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 exemption
According 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.
We have already seen very detailed questionnaires which our Czech and Slovak clients received from their Polish customers (the longest one had 40 questions). Even if this is a sort of a grey area, we believe that such a detailed questionnaire is not required by any provision of the Polish CIT Act and the tax residence certificate and affidavit about the beneficial ownership should suffice (at least for payments not exceeding PLN 500k p.a.).
Nonetheless, from the business perspective, we would recommend verifying whether the contract between you and the Polish company contains a “net-of-tax” clause. If so, the Polish entity should gross-up the payment and pay withholding tax from their own sources.
In case of any questions about taxes in Czech Republic or Poland do not hesitate to contact us.