Sources of law regarding withholding tax

From this article, you will learn:

• What methods of eliminating double taxation are provided for in Polish and European regulations?
• What is worth knowing about avoiding the double taxation agreement between Poland and Great Britain?
• What conditions a taxpayer must meet in order for the WHT rate to be lower?

The provisions governing the settlement of withholding tax (WHT) can be found not only in Polish income tax acts, but also in EU directives, which – after the taxpayer meets specific conditions – provide for exemption from WHT in the case of payments within the EU and European Economic Area and agreements concluded between countries on the avoidance of double taxation.

How do double taxation avoidance agreements affect tax settlement?

Double taxation avoidance agreements provide numerous benefits with regard to withholding tax. They limit the number of cases in which non-resident income should be taxed, reduce tax rates or completely exempt them from taxation in Poland. Therefore, foreign entrepreneurs settling income obtained in Poland should apply Polish WHT regulations, always taking into account possible exceptions resulting from the double taxation avoidance. 

How to avoid double taxation: conditions for applying double taxation avoidance provisions

Taxpayers can benefit from the (often preferential) provisions of avoidance of double taxation agreements provided that all of the following requirements are met:

• obtaining a tax residence certificate from the contractor,
• compliance with the so-called due diligence when verifying the conditions for applying a reduced WHT rate or exemption.

Double taxation avoidance agreement between Poland and Great Britain

When it comes to potential double taxation, a particularly interesting case is the issue of withholding tax on receivables paid to UK residents. 

As Great Britain is no longer a member of the European Union, the provisions of EU directives no longer apply to transactions with this country, which means that Polish payers will not be able to apply WHT exemptions resulting from EU regulations. However, Brexit did not violate the provisions of the double taxation avoidance agreement, which means that – after meeting the previously mentioned conditions for the application of the double taxation avoidance provisions – the preferential provisions indicated in the double taxation avoidance PL-UK may also be applied to receivables to British entities.