A Kraków-based IT company invoices a Czech client every month. The payments look routine. Then the Czech tax authority issues a withholding tax assessment – because no residency certificate was on file and the treaty exemption was never formally claimed. The loss is real, the refund process is slow, and the opportunity to structure the arrangement correctly has already passed.

The double tax treaty between Poland and the Czech Republic eliminates double taxation on income earned across both countries by allocating taxing rights between the two states. The treaty covers dividends, interest, royalties, business profits, and employment income, with specific withholding tax caps – 5% or 10% on dividends depending on the shareholding threshold, and 10% on interest and royalties. To apply treaty benefits, a valid certificate of tax residency from the competent authority in the payer's or recipient's home state is required before payment is made.

This alert covers three areas: which income categories the treaty governs, who is affected and at what thresholds, and what steps businesses operating between Poland and the Czech Republic should take now to avoid forfeiting treaty protection.

What does the Poland–Czech Republic tax treaty cover?

The treaty – formally the Convention between the Republic of Poland and the Czech Republic for the avoidance of double taxation – follows the OECD Model Convention structure. It allocates taxing rights across income types and sets maximum withholding rates that neither state may exceed. Polish tax law implements treaty provisions directly, but the burden of proof rests with the payer. The Ministry of Finance in Warsaw and the Czech Financial Administration (Finanční správa) are the competent authorities on each side.

Key income categories and their treaty treatment:

  • Dividends – 5% withholding if the recipient holds at least 25% of the paying company's capital; 10% in all other cases
  • Interest – 10% maximum withholding; many intra-group loans between Polish and Czech entities fall here
  • Royalties – 10% maximum withholding; covers software licences, patents, and trademarks
  • Business profits – taxed only in the state of residence unless a permanent establishment (PE) exists in the other state
  • Employment income – taxed where work is performed, with a 183-day rule for short-term assignments

The PE threshold is particularly relevant for Czech companies sending employees or equipment to Poland for extended projects. Under Polish corporate legislation, a PE triggers full corporate income tax registration with the National Tax Administration (Krajowa Administracja Skarbowa, KAS) and monthly advance payments. Missing that registration forfeits the treaty's business-profits exemption and exposes the entity to penalties.

One area that catches businesses off guard is the royalties category. A Czech parent licensing software to a Polish subsidiary pays 10% withholding under the treaty – but only if the residency certificate is held by the Polish payer before the payment date. Without it, domestic Polish withholding rates apply, which can reach 20%. For companies with active IP Box or transfer pricing arrangements, the treaty interaction with those regimes requires separate analysis.

Who is affected and what are the thresholds?

Any Polish or Czech entity making cross-border payments of dividends, interest, or royalties to a resident of the other state is directly affected. The 25% shareholding threshold for the reduced 5% dividend rate is measured at the time of payment – not at year-end. Missing that threshold by even one share means the 10% rate applies, and the difference cannot be reclaimed without a formal refund procedure that typically takes 12 months or more.

We secured a reclassification of withholding tax on royalty payments exceeding PLN 800,000 for a technology client in the Małopolska region (autumn 2025). The issue was a residency certificate that had expired mid-year. The payer had continued applying the 10% treaty rate on an invalid document, triggering a surcharge assessment from KAS. Early detection reduced the exposure significantly – but the interest on arrears was not recoverable.

Three business profiles face the highest risk:

  • Polish subsidiaries of Czech groups receiving intra-group loans – interest withholding at 10% applies unless the treaty is properly documented
  • Czech IT or IP companies licensing technology into Poland – royalty withholding triggers immediately on each payment
  • Cross-border employment arrangements where the 183-day rule is close to the limit – a single additional workday in Poland can create a taxable presence

Polish family foundation structures holding Czech-source dividends also interact with the treaty. Under Polish tax law, a fundacja rodzinna (family foundation) is a separate taxpayer. Whether it qualifies as a treaty resident entitled to reduced withholding rates depends on the Czech authority's recognition of that entity type – a question that remains unsettled and warrants specific advice before any distribution is made.

For businesses already using KSeF Poland for structured invoicing of cross-border services, treaty documentation should be aligned with the invoice flow. A residency certificate held on file but not matched to the specific invoice series creates audit gaps.

What immediate steps should businesses take?

Treaty benefits are not automatic. They must be claimed, documented, and renewed. The most common reason businesses forfeit protection is administrative – expired certificates, missing documentation, or incorrect classification of the income type. A tax advisor Warsaw-based or Prague-based can correct most of these issues prospectively, but retrospective refund claims are time-consuming and uncertain.

We obtained a full refund of excess withholding tax on dividend payments exceeding PLN 1.2m for a manufacturing client in the Silesia region (spring 2025). The refund took 14 months. Prospective structuring would have avoided the cash-flow gap entirely.

Immediate action checklist:

  • Obtain or renew certificates of tax residency for all counterparties before the next payment cycle
  • Verify the shareholding percentage for dividend payments – confirm the 25% threshold is met at payment date
  • Review PE exposure for Czech employees or contractors working in Poland for more than 183 days in any 12-month period
  • Check that royalty and interest payments are correctly classified under the treaty, not treated as business profits

For groups with Polish–Czech structures that also involve insolvency risk or cross-border restructuring, treaty residency questions interact with jurisdiction issues. The cross-border insolvency framework between Poland and the Czech Republic affects where assets are located for treaty purposes – a point that matters when a PE is disputed during proceedings.

Transfer pricing documentation for intra-group transactions must also reflect treaty positions consistently. A loan priced at arm's length but documented without reference to the applicable treaty withholding rate creates an inconsistency that KAS auditors routinely flag. Double tax treaty between Poland and Czech Republic provisions do not override transfer pricing rules – both frameworks apply simultaneously.

The competent authority procedure under the treaty allows businesses to request relief where double taxation has already occurred. Applications are filed with the Ministry of Finance in Warsaw. The process takes 18 to 24 months on average. That timeline alone is reason enough to act before a dispute arises, not after.

Your company's specific cross-border structure may already be exposed to withholding tax risk that treaty benefits could eliminate – but only if documentation is in place before the next payment. Delay forfeits the protection permanently for past payments.

To receive an expert assessment of your Poland–Czech tax structure and residency documentation, contact info@kordeckipartners.com.

Frequently asked questions

Q: Does the treaty apply automatically, or does the payer need to take action?

A: The treaty does not apply automatically. The payer must hold a valid certificate of tax residency from the recipient's home-state tax authority before making the payment. Without that certificate, domestic withholding rates apply. Retroactive claims are possible but take 12 to 24 months and are not guaranteed.

Q: What is the cost of missing the 25% shareholding threshold for the reduced dividend rate?

A: Missing the threshold means withholding at 10% instead of 5%. On a dividend of PLN 2m, that is an additional PLN 100,000 withheld. Reclaiming that amount through a refund procedure requires filing with KAS and typically takes over a year. Confirming the shareholding structure before each distribution avoids the issue entirely.

Q: Does Polish IP Box interact with the treaty royalty withholding rate?

A: IP Box is a Polish domestic preferential rate on qualifying intellectual property income. It applies to the Polish taxpayer's own tax liability. The treaty royalty withholding rate applies to payments made to a Czech recipient. The two regimes operate at different levels and do not cancel each other out. A Polish company benefiting from IP Box may still be required to withhold 10% on royalties paid to a Czech licensor.

KORDECKI & Partners is a law firm based in Warsaw and Krakow, advising business clients across 30 jurisdictions. Our team combines expertise in Polish and international tax law with a practical approach to treaty structuring, withholding tax compliance, and cross-border transaction advisory. We work with Polish entrepreneurs, foreign investors, and in-house legal teams. To discuss your situation, contact info@kordeckipartners.com.

Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. KORDECKI & Partners assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@kordeckipartners.com.