For foreign entrepreneurs and investors, navigating the tax landscape of a new market can feel daunting, especially when double taxation threatens profits and expansion plans. Double taxation happens when the same income is taxed in both the home and host countries.
Fortunately, the Poland-German Double Taxation Avoidance Agreement (DTAA) solves this, promoting smoother cross-border trade and making Poland an even more attractive destination for German companies and individuals.
What is a Double Taxation Avoidance Agreement (DTAA)?
A DTAA is a bilateral treaty between two countries designed to prevent income from being taxed twice — once where it’s earned and again where the taxpayer resides.
By doing so, it encourages international investment, facilitates trade, and clarifies tax rights and obligations for businesses and individuals.
Key Benefits of the Poland-German DTAA
Businesses and residents benefit significantly from this agreement. Here’s how:
- Reduced Tax Liability: German and Polish companies avoid paying tax twice on the same profits, improving cash flow and profits.
- Clear Tax Rules: Transparent rules simplify compliance and reduce legal uncertainty for cross-border operations.
- Boosted Trade and Investment: By eliminating tax barriers, the DTAA fosters more business ventures and partnerships between Poland and Germany.
- Tax Relief on Income Streams: Specific limits on withholding taxes for dividends, interest, royalties, and capital gains help optimize tax strategies.
Residence:
Defines tax residency, deciding which country has the primary right to tax an individual or entity.Permanent Establishment (PE):
Clarifies when a business’s presence in the other country becomes taxable — essential for companies with operations in both nations.Dividends:
Limits withholding tax on dividends paid between parent and subsidiary companies to typically 5%, and sometimes 0% if conditions are met.Interest:
Reduces or eliminates withholding tax on cross-border interest payments, often capped at 10% or lower.Royalties:
Sets clear rules for taxing royalties from intellectual property. Generally, tax is applied in the country where the IP is used.Capital Gains:
Capital gains from immovable property are taxed where the property sits. For shares, tax generally applies in the seller’s country of residence.Impact on Trade and Investment
The Poland-German DTAA significantly boosts economic ties:- Encourages Foreign Investment: By lowering tax costs, more German businesses expand into Poland’s dynamic markets — from automotive to IT and renewable energy.
- Empowers SMEs: Small and medium-sized companies can confidently explore new markets, knowing they won’t face unexpected tax burdens.
- Fosters Economic Growth: Increased investment translates into job creation and economic development in both countries.
How Income Streams Are Taxed?
| Income Type | Typical Withholding Tax (under DTAA) |
| Dividends | 5% (may be 0% in some cases) |
| Interest | Up to 10% (may be reduced to 0%) |
| Royalties | Taxed where used, with capped rates |
| Capital Gains | Immovable property taxed locally; shares usually taxed in residence country |
Conclusion
The Poland-German DTAA is a vital tool for anyone doing business or investing across these two countries. It ensures clear, predictable tax treatment, reduces costs, and builds trust for sustainable business growth. At OnDemand International, we help foreign entrepreneurs and corporations tap into the opportunities in Poland and Germany, from tax planning to full company formation support. Contact us today to make your cross-border expansion hassle-free and tax-efficient!FAQ’s
It’s a bilateral agreement that prevents double taxation of income for residents and businesses operating in both Poland and Germany.
Both individuals and companies with cross-border operations, investments, or income streams like dividends, royalties, or interest.
Generally, you need to provide a tax residency certificate and complete the required forms to claim reduced withholding tax rates.
Yes — independent professionals can also avoid double taxation if they qualify under the treaty’s provisions.
You can refer to the Polish Ministry of Finance or German Federal Central Tax Office for the latest version.
