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Poland has concluded double tax treaties with most developed countries. In total, Poland has concluded more than 80 of such treaties.
Apart from the above, Polish CIT Law also includes rules of double taxation avoidance. Consequently, where a Polish resident earns income from sources situated in a country that has not concluded a double tax treaty with Poland, double taxation is avoided based on the credit method provided in Polish CIT Law. Based on this method the Polish resident is liable for income tax imposed on its worldwide income, but this tax is proportionately reduced by the income tax paid abroad. The above rules apply to all sorts of foreign income (if not covered by a double tax treaty) such as dividends, royalties, interest, business profits, etc.
With respect to dividends from foreign sources, the CIT Law also provides for “underlying tax credit”, which is related to the corporate income tax paid by a foreign subsidiary under a foreign tax jurisdiction. Such underlying tax credit can be applied subject to conditions specified in the CIT Law. These conditions include the existence of the Double Tax Treaty between Poland and the subsidiary’s country of residence as well as the 75% shareholding of the Polish holding company in the foreign subsidiary.
The underlying tax credit does not apply, if a foreign subsidiary (dividend’s payer) is based in the EU, Iceland, Liechtenstein, Norway or Switzerland. This is due to the fact that dividends received from such subsidiaries can be subject to the “participation exemption” which is even more favourable. Under the provisions on the participation exemption, dividends received from subsidiaries based in the EU, Iceland, Liechtenstein, Norway or Switzerland are CIT-exempt provided that the Polish recipient holds at least 15% of the shares in the paying company for at least two years (with respect to the Swiss subsidiaries, the minimum shareholding is 25%).
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