11:02 4 October 2019
Post by: WBJ

Taxation / Tax-safe investments in Poland

Recent developments in tax law are proving to be a challenge for investors who want to make a profitable investment while also complying with local law and tax requirements

Taxation / Tax-safe investments in Poland

Theoretically, the Polish legislator follows EU directives, but in practice it often goes beyond the minimum criteria provided by the European legislator. What have been the biggest changes for investors in Poland in 2019?


The split payment mechanism has already been in effect in Poland for some time, although until now it was a voluntary solution. Taxpayers, when making payments to their contractors, could choose if the VAT part of the payment should be transferred to a VAT technical account or not. The aim was to avoid VAT fraud. In addition, the paying entity could avoid liability for contractor’s VAT obligation when remitting the VAT amount via split. Starting on November 1, 2019, the VAT split payment will be obligatory for a number of transactions, with related fines for not following this obligation. Among others, construction services will be covered by the obligatory VAT split payment, which is important news for real estate investors. To be precise, the term “construction services” includes not only the construction of a building, but also renovations, improvements and fit-out works. Invoices subject to split payment will include the phrase “split payment mechanism,” otherwise an additional VAT sanction of 30 percent of disclosed VAT may be imposed on the service provider. Failure to effect payment according to the split rule means a sanction of 30 percent of disclosed VAT to the service recipient. 


Since January 2019 remitters of selected payments to Polish non-residents – for intangible services, interest, dividends, royalties – need to carefully verify the nature of payment as well as the business of a contractor. Namely, they are obliged to apply due diligence when confirming the right for lower WHT rate or exemption. In case of payments of over PLN 2 million, the rule is to withhold based on domestic rates (20 percent or 19 percent, in some cases 10 percent) and only later apply for the WHT refund. In some cases, immediate application of lower rates is allowed; however, it is subject to filing numerous statements or when an opinion to that effect has been issued by tax authorities. Non-compliance with regulations or invalid or unsatisfactory supporting documentation may result not only in penal fiscal liability, but also in penalty sanctions of up to 10 percent of payments for which withholding tax was due.


Another interesting issue in the Polish tax system is mandatory disclosure rules from an EU directive but modified by the Polish legislator in a pro-fiscal way. First of all, the obligation to report tax schemes was introduced earlier than in other European countries. Secondly, it concerns not only cross-border tax arrangements, but also local deals. What is more, penalties for non-disclosure are disproportionally higher than in any other foreign jurisdiction (reaching up to approx. €5 million).

The conclusion is that a good investment is a safe one, undertaken by a conscious investor; someone who has sound knowledge of Polish domestic requirements and complies with them while investing.

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