Certificate of residence: practical issues
How to reduce a withholding tax rate or have certain foreign payments tax-exempted?
Withholding tax rates may be reduced or certain foreign payments tax-exempted provided you hold a relevant counterparty's certificate of residence.
Provisions of DTAA allow Polish businesses to reduce their withholding tax rate payable in Poland on dividend, interest and license liabilities to non-resident entities, provided they meet certain formal requirements, in particular hold a certificate of residence supplied by such entity in a form provided for by relevant regulations. Practically, obtaining a relevant certificate of residence is quite difficult for taxpayers, and tax authorities may refuse the exemption from withholding tax if such document does not meet certain formal conditions.
What requirements should be met by such certificate?
The certificate of residence confirms the location of a counterparty's registered office for tax purposes. The document is issued by tax authorities of the country of residence upon taxpayer's request. The definition included in PIT Act and CIT Act is of general nature and does not indicate all formal requirements that such a certificate should meet. According to Polish tax authorities, the document should be issued by a competent foreign office and its contents should clearly indicate the tax residence of a given firm and the date of issue or validity period.
Not all countries, though, issue certificates of residence that meet these requirements. Please note that not all documents issued by foreign tax authorities shall be accepted by Polish ones. Confirmation of registration for VAT purposes, of foreign counterparty's tax identification number or its legal form shall not be deemed to meet the statutory requirements concerning the certificate of residence.
Form of certificate of residence
The form of the certificate of residence document to be presented by Polish taxpayers for the case of tax inspection also poses significant problems. According to tax authorities, taxpayers should obtain a printout of an original document. All copies thereof need notarial certification. The form of a computer file is also acceptable for such documents, if this is how they have been issued by the tax administration of the country of residence (and preferably provided with an electronic signature). Tax offices often question copies of certificates of residence obtained via e-mail or from websites, despite this form being the easiest for taxpayers.
Validity of certificates of residence
Regulations binding since 2015 were to eliminate doubts regarding the expiration date of certificates of residence with no indicated validity period. Pursuant to current regulations, such certificates remain valid 12 months of the issue date. Thus, if a foreign counterparty changes its registered office and fails to inform its Polish counterparty about the fact, no additional tax will be due from the Polish business. The principle does not apply, though, if the Polish taxpayer has learned about the change of the registered office address, e.g. from invoices received from that counterparty.
In light of the current regulations, therefore, it is unclear whether certificates with no validity period indicated confirm the tax residence of a counterparty prior to its issue.
Relevant statements preventing from tax collection
Additionally, dividends, interest and license fees payable to foreign capital group companies may be tax exempted upon obtaining relevant statements from counterparties. The current law provides for a variety of statements to be obtained, depending on the type of payment and capital relationship with the Polish company.
Here you can find more information regarding dividends, interest and license receivables being exempted from withholding tax and the planned amendments.