In some cases, Polish entities paying remuneration to foreign contractors are required to collect flat-rate income tax i.e. withholding tax. The payers of this tax are legal persons, organizational units without legal personality and natural persons who are entrepreneurs paying out these duties.
Polish withholding tax should be collected generally if six conditions are met, i.e.:
1) the paid receivable is income received on the territory of Poland,
2) this income belongs to the ones listed in art. 21 par. 1 of the Act of 15.02.1992 on income tax from legal persons,
3) this payment is made to a non-resident, i.e. a natural person who has no place of residence in the territory of Poland or a taxpayer not having a registered office or a management board in Poland,
4) the receivable is paid by a Polish legal person, an organizational unit without legal personality (e.g. by a general partnership) or by a natural person being an entrepreneur,
5) tax collection is not excluded by a double taxation agreement with a non-resident state,
If the agreement excludes withholding tax the non-resident recipient of the payment should provide documents being evidence of their residence or registered office for tax purposes in that country (certificate of residence),
6) the exemption from income tax (in particular the exemption referred to in Article 21 p.3) is not applicable.
The obligation to collect withholding tax may be excluded by the content of the double taxation agreement concluded with the non-resident state. However, this only applies if the non-resident presents his certificate of residence.
If the entity paying the remuneration is obliged to calculate and collect the withholding tax, then the first step is to apply the correct tax rate.
Withholding tax is calculated, as a rule, at a rate of 20%. Exceptionally, for some revenues, the withholding tax rate is 10%.
In some cases, however, withholding tax may be charged at lower rates (this applies mainly to interest income and royalties). This happens if two conditions are met:
1) a double taxation agreement concluded by Poland with a non-resident state provides lower tax rate for a given type of income,
2) the non-resident documents the possession of the place of residence or registered office for tax purposes in that country by means of a residence certificate.
As you can see, the content of agreements on avoiding double taxation concluded by Poland may affect the collection of tax “at source” in two ways. First of all, as mentioned earlier, it may exclude the obligation to collect this tax. Secondly, the content of the double taxation avoidance agreement may allow the collection of withholding tax at a rate lower than the standard one. In both cases, the implementation of the content of the provisions of double taxation agreements in this respect requires a non-resident certificate of residence.