Very often, companies benefit from loans granted by their partners. The interest on these loans is subject to taxation. However, if the associate providing the loan is a non-resident, specific regulations apply.
1. Loan and interest on the loan
The loan agreement is one of the contracts regulated by the Civil Code. It’s defined by Article 720 § 1 of the Civil Code. According to the provision: By a loan agreement, the lender undertakes to transfer to the borrower a certain amount of money or things specified only in terms of their kind, and the borrower undertakes to return the same amount of money or the same amount of things of the same type and quality.
It should be emphasised that the legislator allows the lender to demand, among others, interest on the loan from the borrower. Indeed, Article 7201 § 1 of the Civil Code states: The provision of Article 720 § 1 doesn’t exclude the right of the money lender to demand interest and non-interest expenses from the borrower, in accordance with the following provisions.
Interest on the loan constitutes revenue for the person providing the loan, which should be subject to income tax. In the event that the loan was granted by an individual, the provision of the Personal Income Tax Act of 26 July 1991 (i.e. Official Journal of 2024, item 226, as amended), hereinafter referred to as the Act, apply.
2. Resident and non-resident
According to the Act, a Polish tax resident is a natural person who has a place of residence in Poland, i.e.
- has a centre of personal or economic interests (centre of vital interests) in Poland or
- stays in the territory of the Republic of Poland for more than 183 days in a tax year (Artice 3(1, 1a) of the Act.
Tax resident are liable to taxation of all their income (revenue) regardless of the location of its sources. In other words, they have an unlimited tax liability (Article 3(1) of the Act).
Individuals who haven’t a place of residence in Poland are non-residents and they are subject to taxation only on income (revenue) earned in the territory of the Republic of Poland. Therefore, they are subject to limited tax liability (Article 3(2a) of the Act).
3. Taxation of interest on the loan
The legislator has indicated an exemplary catalogue of income (revenue) earned by non-residents. In particular, Article 3(2b)(7) of the Act deserves attention. It indicates, as a source of income (revenue), income (revenue) from receivables settled, including those made available, paid or deducted, by individuals, legal persons or organisational units without legal personality, having their place of residence, head office or management board in the Republic of Poland, regardless of the place of conclusion of the agreement and performance of the service. The income referred to in the aforementioned provision is deemed to be the revenue listed in Article 29(1) of the Act (Article 3(2d) of the Act).
According to the wording of Article 29(1)(1) of the Act, income tax on interest revenue earned by non-residents in Poland and other than those referred to in Article 30a(1) of the Act is collected in the form of a flat rate of 20% of the revenue.
The provision of Article 30a(1)(1) of the Act, indicated in Article 29(1)(1) of the Act, requires a 19% flat-rate income tax to be collected on interest on loans, except when granting loans constitutes the subject of an economic activity.
Both Article 29(1) of the Act and Article 30a(1) of the Act should be applied taking into account the double taxation conventions to which Poland is a party. However, the legislator stipulates that the application of the tax rate resulting from the appropriate double taxation convention or the failure to collect (pay) tax in accordance with such an agreement is possible on condition that the taxpayer’s place of residence is documented for tax purposes by a certificate of residence obtained from him/her (Article 29(2) of the Act, Article 30a(2) of the Act). In other words, the condition for applying the tax rate resulting from the double taxation convention is that the taxpayer presents a certificate of residence documenting his/her place of residence.
In practice, doubts very often arise as to when Article 29(1) of the Act and when Article 30a(1)(1) of the Act should be applied. The answer was provided by the Director of National Tax Information in an individual interpretation of 6 June 2017, 0114-KDIP3-3.4011.55.2017.1.JK2. In his assessment: ″It follows from a comparison of Article 29 and Article 30a of the Personal Income Tax Act that Article 30a(1)(1) is a special provision in relation to Article 29 with regard to the taxation of interest, because, while in Article 29(1)(1) of the Personal Income Tax Act the legislator used the general concept of ‘interest’, in Article 30a of the aforementioned Act it provided for a special method of taxation of certain types of such interest, among others, interest on loans.″ .
4. Legal notice
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