On 23 November 2021 Poland published Law No. 2105, amending various tax regulations. These amendments include a mandatory withholding tax applicable to cross-border payments of passive income made to related parties.
As from 1 January 2022, payments of interest, dividends, royalties and remuneration for certain services received by foreign companies from taxpayers in Poland will be subject to a mandatory Polish withholding of tax, if the non-resident recipient qualifies as a related party under Polish tax law and the total amount of such payments to the same recipient exceeds PLN 2 million per year. The Polish taxpayer making the payments will not be entitled to refrain from withholding the tax or withhold the tax at a reduced rate that would otherwise be applicable. Instead the recipient can claim back the withholding tax afterwards (pay and refund principle).
The mandatory withholding can only be avoided if the Polish taxpayer holds a formal opinion issued by the Polish tax authorities validating the taxpayer’s right to the relief from withholding tax under the provisions of the Parent-Subsidiary Directive, the Interest and Royalties Directive or the right to a reduced rate of withholding tax under the applicable treaty. To receive a formal opinion, an application must be filled with the Polish tax authorities. The Polish tax authorities must issue the opinion within 6 months from the date of the application. The opinion is valid for 36 months.
As the new withholding tax can have a significant cash flow impact, companies expecting substantial passive income from Polish group companies after 1 January 2022 should consider filing an application for a formal position.
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