As a country with a developed economy and a favourable business climate, Poland attracts the attention of foreign investors and companies looking to invest in the local business sector. One of the most popular forms of financing business activities in Poland is through loans. However, for those planning to borrow money in Poland, understanding the tax aspects of this process is crucial, especially when the lender is a foreign investor or company.
Features of the Agreement:
One of the key points to consider is the place where the loan agreement is signed. If a foreign lender and borrower enter into an agreement outside of Poland, specifying a city and date unrelated to Poland, the amount received as a loan is not subject to taxation under civil law contracts, which is 0.5%.
Taxation of Loan Interest:
However, when interest payments on the loan are made, the question of taxation in Poland arises. The interest rate specified in the agreement is subject to taxation. For example, if the interest rate is 8% per annum and a company receives one million, 8% amounts to 80,000 annually. The withholding tax rate can go up to 20%, which equals 16,000 out of the aforementioned 80,000.
Optimizing the Agreement:
Poland has double taxation avoidance agreements with many countries, including European Union member states and other economically developed countries. These agreements can determine in which country taxes will be paid and provide the opportunity to reduce tax obligations.
However, the withholding tax rate can be reduced under certain conditions. To do this, the lender must provide a tax residence certificate from their country. This certificate serves as the basis for calculating the withholding tax rate on loan payments. The withholding tax rate can be reduced to 10%, 5%, or even 0%, depending on the tax residence country of the lender.
To optimize taxation, avoid unpleasant surprises, and ensure the legality and transparency of all financial transactions, it is recommended to involve a tax consultant in this process. This specialist will help correctly interpret the laws related to source of income taxes and double taxation avoidance agreements. Understanding the specifics of taxation in the context of the lender's tax residence country and accurately calculating tax obligations are key steps toward successful tax optimization.