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Major changes in the UK Poland Tax Treaty |
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This article has been provided courtesy of Alex Staniszewski, Staniszewski & Richter
Dividends
Dividends will be paid with no withholding tax if the recipient owns at
least 10 per cent of the share capital of the company paying the
dividends and will have done so for a two year period which includes
the date of payment of the dividends. (The current Treaty has a maximum
withholding tax rate of 5 per cent). This is in line with current
Polish CIT law, which provides for no withholding tax where the
recipient was an EU based corporation holding at least a 10 per cent
shareholding for a period of two years. Therefore, in practice there is
no real change for UK based corporate shareholders.
All other dividends may be taxed in the country of source at a maximum
rate of 10 per cent. (The current Treaty has a maximum rate of 15 per
cent).
Interest
Under the new Treaty, interest payments on bank loans, payments for the
purchase of industrial, commercial or scientific equipment by credit
and payments made to, or guaranteed by, governmental bodies will be
paid with no withholding tax. Other categories of interest may be taxed
in their country of source at a maximum rate of 5 per cent. (The
current Treaty provides for taxation only in the country of residence
of the person receiving the interest).
Royalties
Under the new Treaty, royalties may be taxed in their country of source
at a maximum rate of 5 per cent. (The current Treaty has a maximum rate
of 10 per cent).
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Employment income
Under the new Treaty, Poland will relieve the double taxation of
employment income using the exemption method. Accordingly, Polish
residents who are taxed on their employment income from the United
Kingdom will not have to pay any further tax in Poland. (Under the
current Treaty, Poland uses the credit method to relieve the double
taxation of employment income).
Capital gains on sale of real estate
Whilst the old treaty provided that capital gains on real estate
located in one country should be taxed in that country, there were no
special provisions in respect of capital gains on the sale of shares in
a real estate company (these were treated as any other gains on share
disposals and taxed in the country of residence of the owner). The new
treaty is in line with the current model OECD convention, and provides
that gains on the sale of unlisted shares deriving their value or the
greater part of their value from real estate will be taxed in the
country where the real estate is located. The latter provision also
applies to partnerships or trusts holding real estate.
This obviously is an adverse change for real estate companies.
Effective date
For UK: following 1st April for companies, 6th April for individuals after ratification.
For Poland: following 1st January after ratification.
Neither country has ratified yet. |
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