General interpretations regarding withholding tax
January 20, 2025
Although withholding tax regulations have caused interpretative uncertainties for many years, it was only recently that the Ministry of Finance issued two general interpretations on this subject. While the Ministry of Finance had been working on a draft of clarifications, a final version has not yet been published.
What do the issued interpretations concern?
The first of the issued general interpretations concerns the conditions for dividend exemption (general interpretation dated November 15, 2024, DD9.8202.1.2024), while the second pertains to the exemption from the obligation to withhold tax on interest and royalties (general interpretation dated November 20, 2024, DD9.8202.2.2024).
In these interpretations, the Ministry of Finance addressed two issues that have caused the most doubts:
- the entity receiving income from dividends or interest is a company subject to corporate income tax on its worldwide income, regardless of where it is earned, either in Poland or another EU or EEA member state.;
- the aforementioned company does not benefit from an exemption from corporate income tax on its entire income, regardless of its source.
What are the prerequisites for a tax exemption?
The Ministry of Finance clarified that in the case of the first condition, this should be understood as the company being subject to unlimited tax liability in Poland or another EU/EEA member state.
As for the second condition, in the context of the dividend exemption, it does not matter if the recipient of the dividend from another EU/EEA member state benefits from a specific exemption based on provisions implementing EU regulations. It is worth noting that the condition will not be met if the dividend recipient is exempt from tax as an entity. Additionally, the Ministry of Finance pointed out that benefiting from a tax exemption on worldwide income will not apply if profits are distributed in such a way that the dividend is not taxed at least once within the EU or EEA, particularly if its ultimate owner is a company headquartered outside the EU and EEA. The exemption will also not apply if the taxpayer’s lack of income tax payment in a given tax year results from their individual circumstances (e.g., offsetting tax losses or deriving income solely from dividends).
How can we interpret the second condition?
In the case of exemptions for interest or royalties, the second condition should be understood as meaning that the recipient does not benefit in their country of tax residency from an exemption from taxation on their entire income or from special rules for income tax treatment. Meeting this condition should be assessed based on the laws in force in the recipient’s tax residence country or any specific tax preferences granted there. In summary, if the purchaser is exempt from tax on interest or royalties in their country of residence, the withholding tax exemption in Poland will not apply.
