What is withholding tax and who is required to pay it?

Withholding tax (WHT) is a flat-rate income tax (on individuals and legal entities) levied when payments are made to non-residents (companies or individuals who are not based or domiciled in Poland). The obligation to pay the tax rests with the entity that pays the funds to the non-resident.

When should the tax be withheld? What withholding tax rates apply?

The tax withholding obligation arises, among other things, when payments are made to non-residents (contractors, partners, contractors) from the following:

1. Dividends and other income from participation in the profits of legal entities,
2. Interest,
3. Copyrights or related rights, from rights to invention designs, trademarks and ornamental designs, etc,
4. Fees for services rendered for performance, entertainment or sports activities,
5. Consulting, accounting, market research, legal services, advertising, management and control services, data processing, employee recruitment and staffing services, guarantees and warranties and benefits of a similar nature.

When making payments from the above-mentioned titles to non-residents, the Polish entity is required to withhold and pay withholding taxat the appropriate rate. Currently, they are 19%for dividends and 20%for other titles, but in practice the payment of tax depends on the provisions of double taxation treaties.

Certificate of residency and declaration of the beneficial owner

If a payment is made to a non-resident, it is necessary to verify whether a double taxation treaty has been concluded with the country of residence of the counterparty. Such an agreement may provide for exemption from withholding tax or the possibility of applying a reduced rate. However, a condition for the application of the exemption or reduced rate of tax is the possession of a current certificate of tax residency of the counterparty. This is a certificate, issued by the relevant tax authority, indicating the seat or residence of the payee (its tax residence). In addition, the Polish entity is required to verify that the payee is the beneficial owner of the receivable, with due diligence. In practice, a statement from the payee of the receivable and the relevant registration documents are most often obtained for this purpose..

Deadlines for payment of withholding tax and filing of returns

The deadlines for payment of withholding tax are relatively short – they are respectively the 7th and 20th day of the month following the payment to an individual or legal entity. The relevant declarations IFT-1R (in cases of recipients of payments – individuals) or IFT-R2 (with counterparties – legal entities) must be filed by the end of the second or third month, respectively, after the end of the tax year (if it is equal to the calendar year – by the end of February or March).