Poland Double Taxation Treaties

Poland has signed Double Taxation Treaties (DTTs) also known as Double Taxation Agreements (DTAs) with several countries. These treaties are aimed at reducing the cost of doing business on investors. If you would like to know whether your country has made any taxation agreements with Poland, you can enquire with Polish lawyers, or the government. 

Below is a shortlist of some of the countries that have signed DTAs with Poland:

Switzerland, United Kingdom, Zimbabwe, Singapore, New Zealand, Albania, Algeria, Cyprus, Egypt, Lebanon, Germany, Mexico, Israel, Netherlands, Sri Lanka, Spain, Denmark, Greece, Japan, China, Estonia, France, Portugal, Italy, India, etc. The list is endless. 

 A brief background of Poland

Many would recall that Poland was once under a communist regime. The government was a monopoly not only in politics, but also in the country's economic activities. It was in 1989 when the first free elections were held in the country. This changed everything. The country's way of doing business took a turn. Solid monetary policies and taxation systems were anchored. Many countries flocked in to sign business treaties with the newly reformed state.

Tax and double taxation

To understand what double taxation is you need to understand what's tax. Tax is a compulsory financial contribution to state revenue imposed by a government on taxpayers. This is done to fund government spending and different public expenditures. Taxes are levied on business profits, workers' income or added to the cost of services, goods or financial transactions.   

As for double taxation, there are two forms which are known.

Economic Double taxation :- This is when tax is charged twice on the same income source. This normally occurs when the income is charged at both the personal and corporate level.

Jurisdictional Double Taxation :- Tax is imposed by two or more countries in line with their domestic laws, concerning the same transaction or income in their respective jurisdictions. Simply put, it is when the same person is taxed twice on the same income by more than one state. 

Double tax avoidance treaties 

These are very important instruments used by stakeholders in an attempt to reduce the cost of running a business in a different country from their own. As of May 2018, Poland has signed double tax avoidance treaties with more than 80 countries from all over the world. The agreement is mainly for the prevention of double taxation on income and capital and:

• eliminating tax and fiscal evasion and fraud;

• supporting cross-border trade efficiency;

• general reduction of double taxation.

A double taxation treaty or Double Tax Agreement (DTA) allows the offsetting of tax paid in one of 2 countries against the tax payable in the other, this is a way to prevent double taxation. The treaty also grants an exemption or tax at a reduced rate on certain items like royalties, capital gains, dividends, interest and many others that are connected with a transaction carried out between parties associated with the Double Taxation Prevention Treaty.

It does not mean that one does not pay tax at all but individuals can be resident for tax purposes in one country at a time. There are two main modes used in a DTA which are tax credit and exemption.  What that means is, tax can be levied in the country of residence but be exempted from the country in which the income arose. In another case, the resident can pay withholding tax in the country where the income arose, the taxpayer will then receive a compensating tax credit in the resident country to show that tax has already been paid. When certain income is taxable under the polish Income Tax Ordinance but there is a reduced tax (exemption) under any Taxation Treaty, the income is taxed according to the provisions of the Taxation Treaty.  For the treaty to work, both authorities of the DTA are required to exchange information or records of tax payments made by the residents on income or capital.

Benefits of double tax treaties

• They encourage economic growth by promoting investment from different countries.

• Supports the growth of small businesses, but ensuring that honest taxpayers do not pay tax in two countries.

• Solidifies good economic and political relations between different countries through free and fair trade.

• Enables businesses to benefit from the reduction on the tax charged on income and capital for members of the double taxation treaty.

A lot of work, expertise and effort has been put into drafting all these policies but good communication between countries can ensure that individuals and companies do not evade tax.