Certificate of tax residence and withholding tax

Entrepreneurs transacting between foreign entities should remember to pay withholding tax. In most cases, this obligation can be avoided by referring to the relevant provisions of the treaty aimed at avoiding double taxation. In addition, international conventions aimed at avoiding double taxation considerably reduce the amount of withholding tax in many cases. One of the necessary documents that reduces withholding obligations is the residence certificate.

Residence certificate

The definition of a residence certificate is found in income tax laws. In light of these definitions a certificate of residence is a certificate of the tax residence of the taxpayer issued by the competent tax administration of the country where the taxpayer is established. Thus, this certificate is issued by a foreign authority and the Polish taxpayer has no influence on its content and design.

A certificate of residence is in practice a certificate in which the taxpayer is subject to unlimited tax liability. As we have pointed out, there is no single certificate model. The taxpayer who receives the certificate must check whether the document contains:

  • certificate issuer data (foreign tax authority data);
  • name and address of the foreign entrepreneur;
  • determining the tax residency of the counterparty for income tax purposes.
  • the date of issue of the certificate and the date or period of its validity.

If the residence certificate does not have a validity period, it must be used for a period of 12 consecutive months from the date of its issue.

It is important to note that the taxpayer cannot replace the residence certificate with other documents, even such as:

  • extracts from court records,
  • extracts from the commercial register,
  • certificates certified by notaries
  • certificates of allocation of a tax identification number

even if the documents clearly show that the entity is domiciled for tax purposes in another country.

Certificate validity issues

In many countries (eg Germany) The residence certificate consists of two parts. One part is completed by the applicant and the other by the organization.

In the first part, the applicant wishes to obtain a certificate of residence. In this important part, the taxpayer indicates information about himself and for what income / income he needs the certificate. In the second case, the tax authority of a foreign country confirms that the applicant is a resident of a given country and that the information entered by the applicant in the first part. The above is confirmed by the date of the stamp and the signature of the official.

In many cases, the first part of the foreign applicant is incorrect. Foreign taxpayers often enter incorrect dates when entering the payment receipt period. Such a certificate, although legally correct, may result in the need to withhold tax at source. The tax office, when checking the certificate, may decide that it is valid for the period from the date of its issue to the date indicated by the applicant. Thus, at the time of payment of the income, the certificate may no longer be valid and the tax authorities may decide that the certificate only applies to the income listed in the first part of it.

In our opinion, such a procedure is not correct. The certificate must confirm the tax residence at the time of obtaining income by the non-resident resulting in the collection of a withholding tax. Therefore, the payer does not need to have a physical residency certificate at the time of payment. Thus, the certificate can be obtained even after payment, provided that it confirms the tax residence of the foreign entrepreneur at the time of payment. Thus, the payer must in practice have a certificate of residence at the time of the tax audit.

As noted earlier, generally, if the validity of the certificate is not specified, it is valid for 12 months from the date of issue. The parts of the certificate completed by the tax authorities of other countries do not apply when calculating income. Thus, it is difficult to conclude that the certificate is only valid from the time it is issued until the time specified by the applicant as the time of calculation.

On the other hand, the question of assessing whether the certificate of residence should only be applied to a specific type of income indicated by the applicant is problematic. Polish regulations do not indicate that the residence certificate should only be applied to the income specified by the applicant. That is, a certificate from another country presented by a resident, despite the fact that the relevant income is marked there, must be taken into account when paying any income on which we charge withholding to The source.

Change of seat and validity of the certificate

In the case of certificates, they are issued for a fixed period. During this time, the company may change its registered office. There is no reference to such a situation in the tax regulations.

Example 1
The Polish taxpayer has received a residence certificate issued by the Italian tax authorities. The certificate is valid for 12 months. The applicant for the certificate was based in Rome at the time of its issuance. After two months, the entity changed its headquarters to Turin. If so, has the certificate expired?
In this case, the certificate has not expired. The change of headquarters did not change the tax jurisdiction.
Tax authorities may adopt a different and broader interpretation of the provision. In this case, any change of seat would require a new certificate. However, it seems that since the country of residence does not change, this interpretation is not correct.
In summary, the deliberate interpretation of the provisions indicates that the residence certificate of the Italian entrepreneur confirms his tax residence in this country, regardless of the change in the location of the registered office from Rome to Turin.
Here, however, the rules in Italy should also be considered. Is the certificate still valid based on these regulations?
In other words, the residence certificates obtained must be checked not only in terms of formal requirements resulting from Polish regulations, but also in terms of requirements applicable in a given country.

Example 2
The Polish company entered into a loan agreement with an entity based in Germany. A German entity presented him with a residence certificate. After three months, the German taxpayer moved its headquarters and operations to Austria. Interest on the loan will be paid every six months. In such a situation, is the certificate presented still valid?
In this case, the residence certificate loses its validity as soon as the interest is paid. The taxpayer has changed his seat and the country of residence has also changed. Thus, if the taxpayer granting the loan does not present a new certificate, the taxpayer will be obliged to deduct the withholding tax. In view of the foregoing, the lender’s failure to send a new certificate of residence entails liability for the taxpayer’s failure to collect the tax.

Residence certificate – form

In most of the cases the taxpayer receives the original certificate. Currently, you can also use a copy of the certificate.

In many countries, a residence certificate is only issued in electronic form. Our authorities accept these electronic documents. In such a case, the electronic certificate is a document comparable to our electronic extracts from the National Court Register or CEIDG certificates.

Thus, it is currently important to have a certificate, regardless of the form in which it is issued.

to summarize

The issuance of residence certificates issued by foreign tax authorities still poses many problems. Taxpayers often don’t know whether the certificate they hold entitles them not to withhold tax or to withhold a lower amount. Taxpayers should not only know the Polish regulations, but often the legal regulations of the countries issuing the certificate.

If you want to know more, check out »

Polish order. Checklist for Entrepreneurs, Accountants and HR (PDF)

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