Complete Guide on Poland-UK DTAA

In the global landscape of business and investment, Poland stands out as a promising destination for foreign entrepreneurs and investors. Poland presents several prospects for development and expansion due to its advantageous geographic position, steady economic growth, and welcoming business atmosphere. Poland has an important feature that makes it more appealing to foreign companies: the Double Taxation Avoidance Agreement (DTAA) it has with the United Kingdom (UK). 

In this article, we’ll delve into the nuances of the Poland-UK DTAA, elucidating its benefits, key provisions, compliance requirements, and how it fosters an environment conducive to business development.

Understanding the Poland-UK Double Taxation Avoidance Agreement (DTAA)

The DTAA, signed in 2006 and modified by the Multilateral Instrument (MLI) in 2018, is a bilateral treaty designed to prevent double taxation on income and capital gains earned by residents of both Poland and the UK. In order to prevent companies and people from having to pay tax on the same income twice, it creates a structure for dividing up taxation powers between the two nations.

Benefits of the Poland-UK DTAA for Individuals

British expats living and working in Poland can reap significant benefits from the DTAA.

Here are some key advantages:

• Reduced Tax Withholding at Source: Dividends, royalties, and interest earned in Poland may be subject to a lower withholding tax rate under the DTAA compared to the standard Polish rate. This translates to more money in your pocket from the outset.
• Clearer Rules on Employment Income: The DTAA clarifies which country has the primary right to tax employment income. This is particularly helpful for individuals who split their time working in both Poland and the UK.
• Reduced Tax Burden on Pensions: Pensions received from the UK by Polish residents may be exempt from Polish taxation under certain conditions.

Benefits of the Poland-UK DTAA for Businesses

The DTAA offers a compelling set of advantages for British businesses venturing into the Polish market:

Reduced Withholding Tax on Dividends: 

Distributing profits to UK shareholders from a Polish subsidiary can be subject to a lower withholding tax rate under the DTAA, which would increase the financial appeal of your Polish business.

Protection Against Double Taxation: 

The agreement makes sure that a Polish subsidiary of a UK company does not pay taxes in both Poland and the UK. This makes financial planning easier and promotes a more efficient tax environment.

Reduced Risk of Permanent Establishment: 

The DTAA sets clear guidelines for what constitutes a “permanent establishment” (PE) in Poland for a UK company. This is significant because Polish corporation tax only applies to profits that can be attributed to a PE.

Key Provisions of the Poland-UK DTAA

The DTAA covers a wide range of tax issues, including:

• Taxes Covered: The agreement applies to income taxes, capital gains taxes, inheritance taxes, and certain other levies.
• Permanent Establishment: The DTAA lays out the circumstances in which a UK business is considered to have a PE in Poland and is therefore subject to Polish corporate tax obligations.
• Taxation of Profits: The agreement specifies the distribution and taxation of earnings for companies that operate in both nations.
• Dividends: The DTAA sets the maximum withholding tax rate applicable to dividends paid by Polish companies to UK resident shareholders.
• Interest: The agreement establishes the withholding tax rate on interest income earned by residents of one country from the other.
• Royalties: The DTAA determines the withholding tax rate on royalties paid for the use of intellectual property between residents of the two countries.
• Capital Gains: The agreement explains the taxation of capital gains that come from the selling of assets like shares or real estate in each nation.
• Exchange of Information: In order to stop tax evasion and guarantee compliance, the DTAA encourages collaboration between Polish and UK tax authorities.

Compliance Requirements and Reporting Obligations under the Poland-UK DTAA

While the DTAA offers various benefits, it’s essential for individuals and businesses to comply with the relevant reporting obligations to avail themselves of these advantages fully.

Key compliance requirements include:

• Documentation: Maintaining accurate records and documentation to substantiate claims for treaty benefits, such as tax residency and entitlement to reduced withholding tax rates.
• Reporting Obligations: Fulfilling reporting obligations in both countries, including the timely filing of tax returns and disclosures of cross-border transactions to ensure compliance with tax laws and treaty provisions.
• Anti-Abuse Provisions: Adhering to anti-abuse provisions aimed at preventing the misuse of treaty benefits for tax avoidance purposes, ensuring that transactions are undertaken for genuine commercial reasons.

Conclusion

The Poland-UK DTAA serves as a catalyst for fostering bilateral trade and investment between the two countries, offering a host of benefits for individuals and businesses alike. By leveraging the provisions of the agreement, foreign entrepreneurs and investors can unlock new opportunities and achieve sustainable growth in Poland’s dynamic market.

For those looking to capitalize on the advantages of the Poland-UK DTAA and establish a presence in Poland, OnDemand International offers comprehensive business registration services. With our expertise and streamlined processes, we can assist you in establishing a company in Poland in just 2 to 3 weeks, ensuring a professional and hassle-free experience. Contact OnDemand International today to embark on your journey of business expansion with confidence.