Strona Kancelarii » Tax Residency in Poland and Its Implications for Shareholders of a Polish Limited Liability Company (Residents vs. Non-Residents)

If you are (or plan to become) a shareholder in a Polish limited liability company (spółka z ograniczoną odpowiedzialnością / sp. z o.o.) or intend to conduct business activity in Poland, you should correctly determine your tax residency and understand its impact on the taxation of dividends, disposals of shares, and withholding-tax (WHT) obligations. This article explains the basic rules on tax residency.

1) What is tax residency and why does it matter?

Tax residency determines in which country an individual or legal person is subject to tax on worldwide income.

Under Polish tax law, an individual is treated as a Polish tax resident if they meet at least one of the following alternative tests:

they have their centre of vital interests (personal or economic) in Poland; or
they stay in Poland for more than 183 days in a given tax year.

A resident is subject in Poland to unlimited tax liability (worldwide income), whereas a non-resident is subject to limited tax liability (Polish-source income only).

In some cases, two countries may simultaneously regard the same person as a resident. In such situations, the conflict-of-laws (tie-breaker) rules under international treaties apply. One such tie-breaker, for example, may be the taxpayer’s citizenship.

2) How to determine residency in practice (individuals)

Gather evidence concerning your centre of vital interests: where your family lives, ownership or rental of a home, centre of business activity, bank accounts, insurance policies, memberships. As a matter of systemic interpretation, the centre-of-interests test takes priority.

If you cannot clearly determine that your centre of interests is located in only one country, analyse whether your physical presence in one of the countries exceeds 183 days.

3) Shareholders of a sp. z o.o. — differences between residents and non-residents

I. Dividend distributions

As a rule, the Polish income-tax rate on dividends paid by a sp. z o.o. to its shareholder is 19%.

Resident — a dividend from a Polish company is withheld at source (19%) and, as a rule, is not reported in the annual PIT return (the company, as withholding agent, collects the flat tax upon payment).
Non-resident — the company acting as the withholding agent withholds 19% upon payment.

However, the applicable double tax treaty may provide for a reduced rate or even a full exemption. To benefit from a reduction or exemption, a non-resident shareholder must present to the company a certificate of tax residence.

As a general rule in Poland’s double tax treaties, the taxation of dividends is shared: partly in Poland and partly in the shareholder’s country of residence.

Additional reporting by the company when withholding dividend tax from a non-resident:

PIT-8AR — annual remitter’s return filed with the Tax Office by the end of January following the tax year;
IFT-1R — information sent to the non-resident shareholder and to the Tax Office by the end of February following the tax year;
IFT-1 — issued upon the shareholder’s request and sent to the shareholder and the Tax Office within 14 days of receiving the request.

For larger payments of dividends or other benefits to a non-resident shareholder that, in the course of the year, exceed PLN 2,000,000, the “pay & refund” mechanism may apply: once the PLN 2,000,000 annual threshold per taxpayer is exceeded, the remitter is, as a rule, obliged to withhold WHT, with relief obtained via a refund procedure or applied up-front on the basis of a WH-OSC statement or a clearance opinion (opinia o stosowaniu preferencji).

II. Sale of shares in a Polish sp. z o.o.

Resident — the gain on the sale of shares is subject to a 19% flat income tax, settled in the annual PIT-38 return.
Non-resident — as a rule, Poland taxes only the gain from the sale of shares in a “real-estate company”; in other cases, taxation will most often rest with the non-resident’s country of tax residence.

A “real-estate company” is a company in which at least 50% of the value of assets, directly or indirectly, consists of real property located in Poland or rights to such property.

4) Summary

If you operate a Polish sp. z o.o. with a foreign shareholder, start by determining that shareholder’s country of tax residence — it will drive the entire tax regime.

For dividend payments, obtain the shareholder’s certificate of tax residence and review the double tax treaty applicable to that shareholder.

If you are a non-resident selling shares in a Polish company, verify whether the company qualifies as a “real-estate company.”

If you are looking for legal support in this issue, please contact us.

Attorney at law - Michał Kubiak

e-mail: biuro@kancelariakubiak.pl or

phone/Whatsapp +48724293339

724 293 339

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