Tax Law in Poland / Polish Tax Guide

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Michał Dudkowiak
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Tax Law / Poland – Quick Facts

Below table provides quick overview of tax environment in Poland and basics of Polish Tax System.

Corporate Income Tax (CIT)
  • 19 %
  • 9 % for small taxpayers (up to 2 mln EUR revenues)
  • 0 % – for profit retention (Estonian CIT) – subject to conditions
Value Added Tax (VAT)
  • 23 % default rate
Capital Gains Tax (CGT) 
  • Capital gains tax in Poland is part of Corporate tax
  • Rate: 19 %
Withholding Tax (WHT)
  • 19 % default rate for dividends
  • 20 % default rate for interest income, royalties and intangible services
  • Reduced rates may be provided by relevant double taxation treaty concluded by Poland
Personal Income Tax (PIT)
  • 12 % for the taxable income up to 120.000 PLN
  • 32 % for the taxable income above to 120.000 PLN
  • additional 4% solidarity tribute for residents with taxable income exceeding PLN 1 mln
Transaction Tax (PCC)
  • 0,5 % – of the loan amount
  • 1 % – of the share transfer
  • 2 % – real estate sale or movables sale
Dividend Tax
  • 19 % default rate
  • Dividends paid to companies EU/EEA/Switzerland may be exempt under certain conditions
  • Dividends to certain countries may be discounted or exempted under relevant double tax treaties
Government tax websites
  • https://www.gov.pl/web/finanse
  • https://www.podatki.gov.pl/

Investment related taxes

Company establishment tax

Establishment of subsidiary in Poland is subject to 0,5% Polish Transfer Tax on the value allocated to the share capital, payable within 14 days by the subsidiary (if the subsidiaries articles of association is to be signed before a notary, Transfer Tax will be remitted by a notary from the Company at the moment when a notarial deed is signed). Simultaneously, no Transfer Tax is due on the value allocated to the share premium. Please note that there are no formal requirements as to the split between the share capital and share premium, however it is advisable to justify the split from a business/legal perspective.

Cash contributions made to the Polish Company by the shareholder are not subject to Corporate Income Tax (Corporate Tax) for the Polish Company and for the shareholder.

Establishment of a Polish Company is not subject to Value Added Tax (Value Added Tax).

Company acquisition tax

Acquisition of shares in the Polish Company is subject to 1% Transfer Tax in Poland levied on the market value of acquired shares. Transfer Tax is payable within 14 days by the purchaser (if the sale agreement is to be signed before a notary, Transfer Tax will be remitted by a notary at the moment when a notarial deed is to be signed). Transfer of shares shall not be subject to Value added tax.

 

Tax registration obligations – post transaction on Polish market

When acquiring the Polish Company, the shareholder has to be registered as the Polish taxpayer to fulfill its obligations connected with the Transfer Tax payment. The registration can be done after acquisition of the Polish Company (however, the application tax form should be submitted to tax authorities on the day of submitting the Transfer Tax declaration at the latest – i.e. up to 14 days after the Polish Company acquisition date).

Company acquisition tax in Poland

Supplementary tax information

The Polish Company will automatically be registered as the Polish taxpayers in connection with the registration in the Polish companies’ register (KRS). The Polish Company will have to report supplementary information to the tax office within 21 days from their registration in the companies register. Such additional information includes e.g. bank account number or place where accounting books are kept. The supplementary information should be submitted on the “NIP-8” official tax form.

VAT registration in Poland

The Polish Company should be registered as the Value Added Tax VAT taxpayers. The application, prepared on the “VAT-R” official tax form, should be submitted to the relevant tax office (according to the location of the Polish Companies’ registered offices) no later than on the day preceding the day of commencement of the sale of goods or provision of services subject to Value Added Tax.

Special tax office for foreigners

Please note that the Polish Company with foreign capital participation – will be transferred to the specialized tax office (relevant for such entities) in the beginning of the year following their acquisition / establishment. Relevant information will need to be submitted to the current tax office in this respect.

Taxation of capital injections

Financing of the Polish Companies might be made in a form of:

  1. equity in form of cash contributions,
  2. shareholders loans,
  3. additional payments.

Equity contributions taxation

The equity contributions made by the shareholder shall be taxed with 0,5% Polish Transfer Tax on the nominal value of the Polish Company’s share capital. Amounts allocated to share premium are not subject to Transfer Tax. The Polish Company’s will be taxpayers in this respect (as a rule Transfer Tax will be remitted by a notary from the Polish Company’s at the moment when a notarial deed is to be signed, however there is an option to increase share capital without involvement of notary public – in such event, the Transfer Tax shall be calculated and remitted by Polish Company directly).

Cash contributions shall be Corporate Income Tax (CIT) and Value Added Tax (VAT) neutral for the Polish Company and the Parent.

Additional payments taxation

Granting additional payments (Polish: ‘dopłata’) should not constitute a taxable event for Polish Company if such payments are granted according to the rules indicated in the Polish Commercial Companies Code (as indicated above, such rules might be however changed in the articles of association). Reimbursing the additional payments to shareholders should be Corporate Income Tax neutral.

Additional payments are subject to 0.5% Transfer Tax payable by Polish Company (i.e. by the companies receiving such additional payments) calculated on the amount of such payments.

Loans taxation / debt financing

Debt financing / granting of new loans is subject to 0.5% Transfer Tax in Poland. However, granting loan by direct shareholders is exempt from Transfer Tax in Poland.

Loan interest taxation

Interest income paid to the shareholder are tax deductible expenses subject to certain limitations.

Withholding tax on loan interest

Interest on loans granted by shareholders to Polish Companies can be withholding tax exempt in Poland if the shareholder is a commercial company with its seat in the European Union or Switzerland. The recipient of the interest income  has to be the beneficial owner of the payments and has to own at least 25% of Polish Company shares for at least 2 years (time condition can be satisfied after interest is paid) and other administrative conditions are met). Otherwise there is withholding tax on interest – at the level of 20% or according to the rate resulting from the given tax treaty (bilateral tax treaties).

Loan, interest taxation and withholding in Poland

Summarizing there are three options regarding withholding tax of interest income:

  • 20% withholding tax – default rat; or
  • EU WHT exemption under above mentioned condition, or
  • % determined by a special double taxation treaty that Poland concluded with relevant country.

Interest rate should be established according to the arm’s-length principle. Transfer pricing provisions apply accordingly.

FAQ

Does company incorporation involve taxes in Poland?

Yes – company incorporation most usually involves obligation to pay Transaction Tax of 0,5 % of share capital of the new Polish company.

Are equity contributions taxed in Poland?

Yes – equity contributions made by the shareholder shall be taxed with 0,5% Polish Transfer Tax on the nominal value of the Polish Company’s share capital

Is debt financing subject to taxes in Poland?

Debt financing is generally  subject to 0.5% Transfer Tax. However, granting loan by direct shareholders is exempt from Transfer Tax in Poland. There are also other exemptions that always shall be examined prior to tax payment.

Value Added Tax (VAT)

Polish VAT applies to the following activities:

  • Payable supplies of goods and services within the territory of Poland
  • Exports of goods outside the territory of the European Union
  • Imports of goods from countries that do not belong to the European Union
  • Intra-Community acquisitions of goods (imports from countries belonging to the European Union)
  • Intra-Community supplies of goods (exports to the countries belonging to the European Union).

Polish Value Added Tax taxpayers are generally required to:

  • issue sales invoices;
  • file monthly VAT returns and VAT standard audit file (SAF);
  • make the appropriate reconciliations with respect to input and output Value Added Tax.

VAT tax rates

Polish Tax Laws regarding VAT define the following rates:

  • 23% VAT – this is the basic VAT rate
  • 8% VAT – it is applied to:
    • goods and services listed in Annex 3 to the VAT Act, the modification of which was introduced last year;
    • construction, delivery, renovation, modernization and thermal modernization, as well as reconstruction of buildings or parts thereof, if they are classified as construction covered by the social housing programme.
  • 5% VAT – we apply it to:
    • goods listed in Annex 10, which include basic food products, i.e. bread, cereal products, meat products, dairy products and juices;
    • local or regional magazines and books.
  • 0% VAT – applies to intra-Community delivery and export of goods.

VAT deduction

Deduction of input Value Added Tax in Poland is possible subject to registration as Value Added Tax taxpayers.

VAT Split Payment Mechanism (SPM)

Recently the split payment mechanism has been introduced to the Polish tax law. This mechanism is generally voluntary, except for a few exemptions.

Broadly, under the mechanism, any input Value Added Tax due shall be allocated to a specific bank account, separate to that used for the payment. In practice payers are not obliged to split the payment themselves into two accounts as the bank systems do it automatically.

Obligatory split payment

The obligation to use the split payment mechanism applies to VAT taxpayers who:

  • sell or purchase “sensitive” goods or services, i.e. goods or services listed in Annex 15 to the Act on Value Added Tax; and at the same time
  • the total amount receivable from the invoice, i.e. the gross value of the entire invoice, exceeds PLN 15,000.

“Sensitive” goods or services covered by the mandatory split payment include, among others, the supply of plastic plates, sheets, foils and strips, all kinds of steel, silver, gold, aluminum, copper, electronic integrated circuits, computers, hard drives, telephones, TV sets cameras and digital cameras, parts for internal combustion engines, various types of waste and secondary raw materials, fuels, as well as construction services and retail sale of car parts.

You must use mandatory split payment if at least one item on the invoice, the total gross value of which exceeds PLN 15,000 PLN, applies to sensitive goods or services.

In this case, the mandatory split payment applies only to the amount due for the purchase of sensitive goods or services. You can pay the rest of the amount due using SPP or without splitting the payment.

As an exception to the above rule, split payment is not applied:

  • in transactions carried out under a public-private partnership agreement, if the seller on the day of delivery was a private (not public) entity
  • in the event of a deduction referred to in Art. 498 of the Civil Code,
  • to the extent that amounts receivable are deducted.

FAQ

What are the VAT rates in Poland?

Standard VAT rate is of 23 %. Preferential rates of 8%, 5% and 0% are applicable to selected goods and services.

How to register as VAT taxpayer in Poland?

Registration as VAT taxpayer in Poland requires to meet certain conditions and submit VAT-R tax form to relevant tax authority (taxation authority).

Corporate Income Tax (CIT)

Rates of Corporate Income Tax in Poland

Tax laws of Poland define the following CIT tax rates:

  • Standard rate: 19%
  • Small taxpayers rate: 9%
  • Estonian CIT Tax rate: 0% (for the period of profit retention)

19% CIT

As rule – Polish tax residents taxable income is subject to default 19% CIT Tax.

9% CIT

9% CIT rate has been introduced for the revenues (incomes) other than from capital gains – in the case of the taxpayers as regards which the revenues earned in a tax year did not exceed an amount denominated in PLN being the equivalent of EUR 2 million converted at the average EUR exchange rate announced by the National Bank of Poland as at the first business day of the tax year, rounded off to PLN 1,000.

It should be noted that the taxpayers mentioned above shall apply the 9% tax rate if they have the status of a small taxpayer.

However, the condition of having a small taxpayer status shall not apply to the taxpayers commencing the business activity, in the year of the commencement of such activity. This means that the Polish Company can use 9% Corporate Income Tax rate until exceeding the 2 million EUR revenue threshold in the first tax year (and in the following tax years, when the revenues from the tax years preceding will not exceed EUR 2 million in a given tax rear).

Profit from the rental income will be calculated as a difference between rental revenue and tax deductible costs (e.g. costs of services, buildings maintenance, administration costs, repairs, depreciation write-offs, RET, unrecoverable Value Added Tax). If the difference between an income and tax deductible costs is negative, the Polish Company will declare a tax loss.

0% CIT – Estonian CIT

“Estonian CIT” is more about moment of tax payment rather than effective tax rate.

Advance tax payments are not paid every month and CIT tax is paid only when the income from the company (dividend) is paid out. As a result during the profit retention period the payable tax is 0%. This gives the opportunity to freely determine the moment when CIT taxation will take place and allows to allocate money for purposes related to the current operations of the company.

Estonian CIT effective tax rates

At the time of taxation (distribution of profit), the effective CIT tax rate (comprising tax on the company’s profit and tax on dividends paid by the shareholder) will be lower than in the case of classic CIT:

  • For small taxpayers it will be only 20% instead of 26.29%, and
  • For other taxpayers – only 25% in total instead of 34.39%.

Conditions of Estonian CIT

Estonian CIT rules may be applied by joint stock company, limited liability company, limited partnership, limited joint stock partnership and simple joint-stock company if all below conditions are met:

  • revenues from receivables, interest, loans, lease payments, sureties, guarantees, copyrights, industrial property rights, sale of financial instruments and transactions with related entities do not exceed 50% of the company’s total revenues
  • employ on the basis of:
    • employment contracts of at least 3 persons for a period of at least 300 days in a tax year (if the tax year is not a period of consecutive 12 calendar months – for at least 82% of the days falling in the tax year) or
    • contract other than an employment contract, where the expenditure on remuneration for contracts other than an employment contract is at least 3 times the average monthly remuneration in the enterprise sector, if in connection with the payment of these remunerations the taxpayer is obliged to collect advances for personal income tax and social security contributions
  • only natural persons are shareholders, stockholders or associates of these companies
  • they do not hold shares (shares) in the capital of another company, participation titles in an investment fund or a collective investment institution, or rights and obligations in a company that is not a legal person
  • for the lump-sum taxation period do not prepare financial statements in accordance with the International Accounting Standards
  • submit a notification on the choice of lump sum taxation to the competent head of the tax office by the end of the first month of the first tax year in which they are to be taxed with a lump sum.

If you choose Estonian taxation rules, you will apply them for 4 consecutive tax years. If you do not resign from lump sum taxation within this period, the period of taxation under these rules will be automatically extended for the next 4 tax years.

Information about resignation from the lump sum can be submitted in the annual tax return submitted by the end of the third month following the tax year.

Tax losses

Ordinary tax losses in Poland may be carried forward and set off against income over a period of 5 years but may be forfeited where a company’s legal form is changed or in the case of a merger, division or takeover (with certain exceptions).

The full loss generated in a particular year may be carried forward. However, in each year a loss relief claim is limited to 50% of each carried forward loss generated in the prior 5 years. The carry back of ordinary losses is not permitted.

Losses may only be used to offset incomes relating to the source of such losses (i.e. capital losses may only be used to offset capital gains and operating losses may only be used to offset operating profits).

Nonetheless, regulations contained in the Polish CIT Tax Act may allow a company to offset incomes of up to PLN 5m with its brought forward losses, even where this exceeds 50% of the company’s carried forward losses.

Initial value and depreciation

Depreciation is an allowable deduction from total taxable revenue if the depreciation relates to certain kind of assets and intangible assets.

Depreciation write-offs are treated as tax-deductible costs. Generally, depreciation allowances are calculated based on the straight-line method and the maximum annual rates provided in the CIT Act. In such case, a taxpayer deducts equal annual write-offs, calculated by multiplying the maximum rate of depreciation by the assets initial value until the total value of write-offs equals the initial value (in case of acquisition, the initial value equals – in general – the purchase price). In case of commercial buildings, the Polish Company should apply depreciation rate at 2.5%, which means that the building may be fully depreciated after 40 years of making write-offs).

Plots of land are not subject to tax depreciation. However, the expenses connected with acquisition of such land constitute tax deductible expenses at the moment of the sale of the land.

In the case of plots of land with constructions, the depreciation rate should be determined separately for each construction. Therefore it is advisable to set up the acquisition price in the way that could enable to determine the initial value for each plot / building / construction separately.

Please note however that the CIT Act includes provisions for accelerated depreciation for used commercial buildings. At the same time, the CIT Act does not provide for a definition of ‘used commercial building’. Based on the Corporate Income Tax ACT, the 40 years period is decreased by the number of the full years passed after first commencement of use of a building.

Capital Gains Tax

There is no separate capital gains tax in Poland. Capital gains are taxed with corporate income tax at rate of 19%. Nonetheless profits derived from capital gains and ongoing operating incomes are subject to Corporate Income Tax in Poland separately.

Revenue types constituting income from capital gains include, for example (capital gains derived from):

  • revenues from participation in the profits of legal entities (such as dividend income, redemptions of shares, liquidation proceed etc);
  • revenues received from contributions in kind;
  • revenues received from the sale of shares, including voluntary redemptions;
  • revenues received from the sale of all rights and obligations in partnerships, and
  • revenues received from certain property rights (copyright, license, know-how).

Costs incurred should be appropriately allocated to the relevant source of revenue and lower the income in a given tax year of the Polish Companys.

Minimum CIT on commercial properties

From 1st January 2018 the Corporate Income Tax Act provides minimum CIT (minimum income tax) on commercial real estate properties.

According to regulations which are in force from 1st January 2019, all real estate are subject to taxation, provided that such real estate:

  • is owned (jointly owned) by a taxpayer;
  • is used based on rental / lease / etc. agreement;
  • is located in Poland.

The tax is paid on a monthly basis.

Minimum  income tax rate is: the monthly rate is 0.035% and tax base is determined as a sum of initial value (for tax purpose) of all buildings owned by the taxpayer decreased by PLN 10 million.

Minimum Income Tax may be deducted from tax advance payments on CIT Tax and annual tax liability in the year for which Minimum Tax was due. If the company has tax loss, the Minimum Income Tax has to be paid.

FAQ

What is default rate of corporate income tax in Poland?

CIT is 19% in Poland, unless your company is a small taxpayer with revenues up to 2 mln – in such case 9 % CIT may apply.

What is the dividend tax in Poland?

Dividend tax in Poland is 19% unless EU/EEA exemption applies or relevant tax bilateral tax treaty provides reduced rate.

What is the capital gains tax in Poland?

Capital gains tax in Poland is 19% unless EU/EEA exemption applies or relevant tax bilateral tax treaty provides reduced rate.

Can tax losses in Poland be carried forward and set off in further years?

As a rule tax losses in companies in Poland may be carried forward and set off against income over a period of 5 years.

Real Estate Tax (RET)

Real Estate Tax shall apply to land and buildings (separately) possessed by Polish Companies.

Real Estate Tax base for land will be their area, for buildings – the usable area. The rates of real estate tax are determined by the council of each municipality. The maximum allowable rates are specified in the Real Estate Tax Act and – in respect of land/buildings associated with conducting business activity – are following please note that the rates are usually increased every year):

  • land – 0.91 PLN/m2;
  • building – 23.10 PLN/m2;
  • structures – generally, 2% of their gross (initial) tax value (not decreased by depreciation write-offs) shown in fixed assets register as at 1st January of a given year.

Withholding Tax (WHT)

Withholding tax regime in Poland provides that non-residents who obtain revenues from Polish sources, in particular in the form of dividends, interest and royalties paid by Polish tax resident/s, receive their payments decreased by withholding (WHT) collected by the Polish tax remitters.

As a rule – default 19% WHT shall be applicable – unless:

  • EU/EEA exemption applies; or
  • there is rate reducing double tax treaty in place. 

Please note however those above exemptions apply only to the payments made to the companies.

WHT default rates

Dividend
  • 19 % unless reduced rate or exemption applies
Interests income
  • 20 % unless reduced rate or exemption applies
Royalties
  • 20 % unless reduced rate or exemption applies
Intangible services
  • 20 % unless reduced rate or exemption applies

WHT reduced rates

WHT rate may be reduced based on the double taxation treaty concluded by Poland, provided that tax remitter has i.a. a tax residence certificate of taxpayer.

On the basis of the Polish CIT Act and relevant bilateral tax treaty, under certain conditions (i.a. certain shareholding level, shareholding period or beneficial ownership of the payments – more information below), WHT exemptions for interest and dividend payments may apply (and as a consequence the Polish tax remitter is not obliged to collect WHT in Poland).

Double Taxation Treaties – Poland

Poland have concluded the following bilateral double taxation avoidance treaties that may provided reduced withholding tax rates for selected types of revenues (interest, royalties, dividends, etc.):

  • Armenia
  • Australia
  • Austria
  • Azerbaijan
  • Bangladesh
  • Belarus
  • Belgium
  • Bosnia and Herzegovina
  • Brazil
  • Bulgaria
  • Canada
  • Chile
  • China
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Egypt
  • Estonia
  • Ethiopia
  • Finland
  • France
  • Georgia
  • Germany
  • Great Britain
  • Greece
  • Guernsey
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iran
  • Ireland
  • Isle of Man
  • Israel
  • Italy
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kuwait
  • Kyrgyzstan
  • Latvia
  • Lebanon
  • Lithuania
  • Luxembourg
  • Malaysia
  • Malta
  • Moldova
  • Mongolia
  • Montenegro
  • Morocco
  • Mexico
  • Netherlands
  • New Zealand
  • Nigeria
  • North Macedonia
  • Norway
  • Pakistan
  • Philippines
  • Portugal
  • Qatar
  • Romania
  • Russia
  • Saudi Arabia
  • Serbia
  • Singapore
  • Slovakia
  • Slovenia
  • South Africa
  • South Korea
  • Spain
  • Sri Lanka
  • Sweden
  • Switzerland
  • Syria
  • Taiwan
  • Tajikistan
  • Thailand
  • Tunisia
  • Turkey
  • Ukraine
  • United Arab Emirates
  • United States
  • Uruguay
  • Uzbekistan
  • Vietnam
  • Zambia
  • Zimbabwe

EU/EEA WHT exemption

WHT exemption on payments made from Polish subsidiaries (e.g. Polish Companys) to companies located in EU/EEA member state (and Switzerland) shall apply, if all of the following conditions are met:

  • paying company is a Polish corporate income taxpayer with a place of management or registered office in Poland;
  • recipient is subject to income tax in EU/EEA member state (other than Poland) or Switzerland on its total income, regardless of the source of the income;
  • recipient does not benefit from income tax exemption on its total income (which should be documented with written statement);
  • for at least two years (uninterrupted period), recipient holds directly at least 25% of the capital of the company paying interest. Holding period can be met after payment is made;
  • paying company possesses valid certificate of the tax residency of the recipient;
  • a legal basis exists for a tax authority to request information from the tax administration of the country where the taxpayer is established, under a double tax treaty or other ratified international treaty to which Poland is a party;
  • paying company is provided with a written statement confirming that the recipient does not benefit from exemption from income tax on its worldwide income, regardless of the source from which such income is derived and that it is the “beneficial owner” of the interest payments;
  • recipient is beneficial owner of the interest and runs actual business activity (as defined below in point 4.4.3.) in its country.

Withholding tax in Poland

Dividend Tax

Before the dividend distribution, it shall be verified whether distribution of cash as dividend is possible (whether there is accounting profit) and the amount of such distribution shall be determined. If there is no financial profit, the Polish Company may distribute proceeds based on the redemption of shares.

Default Dividend Tax Rate

In case EU/EEA exemption does not apply (see above) or there is not reducing double tax treaty in place (see above) – the default 19% WHT shall be applicable.

Tax on interest payments

In case EU/EEA exemption does not apply (see above) or there is not reducing double tax treaty in place (see above) – the default 20% WHT shall be applicable.

WHT – pay and refund mechanism

Please note that from 1st January 2022 some significant changes regarding the WHT payments were introduced.  The changes concern interest, dividends, royalties and other receivables (for example remuneration for advisory/management/guarantee paid to non-Polish residents) subject to WHT in Poland.

In general, the purpose of the changes was to verify more precisely conditions and requirements for application of preferential taxation based on DTT or exemption resulting from Polish regulations implementing the EU Parent-Subsidiary Directive and Interest-Royalties Directive.

The main provisions are as follows:

  1. taxation rules of payments below PLN 2 million generally shall not change (except for directly stated due diligence condition to be exercised by the tax remitter and new definition of beneficial owner);
  2. in the case of payments above PLN 2 million preferential taxation (e.g. discounted rate from DTT) may be applied if:
    • the tax remitter submits statement confirming application of lower WHT rates or exemptions; or

    • the opinion of tax authorities on WHT exemption was issued.

  3. in the case of lack of required documents as of the day of payment the WHT shall be paid and request for the tax refund after receiving required documentation may be submitted.

Payments up to PLN 2 million annually

If qualified payments to a given taxpayer do not exceed PLN 2 million during a tax year of the Polish tax remitter, generally the standard rules are still in force, except for:

  1. extension of conditions for the beneficial owner;
  2. due diligence requirement for a tax remitter in order to apply preferential WHT rate or exemption this condition suggest that the Polish tax remitter should introduce a due diligence procedure to be able to prove that the required verification was made;
  3. tax remitter shall possess valid tax residency certificate of the recipient.

Payments above PLN 2 million annually – general rule

Generally, the tax remitter will be required to calculate, collect and pay WHT applying standard (statutory) rates specified in the CIT Act (most usually 20 %). WHT is to be collected based on this rule from the excess of payments over PLN 2 million.

If it is not possible to determine the amount of payments made, the provisions introduce a presumption that the threshold of PLN 2 million is exceeded. The taxpayer or (in some cases) the Polish tax remitter will be entitled to ask for WHT refund.

There are two possibilities to be exempted from an obligation to collect WHT with application of the standard (statutory) rate:

  1. submitting the relevant statement by the tax remitter;
  2. applying for WHT opinion.

Beneficial ownership for withholding tax in Poland

It should be noted that in order to apply WHT exemption or the lower WHT rate from the interest paid out (or capitalized) to the lender, the foreign entity shall be beneficial owner of the received payment (in particular interest) and should conduct an economic activity. Beneficial ownership is a term closely related to business substance and this requirement is also important regarding the dividend payments.

According to a new definition contained in the CIT Act, the beneficial owner is an entity that meets jointly all of the following conditions:

  • it receives a payment for its own benefit, takes individual decisions on its use and bears economic risk associated with the loss of this amount or its part;
  • it is not an intermediary, representative, trustee or other entity legally or factually obliged to transfer all or part of the receivables to another entity;
  • conducts real economic activity in the country of its seat, if the receivables are obtained in connection with the conducted business activity, and when assessing whether the entity conducts real economic activity, the nature and scale of the activity conducted by this entity in the scope of received receivables are taken into account.

The assessment whether an entity is an intermediary, representative, trustee or another entity that is legally or actually obliged to transfer its receivables in whole or in part to another entity should take into account the actual course and circumstances of the conclusion and execution of the transaction. This means that it should be examined who is actually entitled to obtain the receivables and whether the recipient thereof is not obliged to transfer said receivables to another entity. If this is the case, i.e. the beneficial owner of the receivables is such other entity (which needs to be demonstrated or examined), then the WHT will be subject to the DTT applicable to the country of residence of such entity (the look-through approach). For example, acting as an intermediary in the case of interest may be directly linked by the tax authorities with the fact that the financing company was also financed by a loan from the related entity (back-to-back loans). However, it is not clear how to analyze particular conditions regarding WHT taxation towards person who is indirect beneficial owner (for example the requirement of 2-year holding period).

In assessing whether an entity pursues actual economic activity, the following circumstances are taken into account (in particular):

  • registration of an entity involves existence of an enterprise as part of which the company actually carries out business activities, including in particular whether this company has its premises, qualified personnel and equipment used in pursued economic activities;
  • the entity does not create a structure functioning in isolation from economic reasons;
  • there is adequacy between the scope of activity carried out by an entity and the premises, personnel or equipment actually possessed by it;
  • the arrangements concluded reflect the economic reality, have economic justification and are not manifestly contrary with the general economic interests of that company;
  • the entity independently performs its basic economic functions using its own resources, including the executives present on site.

In order to exercise due diligence, including verification whether if the recipient of the receivables (company) conducts genuine economic activity, the tax remitter can in particular enquire the taxpayer as follows and analyse the answers obtained:

  • what kind of personnel, equipment and premises does the company have?
  • are the members of the management body/directors of the company natural persons (or other entities) performing these functions on a service basis, including in particular persons who perform similar functions in other entities?
  • are documents relating to the conduct of the company’s affairs in fact signed in the place (country) of its registration?
  • does the company have office space in the country of registration (including the necessary infrastructure/service facilities, qualified personnel) where decisions concerning the company can be taken (in particular: meetings of the management body, meetings of the members of the management body)? Are these meetings held at these premises?
  • is the address of the registered seat/office of the company used by many entities simultaneously? If it is the case, by how many entities? Are these entities related (which may be the reason behind the use of the same office)?
  • do the members of the management body of the company have local (corresponding to the registered office of the company) email addresses/fixed or mobile business phones?

FAQ

What is default rate of withholding tax in Poland?

Withholding tax in Poland is of 19% for dividends and 20% for interest, royalties and intangible services. Various exemptions and reduced rates are available.Transaction Tax (PCC)

As introduction it shall be underlined that Transaction Tax (PCC) may arise if VAT is not arising, i.e. the obligation to pay PCC will not arise if at least one of the parties to a civil law transaction was subject to VAT or exempt from VAT due to the performance of any activity. Therefore, PCC will not occur both when one of the parties to the contract issues an invoice with the basic VAT rate, with the exempt rate, or when it declares that it benefits from exemption and actually performs these activities as a taxpayer exempt from VAT. There are some exemptions to this general rule: e.g. sale of real estate and shares sale contract in commercial companies, even if even one of the parties was exempt from VAT – will always be subject to PCC.

Subject of transaction tax

Amongst others the following are subject to transaction tax:

  • conclusion of a loan agreement,
  • conclusion of a contract of sale and exchange of goods and property rights
  • conclusion of articles of association of a company,
  • establishment of a mortgage.

Sale of movable items of value not exceeding PLN 1000, is exempt from taxation with tax on civil law transactions.
As a result transaction tax applies if the subject of the transaction is located in Poland or rights are exercised in Poland. Transaction tax will also apply to subjects that are located abroad or rights performed abroad, if the buyer is located in Poland and the given civil law transaction was executed in Poland.

Transaction tax in international transactions often raises doubts as a result it is worth consulting with an accounting firm or obtaining binding tax ruling.

Transaction Tax Rates

  • 2% of the market value – contract for the sale of real estate, movables, perpetual usufruct
    rights,
  • 0,5% of the loan amount in the case of a loan agreement,
  • 1% of the market value in the case of transfer of other rights.

Payment and reporting

The obligation to pay and report the tax lies with:

  • in the case of a sales contract – the buyer,
  • in the case of a donation agreement – the recipient,
  • in the case of a loan agreement – the borrower,
  • when establishing a mortgage – the establishing party
  • in the case of an exchange agreement – both parties.

The taxpayer shall submit an appropriate declaration (PCC-3) to the tax office and calculate and pay the tax within 14 days. Most usually this obligation is performed by the accounting firm. In case of transactions concluded in the form of notarial act, the obligation to withhold and report the tax lies with the notary.

Exit Tax

Exit tax in Corporate income Act is called tax on unrealized profits. Exit Tax in Corporate income tax is of 19% rate on the tax base.

Income tax on unrealized profits shall cover:

  • transfer of a component asset outside the territory of the Republic of Poland, which results in the fact that the Republic of Poland loses, entirely or in part, the right to tax the incomes from the sale of this component asset, whereas the component asset being transferred shall remain ownership of the same subject;
  • change of tax residence by the taxpayer subject to tax liability in the Republic of Poland regarding total incomes of this taxpayer (unlimited tax liability), which results in the fact that the Republic of Poland loses, entirely or in part, the right to tax the incomes from the sale of the component asset owned by this taxpayer, in relation to the transfer of the place of his seat or management office to another state.

The transfer of the component asset outside the territory of the Republic of Poland, as referred to in point c.i. above, shall particularly cover the cases in which:

  • a taxpayer with its registered seat in Poland transfers to its foreign establishment a component asset which has so far been related to the activity pursued in the territory of the Republic of Poland;
  • a taxpayer with its registered seat outside Poland transfers to the country of its tax residence or to a country other than the Republic of Poland, in which it pursues activity via a foreign establishment, a component asset related so far to the activity pursued in the territory of the Republic of Poland via the foreign establishment;
  • a taxpayer with its registered seat outside Poland transfers activity, in whole or in part, pursued so far via a foreign establishment situated in the territory of the Republic of Poland.

The income from unrealized profits (tax base) shall be the surplus of the market value of the component asset, determined as for the day of its transfer or as at the day preceding the day of change of the tax residence, in excess of its tax value.

  • The day of transferring the component asset outside the territory of the Republic of Poland shall be the day preceding the day on which this component asset ceases to be assigned to the activity pursued in the territory of the Republic of Poland, including via the foreign establishment.

Mandatory Disclosure Rules

Mandatory Disclosure Rules came into force in Poland on 1st January 2019 and implement EU Directive 2018/0822 (DAC6).

Even though the Polish MDR Act constitutes an implementation of DAC6, both regulations differ significantly, i.a. the Polish MDR Act extends the reporting obligation to other arrangements than cross-border tax arrangements within the meaning of DAC6 (e.g. domestic arrangements) and significantly accelerates the entry into force date (1st January 2019 instead of 1st July 2020 as laid down in the DAC6).

Tax arrangements subject to the reporting obligation may be divided into:

  • cross-border arrangements within the meaning of DAC6;
  • other arrangements, including domestic arrangements, as well as other cross-border arrangements.

Cross-border arrangements

The reporting obligation is dependent on fulfilling the cross-border criteria that is when an arrangement (i.e. action or a group of related actions with at least one party being a taxpayer or which may result in/are expected to result in an obligation to pay or lack of obligation to pay tax) concerns at least two jurisdictions and certain additional conditions are met.

Cross-border test will not be met if an arrangement concerns solely Value Added Tax, excise or customs duties.

Furthermore, in order for the arrangements to be reportable they must include:

  • at least one generic hallmark defined in the article 86a paragraph 1 point 6 letters a-h of the Tax Ordinance (e.g. arrangements based on largely standardized documentation) and satisfy a ‘main benefit test’; or
  • at least one of the specific hallmarks.

The main benefit test is satisfied when, taking into account all relevant facts and circumstances, a person acting reasonably, driven by legitimate purposes other than achieving a tax benefit could justifiably choose an alternative route (way of dealing/action), not resulting in obtaining the tax benefit reasonably expected or arising from the arrangement (i.e. arrangement in question), and the said tax benefit constitutes the main or one of the main benefits, which the person is expecting to obtain vis-à-vis such arrangement.

Other arrangements

Other arrangements subject to reporting do not have to meet the cross-border test, i.e. both cross-border as well as domestic arrangements may fall in this group. They must, however include:

  • at least one of the generic hallmarks together with the main benefit test; or
  • at least one of the specific hallmarks; or
  • at least one of the other specific hallmarks laid down in the Article 86a § 1 point 1 of the Tax Ordinance.

Arrangements other than cross-border arrangements within the meaning of DAC6 are reportable only when the “qualified taxpayer” test is satisfied, that is in when:

  • revenues, deductible costs or value of assets (within the meaning of Polish Accounting Act) of the user (i.e. taxpayer) exceed in the current or previous financial year EUR 10 million; or
  • the arrangement concerns assets or rights having fair market value exceeding EUR 2.5 million; or
  • the user (taxpayer) is related (within the meaning of Polish Corporate Income Tax/PIT Acts) to a person that meets the above thresholds.

Entities subject to the reporting obligation

The following are subject to the reporting obligation:

  • promoter, i.e. any person that designs, markets, makes available, implements or manages the implementation of an arrangement;
  • supporter, i.e. any person that (having regard the required duty of care applicable) undertakes to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or supervising the implementation of an arrangement;
  • user (taxpayer), i.e. any person to whom the arrangement is made available, for whom such arrangement is implemented or who is ready to it or has taken the first step in such implementation.

In principle, the primary reporting obligation lies with the promoter. The user (taxpayer) will generally be obliged to report the arrangement if the promoter relies on the professional privilege exemption, or in the event no promoter is involved (arrangement designed in house).

Reporting deadlines

The reporting obligation must be fulfilled within 30 days, counting from:

  • the day after the reportable tax arrangement is made available; or
  • the day after the reportable tax arrangement is made ready for implementation; or
  • the day when then first step in its implementation had been made,

– whichever occurs first. The foregoing is applicable both to the promoter and user.

Personal Income Tax (PIT)

Polish income tax for private individuals provides the following tax rates:

PIT tax scale for 2023

Annual Income Income Tax (tax scale)
0 PLN – 120,000 PLN 12% minus tax reducing amount (3,600 PLN, 300 PLN every month)
over 120,000 PLN 10,800 PLN + 32% of the surplus over 120,000 PLN

Tax-free amount in 2023 will remain at level of 30,000 PLN / year.

As a rule above tax scale percentages are applicable e.g. to employment income.

Taxation of members of the board

Companies that make payments to the Polish residents on grounds of the management activity, are obliged, as tax remitters, to collect PIT tax  advance payments.

PIT is due according to the tax scale:

  • 12% up to 120.000 PLN profit,
  • 32% above 120.000 PLN profit, and also
  • additional 4% solidarity tribute may be applied for Polish residents with income exceeding PLN 1 million.

For payments made to non-residents on a basis of the PIT Act companies are obliged to collect 20% PIT on revenue earned within the territory of Poland by non-Polish residents from i.a. sitting on management boards (taxation of such fees in the country of payment is also confirmed in DTTs provisions).

There are no provincial or local income taxes in Poland

Expert team leader DKP Legal Michał Dudkowiak
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