Publication date: January 13, 2025
The obligation to pay withholding tax occurs when an entrepreneur uses services provided by foreign business partners. This type of fee is a flat-rate form of income tax, concerning specific transactions regulated in Article 29 of the Personal Income Tax Act[1]. “Income tax [is collected, among others] from income obtained in the territory of the Republic of Poland by persons [who do not have a place of residence in the territory of the Republic of Poland]:
Moreover, it is worth mentioning that this tax is collected by payers who have their place of residence or registered office in the country where the income is generated. Translating this into Polish reality, it can be said that this fee is collected by payers who live (have their registered office) in the territory of the Republic of Poland. It is also worth bearing in mind that this tax applies to both legal and natural persons, and the obligation to collect it rests with the entrepreneur who pays remuneration for services provided by a foreign entity. This means that the amount of tax should be deducted from the remuneration paid. Then the entrepreneur is obliged to transfer the due withholding tax to the appropriate tax office – this deadline falls on the 20th day of the month following the month in which the tax was collected.
According to art. 29 sec. 2 of the Personal Income Tax Act, the provisions on withholding tax “shall be applied taking into account double taxation treaties to which the Republic of Poland is a party. However, the application of the tax rate resulting from the relevant double taxation treaty or failure to collect (pay) tax in accordance with such a treaty is possible provided that the taxpayer’s place of residence is documented for tax purposes with a certificate of residence obtained from him.” Such documentation can be obtained by obtaining a tax residence certificate. According to the definition (included in art. 5a item 21 of the Personal Income Tax Act), a certificate of residence is “a certificate of the taxpayer’s place of residence for tax purposes issued by the competent tax administration authority of the state of the taxpayer’s place of residence”. This means that a current tax residence certificate may provide protection against the need to pay withholding tax or allow for its payment at a lower amount, but it should be borne in mind that no other document confirming the place of settlement of tax liabilities entitles to exemption from the obligation to pay withholding tax. By having such a certificate, the payer gains the opportunity to apply more favorable taxation rules.
It is also important to be aware of how long a tax residence certificate is valid for. In a situation where a taxpayer receives and then delivers a residence certificate that does not specify an expiry date, the payer may take this document into account for a maximum of 12 months from the date of its issue. This means that in the absence of information about the period of validity of the certificate, it is only valid for 12 months from the date of issue and during this time it is possible to use the provisions of the double taxation treaty. This is stated in Article 41, Section 9a of the Personal Income Tax Act.
In turn, the next section (Article 41, Section 9b of the Personal Income Tax Act) regulates the issue of changing the taxpayer’s place of residence or registered office before the expiry of 12 months from the date of issue of the certificate. Namely, in such a situation, this document loses its validity, therefore, in the event of having information about such a change, the payer has no right to apply the provisions resulting from the double taxation treaty based on this certificate. According to the aforementioned provision, “the taxpayer is obliged to immediately document the place of residence for tax purposes with a new certificate of residence”.
Interestingly, Article 41, Section 9e of the Personal Income Tax Act tells us about the possibility of using a copy of the residence certificate. According to it, “The taxpayer’s place of residence for tax purposes may be confirmed by a copy of the residence certificate if the information resulting from the submitted copy of the residence certificate does not raise reasonable doubts as to its compliance with the actual state of affairs.” This possibility has existed since the amendment to the Act, which came into force on January 1, 2022 (it also existed in 2019, but to a limited extent).
An application for a certificate of residence can be submitted at any time to the tax office. There are two ways to submit applications: electronically or in paper form. In the case of the former, it can be done as an attachment to a general letter in the e-Tax Office or via the ePUAP platform. In paper form, the application can be delivered in person to the tax office or sent by post. It should be noted that the paper application must be hand-signed in the designated position.
The cost of obtaining a certificate of residence depends on the form of application. Applications submitted via the e-Tax Office are free of charge, while in the case of paper applications or applications submitted via ePUAP, there applies the stamp duty. The application must be accompanied by proof of payment of the stamp duty or a certified copy confirming the bank transfer. The tax office issues a certificate or decision within 7 days of submitting the application. The document is delivered to the applicant or their proxy.
In the event of a refusal to issue a certificate of residence, which may take the form of a decision to leave the application without consideration or a decision to refuse to issue a certificate, it is possible to file a complaint to the Director of the Tax Administration Chamber through the body that issued the decision. The complaint must be filed within 7 days of the date of delivery of the decision. The content of the complaint should include objections to the decision, the essence and scope of the request, and evidence justifying the request. A properly prepared complaint allows for further processing of the case and potential obtaining of a certificate of residence.
It should be noted that the regulations do not impose a template or specific formal requirements for the certificate of residence. The only requirement is that the document be issued by the relevant tax administration authority of the country in which the foreign taxpayer has its registered office or place of residence. The certificate should confirm the taxpayer’s tax residence in relation to income tax. There is no universal, international template for such a document, and the Polish payer cannot influence its content. It is important to check whether the certificate contains the following elements:
As can be seen, withholding tax is an important element in business relations with foreign entities, requiring knowledge of both Polish regulations and international double taxation treaties. Its correct settlement requires entrepreneurs to precisely apply the regulations and obtain appropriate documents, such as a tax residence certificate. This document, depending on its content and validity, can bring significant benefits in the form of a reduced tax rate or complete exemption from paying it. However, in order to avoid potential problems with tax authorities, it is necessary to strictly comply with formal requirements, deadlines and ongoing verification of the validity of certificates held. It is also important to react immediately in the event of any doubts or changes in the contractor’s tax situation, e.g. by obtaining a new residence certificate.
Cooperation with foreign contractors involves many challenges, but at the same time it allows entrepreneurs to develop their business on international markets. Understanding the rules regarding withholding tax and proper management of tax documentation allows not only to minimize risk, but also to use available legal and financial tools more effectively. Thanks to this, entrepreneurs can focus on achieving their business goals, with the certainty that tax issues have been properly regulated.
[1] The Act of 26 July 1991 on Personal Income Tax (Journal of Laws of 2024, item 226, as amended).
[2] A fragment of the Personal Income Tax Act of 26 July 1991 (Journal of Laws of 2024, item 226, as amended).