Withholding tax "pay-and-refund regime"

May 21, 2019 Poland

As of July 2019 the new “pay-and-refund regime” for withholding tax takes effect. The new regulations will cause additional tax obligations for many taxpayers, who make larger payments of dividends, interest, royalties or fees for intangible services to foreign recipients. Larger payments are generally payments which, in total, exceed PLN 2 million to the same recipient in the year.

Withholding tax (WHT) obligations at the standard 19% or 20% tax rates will apply to dividends, interest, royalties and fees for intangible services (such as consulting, accountancy, market survey, advertising, legal, control or management, data processing, recruitment).

Effective 1 July 2019 the new rules apply to payments made to the same taxpayer if their total amount exceeds PLN 2 million (approx. EUR 460 000) per annum.

Obligatorily WHT at the standard rates will have to be remitted on the excess above PLN 2 million. In case of this excess amount there will be no possibility to apply exemptions or reduced rates under the relevant double tax treaty or EU Directives unless the taxpayer performs certain actions such as:

  • providing the tax authorities with an official declaration, that confirms the taxpayer’s right to benefit from WHT exemption or to apply the reduced rate;
  • applying to the tax authorities for a special opinion, that allows the taxpayer to benefit from WHT exemption (this option does not apply in the case of payment of fees for intangible services).

Once the WHT above the threshold has been remitted to the tax authorities, taxpayers may apply to the tax office for a refund based on the overpayment procedure. If tax authorities confirm the taxpayer’s right to the refund, they will refund the overpaid tax within 6 months.

The new regulations impose additional administrative obligations for taxpayers, who will need to track and control the level of payments made to the non-resident service providers or beneficiaries.

  • You may need to explain to foreign contractors the necessity to decrease payments by an increased WHT amount.
  • Furthermore, you may need to arrange additional cashflow to pay the WHT.

Additionally, irrespective of whether or not payments exceed the PLN 2 million threshold in the given year, when verifying the conditions of applying a reduced WHT rate or exemption, taxpayers are required to check that the recipient of the payment is the true beneficial owner. The new regulations require Polish taxpayers to assess, via so-called due diligence, the nature and scale of the foreign recipient’s activities to be sure that that the tax treaty provisions or EU Directives apply. Consequently, the new rules oblige WHT remitters not only to know the law, but also to determine the circumstances affecting the tax withholding (e.g. to verify that the payment is made to the beneficial owner or that any tax residence certificate provided is authentic).

Please note that even though the new withholding tax regulations apply from 1 July 2019, the PLN 2 million threshold should be calculated including payments already made in the period 1 January – 30 June 2019.

How ASB Tax can support you?

We recommend you review the terms and conditions included in contracts concluded with
non-resident service providers, to verify which party is responsible for paying any potential WHT.

If you have questions, please contact us:

Matthew O’Shaughnessy
Head of Tax
E: moshaughnessy@asbgroup.eu

Rafał Wienconek
Senior Tax Consultant - Tax Adviser
E: rwienconek@asbgroup.eu

Photo: Josh Calabrese