in transit);
Revenue earned in the territory of the Republic of Poland by foreign air navigation companies (with certain exclusions).

WHT rates

Withholding tax rates in Poland depend on the type of income received and whether a double tax treaty is in force between Poland and the country in which the person or entity is established. If a double taxation treaty is in force, it is possible to reduce the tax rate or even exclude withholding tax altogether.

As a general rule, withholding tax is levied at a rate of 19% or 20%. In the case of certain revenue, such as that earned by foreign merchant shipping companies and foreign air navigation companies in the territory of Poland, a reduced rate of 10% is applied. By fulfilling certain obligations indicated in the CIT/PIT Act and/or double taxation treaties, it is possible:

application of an exemption from withholding tax or a preferential tax rate;
no collection of withholding tax;
application for refund of overpaid withholding tax (taxpayer – foreign company or payer – Polish company in certain cases).

The regulations impose an obligation on the payer to exercise due diligence when verifying the prerequisites for the application of an exemption, a preferential rate or the non-application of withholding tax.

In the case of passive disbursements subject to withholding tax (dividends, interest, royalties) in excess of PLN 2 million per year to one related entity, Polish entities (payers) are obliged to withhold tax at the basic rate regardless of whether the aforementioned conditions for the application of the exemption / preferential rate on the grounds of double tax treaties are met. The foreign taxpayer (or payer, if it has incurred the tax burden) will be able to apply for a refund of the tax in a separate procedure (the so-called ‘pay and refund’ pay and refund mechanism).

The obligation to apply the pay and refund mechanism is excluded in the case of:

having an opinion on the application of a withholding tax preference or
submission of a WH-OSC statement by the payer.

Withholding tax – payment deadline

Payers who make the aforementioned payments of receivables are obliged to withhold WHT on the date the payment is made. However, there are various exceptions to the general rule, for example in the event that the income is allocated to a share capital increase, the payers shall collect WHT within 14 days of the date on which the decision of the registry court on the registration of the share capital increase becomes final.

Subsequently, the remitters transfer the amounts of the collected tax to the account of the competent tax office (as a rule, it will be the tax office competent according to the seat of the taxpayer, however, there are also exceptions to this rule) by the 7th day of the month following the month in which the tax was collected.

The taxpayer is required to submit to the tax office a declaration on the amount of withholding tax withheld from corporate income tax (CIT) on income earned by non-residents by the end of the first month of the year following the tax year in which the obligation to pay the tax arose. Depending on the company’s decision, the tax year may or may not coincide with the calendar year, so the submitting deadline will not always be 31 January.

How can we help?

Analysis of transactions for the purposes of withholding tax obligations

Verification of your settlement as a withholding taxpayer / remitter

Analysis of the fulfilment of the conditions enabling the application of the withholding tax exemption / preferential withholding tax rate including, among others, analysis of source documentation

Audit of genuine business activity of taxpayers - analysis of source documentation and/or on-site visit

Support for documenting substance of entities based abroad (taxpayers)

Preparation of an internal procedure for withholding tax settlements and due diligence

Support for filing a claim for refund of overpaid withholding tax

Support for submitting application for WHT exemption binding rulings or WH-OSC statements

Assistance in dealing with authorities on withholding tax matters

Assistance in meeting compliance obligations, e.g. preparation of IFT, CIT-10Z forms

Organizing training for staff in finance, tax, legal and other departments (e.g. purchasing department)

Importantly, in the application for WHT exemption binding ruling, the remitter should prove that the transaction was market-based. The determinant of ‘marketability’ is the amount of the transaction – it must be at the relevant level, i.e. the level that unrelated parties would have agreed between themselves. If it turns out that the value of the transaction was above the market level, the WHT exemption is only available up to the market level. It is applicable to interest and royalties. And how do you check whether a transaction was market-based or not? – We would be happy to support you in this! We will verify the method for determining the market value of a transaction or develop it from scratch. Under this link you will find more information about our solutions – #CHECK

Benefits

Application of withholding tax exemption

Application of a preferential withholding tax rate or refraining from collecting WHT

Refund of overpaid withholding tax

Protection against penalties under the Criminal Code

Smooth and effective proceedings before tax authorities

Assistance in gathering required documentation, among others genuine business activity abroad

Well-balanced practice-based approach with respect to withholding tax requirements

Our experiences

Assistance in obtaining numerous WHT exemption binding rulings also in big cases for example regarding the payment of dividends amounted to approx. PLN 30 million

Complex analyses for large international groups, e.g. verification of over 1,000 payments for one group and assistance in completing the required documentation and tax forms