Withholding tax (WHT)

Withholding tax (WHT) is a lump-sum form of income tax imposed on payments made abroad for, among other things, dividends, interest, licence fees and remuneration for selected intangible services.

On 1 January 2019, there was a significant change in the withholding tax regulations. This change involved the implementation of a pay-and-refund mechanism, which consists in the compulsory withholding of WHT for payments above PLN 2 million (with no statement of Management Board members to be signed under the threat of the Penal Fiscal Code or an opinion on the right to apply the exemption). The pay-and-refund mechanism has been in force since 1 January 2022.

Moreover, taxpayers are required to exercise due diligence when verifying the right to apply an exemption or a reduced rate of tax, and the definition of the so-called beneficial owner has been amended.

Withholding tax covers payments made to foreign entities for dividends, interest, licence fees or a range of intangible services (e.g. know-how, advisory services, advertising, accounting). According to the provisions of the CIT Act, the standard tax rate amounts to:

• 19% for dividends,
• 20% for e.g. interest rates, legal, accounting, advertising or advisory services.

The payer may apply a reduced rate or a tax exemption if certain conditions specified in the regulations are met. At the same time, the introduction of the pay and refund mechanism means that tax should be paid in a situation in which payments made to the same foreign recipient in a given year exceed the amount of PLN 2 million.

It should be noted that, according to the regulations, there are two options of not charging tax at the rate resulting from Polish law, even if the limit of PLN 2 million is exceeded:

• if the payer submits a statement on fulfilment of conditions for not charging tax/applying a reduced rate or exemption (pursuant to Article 26 par. 7a of the CIT Act),

or

• if the taxpayer (or the payer) obtains an opinion of the head of the tax office on the application of the exemption referred to in Article 26b of the CIT Act.

The scope of the Crowe support on withholding tax includes:

1. Verification of the dues subject to WHT and the option for applying the relevant exemptions or reduced tax rates;
2. Drafting a tax opinion on the right to apply an exemption or a reduced WHT rate to a given payment (the opinion will cover the risk of undermining the recipient's status as the beneficial owner or the application of circumvention clauses (SAAR, GAAR clauses);
3. Developing an internal due diligence procedure to manage the processes and obligations of a withholding tax payer when verifying payments subject to preferential taxation;
4. Providing guidance to the payer on the documentation to be collected for due diligence purposes;
5. Verification of the documentation compiled by the WHT payer;
6. Drafting a request for an interpretation or opinion on the application of the exemption;
7. Filing a WHT return application and representing the client in the proceedings.