Some services, irrespective of the fact that they are provided by a foreign counterparty, may be taxed in Poland. When acquiring certain services from a foreign company (for example legal advice), a Polish entrepreneur must be aware that in connection with their purchase, he will be obliged to perform additional duties, or maybe he will have to pay tax at the source of income.
In the case of legal entity receiving income in Poland, the withholding tax rate is determined according to art. 21 and art. 22 CIT Act. To avoid paying a higher tax, you must have a tax residence certificate, the definition of which is given below. *
Lack of a tax residence certificate is associated with a reduction of the relevant amount resulting from the invoice to 20% (standard Polish withholding tax, from certain sources of income). The tax residence certificate allows you to reduce the withholding tax to the amount resulting from the international agreement, i.e. up to 10% or 5%. Having a tax residence certificate may also lead to the income in Poland being fully tax-free.
From 2019, it is possible to use a copy of the tax residence certificate. However, it should be remembered that the use of a copy of the tax residence certificate will have a limited scope. The Act provides that such certificates may be used only for payments in the scope of intangible services and only in cases where the total amount of payments to this contractor does not exceed PLN 10,000 in the tax year. Consequently, in most cases it will still be necessary to have original certificates (or electronic certificates, not scans!).
In addition, one of the key changes is the full change in the rules for charging withholding tax in the event that payments to this counterparty exceed the limit of PLN 2 million in a tax year. Under the new rules, if payments exceed PLN 2 million, then the payer will be required to collect the tax in full at the rate resulting from Polish standards (usually 20%), and it does not depend on whether he has the right to apply a reduced rate or even use a zero rate.
* The tax residence certificate confirms that the person is a tax resident in a given country. The income of an entity holding such a certificate - from all its income - is subject to income tax in the country issuing the tax residence certificate.
Tax rate at the source of income earned in Poland by a foreign entity.
Article 21 of the CIT Act says:
- Income tax on funds obtained on the territory of the Republic of Poland by taxpayers referred to in art. 3 par. 2, revenues:
1) interest, copyright or related rights, rights to invention projects, trademarks and ornamental designs, including the sale of these rights, payment for secret recipe or production process, for use or right to use an industrial device , including means of transport, commercial or scientific equipment, for information related to the experience gained in the field of industrial, commercial or scientific (know-how),
2) fees for rendered spectacle, entertainment or sports services performed by legal entities established abroad, organized through legal entities or legal persons operating in the field of artistic, entertainment or sports events on the territory of the Republic of Poland,
2a) for consultancy, accounting, market research, legal services, advertising services, management and control, data processing, employee recruitment services and recruitment, guarantees and sureties, and similar services
- is fixed at 20% of revenues;
3) due to fees payable for the transport of cargoes and passengers accepted for carriage in Polish ports by foreign enterprises of commercial shipping, with the exception of cargo and transit passengers,
4) obtained on the territory of the Republic of Poland by foreign air navigation companies, excluding revenues obtained from scheduled air passenger transport, the use of which requires the possession of an air ticket by the passenger
- is set at 10% of these revenues.
Obligations of the payer related to the calculation of withholding tax:
- Legal entities are required to pay the amount of income tax received before the seventh day of the month following the month in which the tax was collected.
- Then, the CIT-10Z declaration should be sent to the competent Tax Inspectorate by the end of the first month of the year following the tax year in which the obligation to pay the tax arose.
- Until the end of the third month following the tax year or in case of termination of business activity before the expiration of the termination of the contract, the IFT2R statement should be forwarded to the taxpayer and the tax service competent for taxation of foreigners. It is worth noting that a legal entity, even if it used the right to exemption from the obligation to pay withholding tax, is still obliged to send an IFT2R declaration.