Everyone receiving capital gains probably knows that receiving dividends is subject to income tax at the rate of 19%.
However, the Corporate Income Tax Act provides for an exemption for income from a share in the profits of legal entities (as defined in the Tax Act). An exception is income earned by a general partner from a share in the profits of a partnership based in Poland.
However, this exemption is subject to certain conditions being met:
- a company paying out income from a share in the profits of legal entities must have its registered office or management board in Poland,
- a company earning revenues from a share in the profits of legal entities is subject to income tax on all of its income, regardless of where it is earned in Poland, an EU or EEA country,
- the company referred to in point 2 holds no less than 10% of shares (stocks) in the capital of the company referred to in point 1,
- the company referred to in point 2 does not benefit from exemption from income tax on all of its income, regardless of the source of its generation.
Despite meeting these conditions, the exemption will be granted to a company that holds shares in the company paying the receivables continuously for a period of two years.
The Act provides a conditional exemption for companies that already hold the required number of shares in another company, but two years have not yet passed since the acquisition. In such a situation, the exemption is permitted provided the shareholding does not fall below the required 10%.
It is therefore possible to imagine a situation where the exemption applies to dividends paid in the year of acquisition of shares.
But what if the dividend received is not taxed and the shares held are sold before the end of 2 years?
In such a case, the company that received the dividend is liable for the outstanding tax at 19% plus default interest. The tax is payable by the 20th day of the month following the month in which the company lost its exemption entitlement. Interest, however, accrues from the date the company first exercised the exemption.
It's important to remember that in both the case of dividend payments to individuals and legal entities, the paying company acts as the payer. Therefore, in order to benefit from the exemption, the payer must first receive a declaration confirming that the required conditions for applying the exemption have been met.
However, even if all the conditions for benefiting from the exemption are met, it will not apply if it is:
1) contrary in the given circumstances to the subject or purpose of these provisions;
2) the main or one of the main purposes of the transaction or other act or of many transactions or other acts, and the method of operation was artificial.
The above prohibition is so vague that it leaves a lot of room for interpretation for tax authorities, which only makes it more difficult to properly perform tax obligations.
Despite the strict conditions described above, legal entities can benefit from dividend tax exemption. However, individuals must always pay a 19% tax on dividends received.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of November 6, 2023
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