Withholding tax (WHT) is a flat-rate income tax (PIT and CIT). The remitters, i.e. Polish entities that make payments to foreign recipients, are obliged to collect it in Poland.
With the fulfilment of certain obligations indicated in the CIT/PIT Act and/or double taxation treaties the following options are possible:
- the application of an exemption from withholding tax or a preferential tax rate;
- no collection of withholding tax;
- request for a refund of overpaid tax at source (taxpayer – foreign company or remitter – Polish company in certain cases).
The legislation imposes an obligation on the remitter to exercise due diligence when verifying the conditions for applying an exemption, preferential rate or refraining from collecting withholding tax.
In the case of certain passive payments subject to withholding tax (dividends, interest, royalties), exceeding PLN 2 million per annum to one related entity, Polish entities (remitters) are obliged to withhold tax at the basic rate regardless of whether the aforementioned conditions for the application of the exemption / preferential rate have been met. The foreign taxpayer (or remitter, if it has incurred the tax burden) will be then able to apply for a refund of the tax in separate proceedings. It is commonly referred to as “pay and refund” mechanism.
The obligation to apply the pay and refund mechanism is excluded if the taxpayer / remitter has WHT exemption binding ruling or submits a special statement (usually WH-OSC form).