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Poland: Withholding tax rules, certain implementation delayed until 2020

Poland: Withholding tax rules

Poland’s withholding tax rules have overhauled the existing system. Most of the changes were effective 1 January 2019, except for the withholding tax mechanism for payments exceeding Polish zloty (PLN) 2 million—this mechanism was postponed from 1 June 2019 to 1 January 2020.

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Read more about the draft version of the withholding tax amendments: TaxNewsFlash


Withholding tax amendments

Poland currently applies a relief-at-source mechanism in respect of the appropriate withholding tax rate. Under the new withholding tax rules, income will be subject to withholding tax at general domestic tax rates even if a reduced rate applies—for example, if there is an applicable domestic exception, provision under a tax treaty or EU law provision. The investment fund may then apply for a withholding tax refund for the excess amount from application of the reduced tax rate through a special refund procedure (known as “withholding and refund”).

The new withholding tax mechanism only applies to payments made by the same withholding tax agent to the same recipient that exceeds PLN 2 million (approximately U.S. $1.07 million) in a tax year.

The new withholding tax mechanism is subject to two specific exceptions from applying standard withholding tax rates, namely by:

  • Obtaining a tax clearance opinion that does not apply to portfolio investments of investment funds
  • Obtaining a withholding tax statement issued by the withholding tax agent that could be applied upon confirmation regarding foreign investment funds, and that states:
  • The withholding tax agent has obtained the necessary documents supporting the investment funds’ right to apply the reduced withholding tax rate, whether under an income tax treaty, domestic law or based on EU law. An example would be a tax residence certificate.
  • The withholding tax agent is not aware of any circumstances that would cause this reduced rate of withholding tax not to apply.

The withholding tax agent’s statement is only valid until the end of the second month after the month in which it was made.


Standard of “due care”

Since 1 January 2019, withholding tax agents must comply with a newly imposed standard of due care when applying any reduced withholding tax rate or exemptions, regardless whether payments to the same investment fund exceed the PLN2 million threshold. The agents must verify that the investment fund is the beneficial owner of the income and, when necessary, collect supporting documents. Before the payment is made, withholding tax agents must verify that all statements and documents received from the taxpayer (fund) are correct and accurate. Fulfillment of these requirements may be subject to a tax audit.

Taking the Ministry of Finance’s draft guidelines into account, the level of due care required depends, among other things, on the amounts in question. Stricter requirements will be levied on taxpayers / withholding tax agents paying large amounts. In these situations, according to the guidelines, the fulfillment of the due-care standard may be demonstrated by an independent auditor or tax advisor report.

If the withholding tax agent does not exercise due care, tax exemptions or relief provisions under income tax treaties may not be allowed, and there is also the possibility of additional tax liabilities or penalties.


Read a November 2019 report prepared by the KPMG member firm in Luxembourg

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