There are changes to withholding tax in the Polish Order

– From 2019, the provisions on the method of collecting withholding tax on receivables paid to a foreign entity (non-resident) and – in the case of dividends and other income from participation in the profits of legal persons – to a Polish entity have been changed. The change concerned payments to the same taxpayer of receivables subject to WHT for an amount exceeding PLN 2 million (calculated on an annual basis), and consisted in replacing the relief applied by the remitter already at the time of payment by an obligation of tax withholding by the remitter combined with the possibility of its subsequent refund. The tax refund was to be made only after the right to apply the relief had been verified. At the same time, the regulations still provided for the possibility of the payer not to withhold the tax at source once the threshold of PLN 2 million was exceeded, if the payer submitted a special declaration or had an opinion on the possibility of direct application of the exemption. The entry into force of the above regulations has been postponed several times (the last time until the end of 2021) – recalls Michał Thedy, tax advisor, partner at Thedy & Partners.

What, then, will the Polish order change? First of all, the tax refund is to be applied only to payments of dividends, interest and royalties. It will not be applied to service payments. Moreover, the reimbursement mechanism will only apply to payments to related parties who do not have tax residency in Poland.

– Consequently, if the payer pays abroad remuneration for intangible services, e.g. consultancy services, he will be able to apply to such settlement the provisions of the relevant double tax treaty and not charge tax. A similar situation will occur in the case of dividend payments from a company to its Polish parent company – Michał Thedy points out.

Additionally, entrepreneurs will be able to request an opinion from the tax authorities as to whether they may directly apply an exemption or a reduced tax rate provided for in the double taxation convention upon the payment of an amount due. Currently, the possibility to obtain an opinion applies only to exemptions resulting from directives on dividends, interest and royalties.

– Statements confirming the fulfilment of conditions for the application of preferences are also to be simplified. The document will no longer have to be signed by the entire board. It will be enough that it is done by a person/people authorised to represent the company – add Michał Thedy.

The project of Polish Order, which includes these changes, is currently at the stage of public consultation.