Changes to Poland’s pay and refund withholding tax regime from 2022
Jacek Wojtach of MDDP Poland comments on the 2022 version of Poland’s withholding tax regime and explains why taxpayers need to be prepared.
The so-called 'Polski Ład' (Polish Order) will come into force on January 1 2022. Within its frames, pay and refund withholding tax regime (WHT) will be finalised.
This regards payments exceeding PLN 2 million ($485,984) per annum (summed for a particular recipient). The excess over that amount will be subject to a standard 19%/20% WHT rate. If a payment qualifies for an exemption or reduced WHT treaty rate, a recipient (or in cases of gross up clause a WHT remitter) can apply for a WHT refund.
The pay and refund regime shall be applicable only to passive payments (dividends, interest, royalties) made to only related, non-Polish entities. Thus, service payments and other, made to non-related suppliers (including royalties) shall not be covered by it. This is a major change compared to 2019 version (suspended) of these rules.
There will be two methods to apply for a reduced WHT rate or exemption at source. One of them will require submitting a special statement by a WHT remitter (compared to prior version of rules it will be sufficient to have it signed pursuant to representation rules and not by all board members). Any incorrect information provided in the aforementioned statement may result in a 10–30% additional WHT fee, and, potentially, personal penalties for board members.
The other method will be to obtain an advance ruling on WHT exemption/reduced rate issued by the Polish tax authorities. This ruling, according to the new version of rules, may be issued to all kinds of payments subject to WHT. However, a deadline for such a ruling will be six months, which is twice the period for a standard tax ruling.
The advance WHT ruling, as well as WHT refund procedure, will require gathering a lot of documentation and evidence, including these on beneficial ownership status of a recipient, with its major component being genuine business activity.
Any doubts or questions as to the documentation may cause tax authorities to ask additional questions and extend the deadlines for refunding WHT or issuing advance ruling. Thus, it is of major importance to collect in advance all necessary information, questionnaires, etc.
All new WHT procedures will be carried out in electronically.
At the last stages of legislation works another change was added, which has a significant practical impact on all WHT remitters and taxpayers. Starting from 2022, a copy of the tax certificate will be sufficient to demonstrate foreign tax residence in cases of all payments subject to WHT (previously, except for a special pandemic legislation, a copy could be used only to service payments not exceeding PLN 10,000/€2,500per annum).
WHT remitters will be responsible for ensuring that information presented on a copy is in line with the facts/original. The amendment will substantially facilitate cross-border transactions, as many times there have been doubts as to what kind of document may be treated as an original tax certificate (e.g. in cases where administration of a given state issues either electronic or paper tax certificates, Polish tax authorities demanded paper form, even though both had status of originals in an issuing state).
Although the changes in the Polish WHT regime have been expected since 2019 (when the first version came out, then suspended), there are still many WHT remitters and taxpayers not fully prepared to introduce them in ongoing business. This is due to their complexity and vague rules regarding beneficial owner and due diligence. The Ministry of Finance already pronounced to update official explanations of the WHT rules (draft explanations are still dated June 2019 and raised many doubts), yet the timeline is not known.
Senior manager, MDDP Poland