Beneficial owner statement for the purposes of withholding tax in Poland
Many times, Polish taxpayers require their foreign contractors to sign a Beneficial owner statement for the purposes of withholding tax in Poland. From this article, you will learn what claims are covered by the statement, its genesis, and what purposes such a statement serves. Read on for more details.
What payments are subject to withholding tax?
Polish income tax provisions require Polish entrepreneurs to collect withholding tax on certain payments:
- interest,
- dividends,
- intellectual property rights,
- certain services.
We wrote more about the Polish withholding tax and its scope here.
Polish regulations explicitly state that the application of tax benefits resulting from international double tax treaties is possibly provided that the Polish payer obtained a tax residence certificate of the foreign recipient of the payment. If the payments concern a permanent establishment, Polish regulations require obtaining appropriate declarations and certificates in order to apply tax preferences.
Statement by the Actual Owner: An Undefined Practice That Has Become the Standard
Polish regulations do not directly regulate the institution of the “Beneficial owner statement for the purposes of withholding tax in Poland”, but such a statement has become a common practice in cross-border payments subject to withholding tax.
The origin of the statement is the amendment to the provisions on Polish withholding tax, in force since 2019, which introduced the requirement to exercise “due diligence” by the Polish taxpayers in order to apply reduced rates and exemptions from withholding tax.
“Due diligence” itself is also not defined directly in the tax law, which only states that when assessing its exercise, “the nature and scale of the activity conducted by the payer shall be taken into account.”
Hints as to the assessment of “due diligence” were included in the draft tax explanations regarding withholding tax collection issued by the Ministry of Finance. These explanations state that “due diligence” includes, among others, verification whether the recipient of receivables is their actual owner.
In practice, entrepreneurs do not have possibilities to examine the business structure of their contractors in terms of whether the recipient of the payment is certainly their beneficial owner.
Therefore, statements regarding the status of the beneficial owner have become an established practice aimed at demonstrating to Polish tax authorities that “due diligence” has been carried out in applying reduced rates and exemptions from Polish withholding tax.
Who is the Actual Owner? Key Criteria You Must Meet
These statements do not result from official templates, but in practice they are drafted by entrepreneurs for their needs and reflect the wording of Polish tax regulations regarding the definition of a “beneficial owner”.
According to this definition, the beneficial owner is an entity that meets all the following conditions:
- receives the receivable for its own benefit, decides on its purpose and bears the economic risk associated with the loss of this receivable or part of it,
- is not an intermediary, representative, trustee or other entity obliged to transfer all or part of the receivable to another entity,
- conducts real business activity in the country of its registered office, if the receivables are obtained in connection with the conducted business activity, and when assessing whether the entity conducts real business activity, the nature and scale of the activity conducted by this entity in the scope of the receivable received are taken into account.
Regarding the last condition, this definition remains vague. Therefore, statement templates often contain additional explanations regarding the above definition.
Why It’s Worth Taking Care of the Correct Statement? The Key to Taking Advantage of Tax Preferences
To conclude, since the statement described above is used to benefit from tax preferences, signing it is in the interest of both the payer and the recipient, provided that the content of the statement is truthful.
Due to the high level of complexity of Polish regulations on the collection of withholding tax, it is an increasingly common practice for Polish entrepreneurs to introduce internal procedures regarding withholding tax obligations, including procedures for entitlement to apply tax preferences.
If your company makes payments that may be subject to Polish withholding tax and you have doubts about the correct application of legal regulations in this area, including tax preferences, do not hesitate to contact us at [email protected].
DKP Legal
