6 July 2026

Withholding Tax (WHT), Part 3: Royalties and Interest

We invite you to read the next article in the series on WHT – this article provides information on the taxation of royalties and interest under withholding tax. Generally, royalties and interest under withholding tax are taxed in a similar manner.

Pursuant to Article 21, Section 1, Item 1 of the Corporate Income Tax Act, the following are subject to withholding tax:

• interest;
• copyrights, related rights, rights to inventions, trademarks, and ornamental designs, including the sale of such rights; and payments for disclosure of a secret recipe or production process; or for the use or right to use an industrial device (including a means of transport, commercial, or scientific equipment).

Regarding the payment of interest to a non-resident, this will apply to interest on loans and credits, interest on securities, and other interest due – unless the provisions of the relevant double taxation treaty exclude such interest.

In the case of royalties, pursuant to Article 21, Section 1, Item 1 of the Corporate Income Tax Act, broadly speaking, payments for the use, utilization, provision, or right to use copyright, industrial property, trademarks, and industrial equipment are subject to taxation. In the case of royalties, a specific type of license should be considered – the end-user license. It is not treated as a royalty under WHT and is not subject to taxation at all. This means that purchasing a license, for example, for Chat GPT, Adobe, or other subscriptions for personal use, will not be subject to WHT. On the other hand, if the license allows for modifications and subsequent resale, then, as a rule, the payment of such a fee will be treated as a royalty and subject to WHT.

If the payment to a non-resident concerns interest or royalties, the payer (i.e., a Polish company) is obligated to withhold 20% withholding tax and pay it on the 7th day of the month following the month in which the payment was made. Unlike intangible services described in the previous article, in the case of royalties and interest, there are more mechanisms, both in terms of exemption and tax collection.

Tax WHT, Domestic Exemption

For interest and royalties, Article 21, Section 3 of the Corporate Income Tax Act introduces an exemption from withholding tax provided certain conditions are met. It is important to note that this exemption results from the implementation of EU Council Directive 2003/49/EC of 2003. By implementing these provisions into the national legal system, a CIT exemption is possible provided that:

• the payer is a company resident in Poland or a permanent establishment of a foreign company located in Poland;
• the recipient is a company resident in an EU or EEA country and subject to income tax in that country on its entire income;
• there are capital ties between the companies (i.e., one company directly holds at least 20% of the shares in the other company), and the shares must be held continuously for a period of two years;
• the recipient of the receivables is a company or foreign establishment that is the beneficial owner of these receivables.

The domestic withholding tax exemption may be applied when the payment of royalties (including interest and dividends) does not exceed PLN 2 million in the tax year.

It should be noted that the exemption referred to in Article 21, Section 3 of the CIT Act applies to companies (legal forms) specified in Annex 5 to the CIT Act. Furthermore, pursuant to Article 26, Section 1 of the CIT Act, the payer is obligated to exercise due diligence both when applying the exemption and when applying a WHT rate other than the base rate.

Applying a Double Taxation Treaty

In addition to applying the withholding tax exemption for royalties and interest (which applies to related entities), it is also possible to apply the lower tax rate provided for in double taxation treaties (which is also available to unrelated entities). Typical double taxation treaties provide for reduced tax rates of 0%, 5%, 10%, or 15%. The application of the lower rate provided for interest or royalties is dictated by the following conditions:

• the payer of the royalties has a certificate of residence of the entity receiving the royalties;
• the payer of the royalties exercises due diligence in applying the rate specified in the double taxation treaty;
• the recipient of the royalties is the beneficial owner.

When using the provisions of double taxation treaties, the definition of royalties or interest should also be verified. It may turn out that a given payment under a double tax treaty is not treated as a royalty but as business profits. In such a situation, instead of applying the rate applicable to royalties, it will be possible to avoid collecting tax. For example, payments for the use of industrial equipment are treated as royalties under some double tax treaties (such as the Dutch or German double tax treaties). On the other hand, double tax treaties with France or the USA do not include them in the definition of royalties, so they are treated as business profits.

Tax WHT, Pay-and-refund mechanism

From 2022, a pay-and-refund mechanism was introduced for the payment of passive receivables (interest, royalties, dividends) to a related entity. The mechanism applies when the total of these receivables to the related entity exceeds PLN 2 million in the tax year. In such a situation, tax on the excess amount of PLN 2 million must be paid.

• For receivables up to PLN 2 million, you can benefit from an exemption or preferential rate (after meeting certain conditions).
• For receivables paid over PLN 2 million, tax must be withheld and paid to the tax office.

This is the “pay” stage. Then, during the “refund” stage, you can apply for a refund of the withheld and paid withholding tax. The procedure for applying for a tax refund under the pay-and-refund mechanism is specified in Article 28b of the Corporate Income Tax Act. It provides information such as the deadline for a tax refund, who can apply for a tax refund, and what information must be included in a tax refund application.

In addition, the Corporate Income Tax Act also provides instruments that allow for the “pay and refund” mechanism to be waived and for a given, possible preference to be applied at the time of payment:

• obtaining a “preference opinion” on the application of withholding tax preferences issued by the tax authority, or
• submitting a special declaration to the tax authority by the management board of the Polish company (remitter) using the WH-OSC form. If royalties or interest are paid to an unrelated entity, the pay-and-refund mechanism does not apply.