The standard dividends withholding tax in Poland is 19%. This applies to both resident and non-resident recipients, individuals and corporate income taxpayers. EU dividend participation exemption is included in local regulations and the following criteria has to be met jointly:
Minimum 10% direct shareholding for at least two years uninterruptedly;
The recipient is a tax resident in the EU, which is confirmed with a relevant tax certificate;
The recipient of the dividend is taxed in the country of its tax residency on its worldwide income and is not exempt from income tax therein – which is confirmed with a written statement of the dividend recipient held by the dividend payer;
The shares in dividends payed are owned (ownership as a title to the shares) by the recipient of dividend;
There is a legal ground for tax information exchange between Poland and the country of the dividend recipient;
The dividend is paid as a result of a bona fide business transaction (e.g. it was not preceded by artificial one).
These formal requirements of dividend participation exemption resulting from Polish corporate income tax (CIT) law have not changed in 2019, despite the introduction of the new withholding tax system. In principle, these have existed with adjustments in Polish tax law, since when Poland had joined the EU in 2004.
It can be noted that there is no ‘substance’ requirement, nor is there a ‘beneficial owner’ requirement that would apply to dividend participation exemption. There are no other factors than those listed above criteria specified by Polish law to apply the participation exemption to dividends.
In practice, however, if the withholding tax is collected by the dividend payer and the non-Polish shareholder requests for a withholding tax refund, the expectations of tax authorities are broader. Besides a tax residency certificate, the shareholder has to prove (it is not enough to state) that it is a beneficial owner of the dividends.
The Polish definition of the beneficial owner differs a lot from the OECD’s standard. In addition to regular factors, such as not acting as an agent, trustee or intermediary, Polish law requires that the beneficial owner runs a so-called ‘genuine business activity’ as specified by Polish law.
Conditions of the shareholder
The shareholder is in practice, asked to provide: the last financial statement and a consolidated financial statement, the agreement on the lease of office, a list of employees, a list of fixed assets and intangibles owned, a detailed description of the investment portfolio (name of the companies owned, % of shares owned, acquisition date and value – book or market one), the structure of the group (diagram), concluded agreements (to support that the shareholder is not dormant), transfer pricing documentation, and a breakdown of costs. All documents must be provided to the authorities in Polish, so costly sworn translation is often involved.
The shareholder is also requested to submit a very detailed statement confirming that they hold the beneficial ownership of the dividends, that they operate a non-artificial structure, and that the withholding tax dividend participation exemption is not the only – or one of the main purposes – of their involvement.
In the statement, it must also be clarified that the shareholder is not operating purely to pay dividends from Poland to a beneficiary, and that it has the economic and legal rights to make a decision on the use of the dividends. Furthermore, the shareholder must confirm that he operates a real business in the country of its tax residency using adequate resources, and that the shareholder is independent in its functioning by using assets it owns and having management present on site.
Practice proves that it is usually much easier to apply the withholding tax exemption by paying a subsidiary than to withhold the tax and apply for the refund. Especially, this would be the case as long as the €460,000 threshold (all payments subject to withholding tax to one taxpayer) is on hold and all dividends are below that level.
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