Withholding tax in 2022

Under the laws binding in 2022, where the aggregate value of payments made to an affiliated entity exceeds PLN 2 million in any tax year, the tax remitter is required to withhold, on the payment date, a flat rate income tax at the rate determined in the CIT Act on any amount exceeding PLN 2 million.

These provisions were introduced to the CIT Act a few years ago, but their application was suspended until the end of 2021.

What is passive income?

This requirement applies to passive income from:

1. interest; copyrights or neighbouring rights, the rights to invention designs, trademarks or decorative patterns, including income from the sale of such rights; fees for access to a secret formula or production process; the use or right to use an industrial, commercial or scientific device or a means of transport; and information connected with experience acquired in an industrial, commercial or scientific field (know-how),
2. dividends and other income and other revenues from a share in the profits of legal entities with their registered office or place of management in Poland.

where such payments are made to a related party.

Based on the foregoing, the requirement to withhold the tax is, as a rule, obligatory, though there are two measures whereby:

• WHT is not collected – in accordance with a relevant double taxation agreement (DTA);
• a reduced rate is applied under a relevant DTA; or
• a WHT exemption is applied under the CIT Act (Article 21(3) or Article 22(4) of the CIT Act).

The first measure involves a WHT clearance opinion, which may be requested from the tax authority by the taxpayer or the tax remitter. The tax authority has six months in which to issue such an opinion, having verified whether the foreign contractor meets all the requirements necessary to apply a WHT exemption or a reduced WHT rate. In practice, the applicant is required to provide a large number of documents and information to the tax authority, which is quite burdensome. However, an unquestionable advantage of the opinion is that it is valid for 36 months.

The second measure is for the tax remitter to submit, on the payment date at the latest, a relevant statement confirming that the taxpayer holds the documentation required by tax law regulations to apply a specific tax rate or an exemption, or conditions for not withholding tax, based on special laws or DTAs, and that the taxpayer has no knowledge, after a relevant due diligence verification, that would justify a presumption that any circumstances exist that would exclude the application of that tax rate, exemption or conditions for not withholding tax.

The statement is to be made by a manager within the meaning of the Accounting Act, indicating their function, and with full liability for the accuracy of the information included in the statement.