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Monika Dziedzic |
From January 1 2007, dividends received by Polish companies from Polish companies and companies taxable in the European Union, European Economic Area and Switzerland are exempt from Polish income tax (CIT) if the company receiving the dividend holds a minimum of 15% (25% for Switzerland) of shares for an uninterrupted period of two years. From 2009, the 15% requirement will be reduced to 10%.
Until December 2006, dividends from non-Polish companies were subject to regular 19% CIT (unless the tax treaty provided for an exemption method) with the right to credit the withholding tax charged in the source country and, in some circumstances, also the underlying tax. Dividends from Polish companies were taxed with 19% withholding tax which could be deducted from CIT due on profits from other sources (such as when the holding company had to have other income).
It means that the new rules cancel the privileged taxation of local dividends.
Unfortunately, capital gains earned by Polish companies on shares in other companies continue to be subject to regular 19% CIT. Before any developments in this area are introduced, the companies holding the qualifying number of shares may realise a tax free gain through redemption of shares which, under Polish law, are taxed the same as dividends.
The new regulations do not fully cancel the right of Polish companies to the underlying tax credit, but limit this right to dividends received from 75% participation in companies from countries with whom Poland entered into a tax treaty, except for countries from the European Union, European Economic Area and Switzerland.
Monika Dziedzic (monika.dziedzic@mddp.pl)
