27 January 2021

Withholding tax – new regulations postponed to July 1st, 2021

The government has once again postponed the entry into force of the withholding tax regulations. Specifically, the “WHT refund” procedure, which defines the rules for a tax refund after it has been collected at the basic rate. The previous deadline – January 1st, 2021 – has been postponed to July 1st, 2021.

As a reminder: withholding tax (WHT) covers amounts paid to outside contractors in the form of dividends, interest, royalties, or fees for intangible services. The outside contractor (recipient of payments) is considered a taxpayer, while the company transferring the payment is an actual payer of the tax (as it operates within the Republic of Poland).

The withholding tax applies to legal entities, organizational units without legal personality, and every natural person managing business activity.

Withholding tax – postponed regulations

The first stage of law implementation has been completed on January 1st, 2019. The changes that entered into force at that time concerned, among others:

• due diligence regulations,
• definition of the actual recipient of the receivables (this affects, among others, the possibility of applying a lower tax rate),
• a new tax collection model,
• a tax refund procedure.

However, not all the provisions covered by the amendment became effective on January 1st, 2019. The Regulation of the Minister of Finance (Journal of Laws of 2018, item 2545), published on December 31st, 2018, introduced the exclusion or limitation of the application of Art. 26 sec. 2e of the Corporate Income Tax Act. This applies to the new withholding tax collection model for certain payments above 2 million PLN.

The entry into force of the regulations has already been postponed five times in total. Therefore, it should be remembered that the latest date, July 1st, 2021, may also prove to be postponed.

Summary of changes

Provided that the current deadline holds: from July 1st, 2021, the rules for calculating withholding tax for payments that exceed PLN 2 million per year to a given contractor will change significantly. Taxpayers will have two ways to meet their tax obligations:

1. Payers will be required to collect withholding tax at the statutory rate (20% or 19%). Then, payers will be able to apply to the office for a tax refund through a specified procedure.
2. Payers will be able to apply a lower withholding tax rate, exemption, or exclusion from the obligation to collect tax. Provided that the subject submits a declaration, or if the opinion of the Polish tax authority on the application of the withholding tax exemption is issued.

It is worth mentioning that the provisions on payments exceeding 2 million PLN per year do not apply to certain categories of payments, provided that Poland has a binding agreement on the avoidance of double taxation with the contractor’s country of residence. This applies to payments:

• for international organizations,
• for the rights to use the means of transport,
• for industrial or commercial device.

The Ministry of Finance is still working on a comprehensive amendment to the withholding tax regulations. We can expect the regulations to take their final shape in the second half of 2021.

WHT cenralization

Starting from January 1st, 2021, WHT-related official services have been centralized – Lublin Tax Office in Lublin (LUS) has become a nationwide specialized office responsible for withholding tax. Taxpayers and payers will be able to submit to LUS, inter alia, applications for an opinion on the exemption and/or overpayment in WHT. According to the Ministry of Finance, the concentration of tax services in one office will ensure efficient and uniform tax processing.