Withholding tax – what to look out for

Settling a withholding tax is an important obligation for companies cooperating with foreign contractors. Neglecting this obligation may lead to serious legal and tax consequences, therefore we would like to remind you about proper actions regarding this issue.

What is a withholding tax?

Withholding tax is a form of taxation of revenues obtained in Poland by non-residents (natural or legal people, who do not have a habitual residence nor registered seat in Poland). It relates to:

• Interest (e.g. interest from loans given by non-residents),
• Dividends and other incomes by way of shares in natural people’s profits,
• License receivables,
• Non-material services (e.g. consulting, accounting, legal, marketing) if they are being paid off by Polish payer on behalf of foreign receiver,
• Fees for provided services in the scope of spectacular, entertainment or sport activity organized by people conducting business activity in the scope of artistic, entertainment or sport parties,
• Data processing.

Payment for non-material and legal services – what should draw our attention?

1. Contractor’s identification: Verify if the payment’s receiver is a foreign entity (non-resident) and if they are liable to Polish taxation.

Real beneficiary status: Determine, if a contractor is so-called income’s beneficial owner. It means that:

• They are payment’s factual receiver (they are not a broker),
• Conducts real business activity,
• Manages obtained income independently.

2. Documents’ verification

• Tax Residence Certificate: Make sure that the contractor has provided you with current and valid certificate (tax residence certificate lacking the information about its validity period is being considered valid for the next 12 months since the day of its issuance) and that it confirms their taxation place.
• Agreement with contractor: Check agreement’s contents to make sure that providing non-material services has business justification.
• Invoices and other documents: Verify documentations compliance with agreement’s subject and money transfers.

3. Service’s characteristics verification

• Type of non-material service: Determine if the service is liable to withholding tax. Typical services are:
  • Consulting services,
  • Advertising and marketing services,
  • Market analysis,
  • Recruiting services,
  • Warranty services,
  • Management services,
  • Legal services,
  • Data processing services.
• Place of providing services: Make sure that the service is being provided by a non-resident and regards an income liable to Polish WHT.

IMPORTANT: fulfilling above described procedure’s conditions is a requirement to usage of double-taxation avoidance agreement, which in most cases forecasts lower tax rates than domestic ones and exemption for some activities from WHT taxation, when holding valid tax residence certificate.

Lack results in an obligation to apply lump sum income tax resulting from domestic regulations, therefore duty bound of tax levy and deposit to Polish Tax Office.

Withholding tax rates in Poland:

• 19% for income from dividends, other incomes by way of shares in profits of legal people whose registered seat in on Republic of Poland’s territory and license receivables,
• 20% in other income cases.

Double-taxation avoidance agreements forecast various lowered rates for certain incomes, e.g. 5%, 10%, 15%.

In case of lowering the tax rate, it is essential to remember about having valid tax residence certificate.

Levied withhold tax is supposed to be paid to taxpayer’s tax microaccount. The payment’s due date depends on the type of taxpayer:

• Legal people: until the 7^th day of the month occurring after the month in which the payment was made.
• Natural people and entities lacking legal personality: until the 20^th day of the month.

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