23 January 2020

Withholding tax – new rules from June 30th

In October 2018, the Ministry of Finance amended the law regarding the withholding tax (WHT) in PIT and CIT. A year has passed and the new rules are still not in force due to inconsistencies in the amendment. We present a summary of the most important changes that will be introduced by the new law.

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 company assumes the responsibility of settling the tax with the Tax Office.

The current regulations on withholding tax in PIT and CIT allow the payer to apply the exemption or rate reduction at the time of the payment (if specific conditions are met: statutory or resulting from international agreements on double taxation avoidance). The amendment to the law will significantly tighten the rules for qualifying for exemption or rate reduction.

Withholding tax in CIT and PIT – new regulations

The amendment will limit the annual sum of payments for an outside contractor to 2 million PLN. If the limit doesn’t exceed during the tax year, the payer is freed from the obligation or qualifies for a rate reduction. All of this thanks to the statutory principle called “relief at source”.

If the payer exceeds the amount of 2 million PLN, it will require to collect the tax on the surplus over the said amount. Only then the payer can apply for an exemption, a preferential rate or tax return to the proper tax authority. The application should include a certificate of residence, taxpayer’s declaration and precise explanation.

There’s also another instance when the payer could not collect the tax by fulfilling the following conditions:

• The payer owns the contractor’s certificate of residence (a document issued by the tax authority confirming the address of the taxpayer’s residence or registered office), along with a statement that the payer does not know the circumstances that preclude the possibility of not collecting tax.
• The payer obtained a so-called protective opinion issued by the tax authority.

Both the payer and taxpayer can receive a protective opinion. In the context of withholding tax, such an opinion allows one to transfer the responsibility for a detailed verification of the contractor to the tax administration. The requirement for issuing the opinion is explained in the art 21 paragraph 1 of the PIT/CIT law.

WHT tax – whom it concerns

The obligation to collect withholding tax applies to legal entities, organizational units without legal personality and every natural person managing business activity. Each WHT payer should know about the avoidance of double taxation under international agreements and due diligence procedure (click here for more information about due diligence).

Summary

It is difficult to determine whether an actual date of implementation – June 30th, 2020 – is final. The Governmental Legislative Center has recently published a statement concerning the delay of WHT regulations in PIT and CIT. The postponement was previously referred to CIT only and later extended to PIT payers as well. Also, the Ministry ensured that the changes will come into force retroactively from January 1st, 2020.