What is needed to eliminate withholding tax on the payment from Poland
If you have customers in Poland and you invoice them for your services, you might be surprised what information you will be required to provide to your Polish customers in order to eliminate withholding tax on the payment from Poland. This is due to a change of Polish legislation as of 1 January 2019 stipulating that a Polish entity acquiring certain intangible services from non-residents may apply withholding tax exemption or reduction (stipulated in Double Taxation Treaties) only if the recipient is a beneficial owner of the remuneration. In this regard, the relevant provisions of the Polish Corporate Income Tax (CIT) Act state that the Polish entity is obliged to act with due diligence. Unfortunately, the law does not describe the due diligence in more details, and thus it is not specified how to determine when the conditions for the withholding tax exemption are fulfilled.
Conditions for the withholding tax exemptionAccording to the draft of the Ministry of Finance Guidelines (the final version was unfortunately not yet released), in case of transactions between unrelated parties, the due diligence conditions should be considered as fulfilled when:
- a Polish entity was provided with a valid tax certificate of the non-resident – in case of payments to non-related parties not exceeding PLN 100k p.a.
- a Polish entity was provided with a valid tax certificate of the non-resident accompanied with a statement of non-resident that it is a beneficial owner of the payment – in case of payments to non-related parties between PLN 100k and 500k p.a.
- in case of payments exceeding the said threshold, the Ministry of Finance does not provide any simplified requirements. Therefore, in this case, you may be asked to provide several information or documents confirming that your company performs real (actual) economic activity in the Czech Republic, as well as confirmation that you are the beneficial owner of the payment, not legally or factually obliged to transfer it (full or in a part) to other entity.