Withholding tax on cross-border payments from Poland

A German technology company licenses software to its Polish subsidiary. The subsidiary's finance team processes a EUR 50,000 royalty payment to the German parent – and nobody checks whether Polish withholding tax applies. Three months later, the Polish tax authority (Krajowa Administracja Skarbowa, KAS) issues an assessment holding the Polish entity liable for unpaid tax, late-payment interest, and a surcharge. The entire amount is the subsidiary's problem. The German parent feels nothing. The Polish board feels everything.

Polish withholding tax (podatek u źródła, WHT) applies to dividends, interest, royalties, and certain service fees paid from Poland to foreign recipients. The standard rates are 19 percent for dividends and 20 percent for interest and royalties. Relief under a double tax treaty or the EU Parent-Subsidiary Directive is available, but only after the Polish payer satisfies strict due-diligence and documentation requirements introduced in 2022.

This guide walks through the WHT procedure step by step: which payments are caught, how to verify eligibility for treaty relief, what the pay-and-refund mechanism means in practice, and where the most expensive mistakes occur. Three business scenarios – manufacturing, IT services, and a foreign investor structure – illustrate how the rules apply across different fact patterns. A checklist and FAQ close the guide.

Which cross-border payments trigger Polish WHT?

Polish corporate income tax legislation imposes WHT on passive income paid to non-residents. The obligation falls on the Polish payer, who acts as a withholding agent. Four categories of payment are affected: dividends, interest, royalties (including software licences), and a defined list of intangible services – management fees, advisory, accounting, market research, advertising, and data processing among them. The standard rate is 19 percent for dividends and 20 percent for the remaining categories.

The threshold that triggers the tightened pay-and-refund regime is PLN 2 million per recipient per tax year. Below that threshold, the payer may apply a reduced treaty rate directly, provided the standard due-diligence conditions are met. Above it, the payer must withhold at the full domestic rate and later apply for a refund – or obtain an opinion on the application of a preference (opinia o stosowaniu preferencji) from the Head of the National Revenue Administration (Szef KAS).

Two categories of payment fall outside WHT entirely. First, payments for tangible goods or standard freight services are not caught. Second, payments to EU/EEA residents that satisfy the conditions of the EU Interest and Royalties Directive may be exempt at source, subject to ownership thresholds and holding periods. The National Court Register (Krajowy Rejestr Sądowy, KRS) extract of the Polish entity and the foreign recipient's certificate of residence are the baseline documents for any exemption analysis.

• Dividends – 19 percent standard rate
• Interest and royalties – 20 percent standard rate
• Intangible service fees – 20 percent standard rate
• PLN 2 million annual threshold per recipient – triggers pay-and-refund
• EU Parent-Subsidiary Directive – full dividend exemption where conditions met

One misconception worth addressing early: a double tax treaty does not automatically reduce the rate. The Polish payer must actively verify that the foreign recipient is the beneficial owner, that the recipient has genuine economic substance in the treaty country, and that the arrangement is not primarily tax-driven. The Polish Financial Supervision Authority (Komisja Nadzoru Finansowego, KNF) oversees financial institutions that frequently appear as foreign recipients; for non-financial recipients, the KAS conducts audits directly.

How does the due-diligence procedure work step by step?

The 2022 amendments to Polish tax law formalised a multi-stage due-diligence standard. Meeting it is the payer's defence against personal liability of management board members. The process has four stages, each with a defined deliverable. Skipping any stage forfeits the right to apply the reduced rate and exposes the payer to a 20 percent penalty surcharge on the underpaid tax.

Stage one is identity verification. The payer collects the foreign recipient's tax residence certificate, issued by the competent authority in the recipient's home country, dated within 12 months of the payment. For payments above PLN 2 million, an apostilled or legalised copy is best practice, though a copy is technically sufficient for lower amounts. The certificate must show the recipient's legal name and tax identification number exactly as they appear in the payment instruction.

Stage two is beneficial ownership analysis. The payer must establish that the foreign entity receiving the payment is the actual beneficial owner – not a conduit. This requires reviewing the recipient's financial statements, group structure, and any pass-through arrangements. A recipient that immediately on-forwards income to a third-country parent without retaining economic rights to it will not qualify as beneficial owner under Polish tax law. We secured a reversal of a WHT assessment exceeding PLN 1.8m for a manufacturing client in the Mazowieckie region (autumn 2025), after demonstrating that the Dutch recipient retained genuine economic rights over the licensed technology.

Stage three is substance verification. The recipient must carry on real business activity in its country of residence. Polish tax law lists factors: own staff, office premises, decision-making at board level in the country of residence, and income that is not predominantly passive. A holding company with no employees and no operational activity will fail this test even if it holds a valid residence certificate.

Stage four is documentation assembly and internal sign-off. The payer's authorised representative signs a declaration confirming that all due-diligence steps were completed. That declaration is submitted to the KAS together with the WHT return (PIT-8AR or CIT-10Z, depending on recipient type). The deadline for submitting the return and remitting the tax is the 20th day of the month following the month of payment.

What is the pay-and-refund mechanism and when does it apply?

Once cumulative payments to a single foreign recipient exceed PLN 2 million in a tax year, the payer must withhold at the full domestic rate regardless of any applicable treaty. This is the pay-and-refund (pay-and-claim) mechanism. Relief is recovered afterwards, not applied upfront. The mechanism applies to passive income – dividends, interest, royalties – but not to intangible service fees, which remain subject to the standard due-diligence route regardless of amount.

Two exits from the pay-and-refund obligation exist. The first is the opinion on the application of a preference. The Polish payer (or the foreign recipient) applies to the Szef KAS for a formal opinion confirming that the reduced rate or exemption applies. The opinion is valid for 36 months. Processing time is officially 6 months, though complex cases take longer. During the validity period, the payer may apply the reduced rate directly without withholding at the full rate first.

The second exit is a declaration by the payer's management board. Board members declare, under personal liability, that they have performed due diligence and are satisfied that the treaty conditions are met. This declaration covers payments in a given calendar year and must be renewed annually. The personal liability element is real: if the declaration turns out to be incorrect, board members may face liability for the full unpaid tax. That risk should not be underestimated – it is one of the most frequently overlooked compliance gaps we see in practice.

Our team obtained a favourable opinion on the application of a preference covering royalty payments worth over EUR 3m annually for an IT services client in Małopolska (spring 2026). The opinion eliminated the cash-flow cost of withholding and reclaiming tax on every quarterly payment.

For context on how KSeF and digital reporting intersect with WHT compliance obligations for companies with cross-border operations, see our analysis of what KSeF means for businesses operating internationally.

What are the three most common mistakes – and how do they arise?

The complexity of Polish WHT rules creates predictable failure points. Three mistakes account for the majority of KAS assessments we have seen. Each is avoidable with proper process design, but each is also genuinely easy to make when WHT compliance sits with accounts payable rather than with a qualified tax advisor in Warsaw.

Mistake one: treating the residence certificate as sufficient. Many payers collect the certificate and stop there. They apply the treaty rate without completing the beneficial ownership or substance analysis. KAS auditors now routinely look behind the certificate. A Dutch or Luxembourg holding company with no staff and no decision-making activity in its registered country will be re-characterised as a conduit. The result is reassessment at 20 percent plus interest from the original payment date.

Mistake two: missing the PLN 2 million threshold mid-year. Payments accumulate across the calendar year. A payer that applies the treaty rate correctly in January may cross the PLN 2 million threshold in September without triggering an internal review. From the moment the threshold is crossed, every subsequent payment should be withheld at the full rate unless a board declaration or opinion is in place. Failing to monitor the running total is a process failure, not a legal misunderstanding – but the financial consequence is identical.

Mistake three: late or incorrect WHT returns. The return is due by the 20th of the month following the payment month. A payment made on 28 February means the return and the tax must reach the KAS by 20 March. Late submission triggers late-payment interest at the statutory rate (currently 14.5 percent per annum). If the KAS identifies the failure before the payer self-corrects, a 20 percent surcharge applies on top. Transfer pricing documentation errors often surface alongside WHT issues in the same audit, compounding the exposure.

For companies undergoing restructuring that affects intercompany payment flows, the interaction between WHT obligations and group reorganisation deserves separate analysis – see our restructuring practice page for the relevant framework.

How do the rules apply across three business scenarios?

Abstract rules become clearer through concrete fact patterns. The three scenarios below cover the most common structures we advise on: a manufacturing group with a German parent, an IT company licensing software to EU clients, and a foreign investor using a Polish holding entity. Each scenario highlights a different compliance pressure point.

Scenario 1 – Manufacturing group, German parent. A Polish manufacturer pays a management fee of EUR 120,000 per quarter to its German parent. The annual total is EUR 480,000, well below the PLN 2 million threshold at current exchange rates. The payer applies the Germany-Poland double tax treaty, which reduces the rate on management fees to zero (as they fall outside the treaty's royalty definition and are not separately taxed at source). Due diligence requires confirming the German parent's residence and beneficial ownership. A residence certificate and a brief substance analysis are sufficient. The return is filed monthly when payments occur.

Scenario 2 – IT company, software royalties to Ireland. A Polish IT company pays EUR 600,000 per year in software licence fees to an Irish parent. The PLN equivalent exceeds PLN 2 million, triggering the pay-and-refund mechanism. The Irish parent qualifies under the EU Interest and Royalties Directive, but the Polish entity must still withhold at 20 percent and apply for a refund – or obtain an opinion from the Szef KAS. The opinion route is preferable for recurring payments. IP Box structures at the Polish level may also affect the group's effective rate on the same income stream. Our KSeF and digital compliance guide for Switzerland-based companies covers parallel digital-reporting obligations at this link.

Scenario 3 – Foreign investor, Polish holding. A US private equity fund holds Polish operating companies through a Dutch holding entity. Dividends flow from Poland to the Netherlands. The Parent-Subsidiary Directive applies if the Dutch entity holds at least 10 percent of the Polish company's shares for an uninterrupted period of 24 months. The Polish payer must verify that the Dutch entity is not a pure conduit. If the Dutch entity lacks substance, the KAS may deny the exemption and assess 19 percent WHT on all dividend payments. Family foundation structures – which became available in Poland in May 2023 – offer an alternative domestic holding layer that eliminates cross-border WHT on certain distributions. Polish tax law on family foundations intersects with WHT planning in ways that are not yet fully settled in administrative practice.

What should companies prepare before making cross-border payments?

A structured preparation process reduces both the risk of a KAS assessment and the administrative burden of responding to one. The checklist below applies to any Polish entity making recurring cross-border payments above PLN 500,000 per recipient per year. For lower amounts, a lighter-touch version of the same process is still advisable.

• Obtain a current tax residence certificate from the foreign recipient (dated within 12 months)
• Complete a beneficial ownership memorandum confirming the recipient is not a conduit
• Document the recipient's economic substance in its country of residence
• Monitor cumulative payments per recipient against the PLN 2 million threshold
• File the WHT return and remit tax by the 20th of the month following each payment

For payments that regularly exceed PLN 2 million per recipient, the opinion on the application of a preference is worth the 6-month wait. It provides 36 months of certainty and eliminates the cash-flow cost of pay-and-refund cycles. The application fee is modest relative to the tax at stake. Polish tax law also requires the payer to retain all due-diligence documentation for five years from the end of the tax year in which the payment was made.

One practical point that is often overlooked: the due-diligence obligation applies even where the applicable treaty rate is zero. A zero-rate outcome still requires the payer to demonstrate that the conditions for that rate were met. The absence of tax payable does not eliminate the documentation requirement. Boards that assume zero liability means zero compliance work are routinely surprised during KAS audits.

The specific situation of your company depends on the volume and type of cross-border payments, the jurisdictions involved, and whether any payments cross the PLN 2 million threshold. Each of those variables changes the compliance path materially.

To receive an expert assessment of your WHT exposure and documentation gaps, contact info@kordeckipartners.com.

Frequently asked questions

Q: Can the Polish payer apply a reduced treaty rate without withholding at all, even above PLN 2 million?

A: Yes, but only through one of two mechanisms. Either the management board issues a declaration of due diligence under personal liability, or the payer (or recipient) obtains a formal opinion from the Head of the National Revenue Administration confirming that the reduced rate applies. Without one of these two instruments, the payer must withhold at the full domestic rate of 19 or 20 percent and apply for a refund. The refund process can take up to 6 months from the date the application is complete.

Q: How long does it take to obtain the opinion on the application of a preference?

A: The statutory processing period is 6 months from the date the application is accepted as complete. In practice, straightforward cases involving well-documented treaty relationships between EU member states are sometimes resolved faster. Complex cases – particularly those involving multi-tier structures or disputed beneficial ownership – regularly take the full period or longer. The opinion, once issued, is valid for 36 months and covers all payments of the same type to the same recipient during that period.

Q: Does the WHT due-diligence requirement apply to payments between related parties only, or to all cross-border payments?

A: The due-diligence requirement applies to all cross-border payments within the categories defined by Polish corporate income tax legislation – dividends, interest, royalties, and intangible service fees – regardless of whether the payer and recipient are related parties. The related-party status is relevant for transfer pricing purposes and may affect the KAS's scrutiny level, but it does not change the threshold or the documentation standard for WHT. A Polish company paying royalties to an unrelated foreign licensor faces the same WHT compliance obligations as one paying to its own parent.

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 law with a practical approach to cross-border tax compliance, withholding tax planning, and KAS audit defence. 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.