Poland: Proposed changes to taxation rules for 2019

07.11.2018

Following the market consultations and the approval by the parliament of the changes to the Personal Income Tax (PIT), Corporate Income Tax (CIT), Tax Ordinance and other regulations, the withholding tax process for interests and dividends will have to be amended resulting in the probable impossibility to continue the process of relief at source.

The proposed changes as published by our local depository are described in the following.

These changes are expected to come into force on 1 January 2019, after approval by the president of the Republic of Poland.

1. Double Taxation Treaties (DTT) rates and tax exemptions for non-residents (including investment and pension funds)

Current process

Relief at source is applied based on a Certificate of Tax Residence (CoTR) and additional statements (where required).

Future process from 1 January 2019

The process will be the same as today but relief at source will apply only to non-resident investors who receive less than PLN 2 million of dividends or interests yearly. Payments over PLN 2 million will be taxed at the standard rates, that is, 19% for dividends and 20% for interests.

If the custodian is not able to track the PLN 2 million threshold, all payments will be taxed at the standard rates.

If the standard rates are applied, the reduced rates are available only through the dedicated tax reclaim process (see point 4 below). The PLN 2 million threshold will not apply provided that the custodian reports each payment to the tax authorities and declares that all conditions are met in order to apply reduced rates (for example, required tax certificates or declarations are in place and there are no indications that the investor is not entitled to reduced rates). The described process requires that the custodian’s management board is involved in the reporting of each payment to the tax authorities.

Alternatively, the report may be submitted on a bi-monthly basis but this requires additional formalities and in practice this option does not provide any significant simplification from the perspective of the custodian.

The changes impose high due-diligence requirements on custodians who act as tax remitters as well as stricter penalties (fines and/or personal criminal liability) for failure to meet withholding-related obligations.

2. 0% tax rate for dividends or interests paid to significant shareholders

Current process

Provided that the necessary documentation (tax certificate, declaration) is in place, the custodian does not withhold tax on dividends or interests paid to entities which hold at least 10% or 20% respectively of shares of the paying entity (EU’s Parent-Subsidiary Directive).

Future process from 1 January 2019

The process will be the same as today but the 0% tax rate will apply only to investors who receive yearly less than PLN 2 million of interests or dividends. Payments over PLN 2 million will be taxed at the standard rates unless the investor or the custodian receives an “exemption permission” from the tax authorities. The permission will cost PLN 2,000 and issued within six months based on documentation which supports the right to the 0% tax rate with a validity of 36 months.

If the standard rates are applied, the reduced rates are available only through the dedicated tax reclaim process.

3. Possible exceptions from processes described in points 1 and 2 above

Current process

Not applicable.

Future process from 1 January 2018

The Minister of Finance may publish the list of taxpayers, tax agents and/or transactions which willl not be subject to the withholding restrictions described in points 1 and 2 above. As today, it is not possible to confirm whether custodians or financial transactions will benefit from such exceptions (see point 4 below).

4. New tax reclaim process for tax withheld at standard rates (as a result of the regulations described in points 1 and 2 above)

Current process

All tax reclaims follow the same procedure which should last no longer than 1-2 months unless the case is complicated. The refund of tax will be made no later than 30 days after the reclaim procedure has ended.

Future process from 1 January 2018

For tax withheld at standard rates – as a result of new withholding regulations, as described in points 1 and 2 above (interest or dividend payments over PLN 2 million) – the new tax reclaim procedure applies. It will last no longer than six months with an option of extension.

The documentation for the reclaim application must include:

  • CoTR;
  • Confirmation of money transfers;
  • Declarations regarding additional conditions to apply reduced rates or exemptions (for example investment or pension fund statements);
  • Beneficial ownership statement etc.

The reclaim form will be standardised in order to facilitate the process.

The reclaim process may be initiated by a taxpayer (customer) or by the custodian provided that the custodian bears the economic burden of the overpaid tax.

5. Alternative taxation of bonds

Current process

Non-residents are taxed at source when receiving bond interests.

Future process from 1 January 2018

In addition to the current process, alternatively, tax is paid by the issuer upon the issue (3% of future interest payments). In such cases, further interest payments made to non-residents are not taxed.

The alternative taxation is voluntary (decided by issuer) but should be reported to the tax authorities.

The alternative method applies only to long-term bonds (over one year) that are traded on regulated markets or MTFs and that are issued before 1 January 2019. Moreover, it is not required that subsidiaries of the issuer do not hold more than 10% of issued bonds.

6. Tax exemption for interests derived from long-term bonds (only for bonds issued after 31 December 2018)

Current process

Bond interests are taxed at the standard rates unless DTTs or other preferences or exemptions apply. The custodian acts as the tax remitter and applies the reduced rates based on received client documentation.

Future process from 1 January 2018

Interests derived from bonds (for both T-bonds as well as corporate bonds) by non-residents are tax exempt provided that:

  • The bonds are issued after 31 December 2018.
  • The bonds’ maturity is over one year.
  • The bonds are admitted to trading on a regulated market or an MTF in Poland or another country that has a DTT with Poland.
  • Entities related to the issuer do not hold more than 10% of issued bonds.

Moreover, in order to apply the exemption at source it is required that the issuer of the bonds notifies the tax authorities that all bond holders have been informed about the above-mentioned condition related to the required below 10% holding being in possession of entities related to the issuer.

This exemption is available at source provided that the local custodian implements the process described in Point 1 (all restrictions mentioned in Point 1 apply as well) or can be obtained via a tax reclaim process.

7. Acceptance of copies of CoTRs

Current process

Only hard copies of CoTRs are accepted. The only exception are certificates issued in electronic form.

Future process from 1 January 2018

Copies of CoTRs may be accepted for payments regarding services such as legal/advisory, bookkeeping, marketing, data processing, guarantees, recruitment and similar provided that the payment does not exceed PLN 10,000 yearly. Copies of CoTRs cannot be used for transactions such as interest or dividend payments.

8. Definition of “beneficial owner” added to income tax regulations

Current process

There is an extended definition of “beneficial owner” in the local tax regulations.

Future process from 1 January 2018

The definition of “beneficial owner” is introduced. It states that a person or entity is a beneficial owner if:

  1. it receives payments for its own benefit, decides individually about its utilisation and bears the risk related thereto;
  2. does not act as intermediary, agent, custodian or any other person obliged to transfer payments to another entity; and
  3. actually conducts business in the place of its place of residence (if payments are business-related).

9. Changes to tax exemptions dedicated to closed-end investment funds (local and EU/EEA based)

Current process

The exemption does not include interests generated by loans granted to entities that do not have legal personality and taxpayer status.

Future process from 1 January 2018

The exemption is extended to include such interests provided that they are generated by loans purchased by funds from financial institutions that originally granted such loans and are subject to the supervision of financial authorities.


The proposed changes still have to be approved by the President of the Republic of Poland.

We will continue to monitor the situation and provide further information once available.

 

This Taxflash is intended to provide customers with general information gathered from different sources that are generally believed to be reliable. Clearstream Banking S.A. does not guarantee the accuracy or completeness of the information and does not undertake to keep it up to date. Use of the information made available in this Taxflash is at the customer’s own risk and Clearstream Banking S.A. its subsidiaries and affiliates expressly disclaim any liability for any errors or omissions reflected herein. The information in this Taxflash does not constitute legal or tax advice.