Dividend Withholding Tax in Poland

A Comprehensive Analysis of Legal Framework, Historical Development, and Contemporary Practice

Dividend withholding tax constitutes a form of income taxation levied by the source state at the moment of dividend distribution from corporate profits to shareholders, deducted directly from the disbursed amount prior to its receipt by the beneficiary. This mechanism represents one of the foundational instruments of international taxation, serving simultaneously as an expression of fiscal sovereignty and as a persistent source of tension in cross-border capital flows.\

I. Introduction: Conceptual Foundations and Structural Characteristics

The distinctive feature of dividend withholding tax lies in its method of collection at the moment of the economic event (payment event), distinguishing it from declaratory taxes settled through annual returns. From the perspective of international law, dividend withholding tax—alongside taxes on interest and royalties—belongs to the three fundamental categories of source-based taxation, governed by Article 10 of the OECD Model Tax Convention on Income and on Capital.

A. Definitional Framework and Legal Nature

Dividend withholding tax represents a sui generis form of capital income taxation, characterized by several distinctive structural features.

First, in many jurisdictions it functions as a final withholding tax for certain categories of taxpayers, signifying that upon its collection, the shareholder’s tax obligation with respect to that particular income stream is exhausted, unless domestic legislation provides otherwise. It bears emphasis, however, that in cross-border situations, withholding tax is typically non-final from the perspective of the residence state, which applies the credit or exemption method under treaty or domestic law. Second, it operates as a proportional tax, applying a fixed percentage rate irrespective of the quantum of income or the taxpayer’s aggregate financial position—in contradistinction to the progressive rate structures employed in personal income taxation regimes. Third, and perhaps most significantly, it is characterized by a particular obligor responsible for its collection and remittance: not the taxpayer (i.e., the shareholder) but rather the withholding agent (i.e., the dividend-distributing corporation). This tripartite relationship renders the tax exceptionally efficacious from the perspective of revenue administration, substantially mitigating the risk of tax evasion.

B. Economic Rationale and Theoretical Underpinnings

From an economic standpoint, dividend withholding tax embodies the concept of source-based taxation, pursuant to which the right to tax accrues to the state within whose territory income is generated, irrespective of the domicile or seat of the income’s beneficiary. This conception exists in inherent tension with the alternative principle of residence-based taxation, according to which the taxpayer ought to be subject to taxation on worldwide income exclusively in the state of domicile or incorporation.

Contemporary tax law, as expressed through the network of more than 3,000 bilateral double taxation treaties, represents a modus vivendi between these competing conceptual frameworks, according to the source state a circumscribed right to tax dividends while preserving the primacy of residence-state taxation.

C. The Problem of Economic Double Taxation

It is essential to underscore the fundamental distinction between dividend withholding tax and general corporate income taxation. The latter taxes the entirety of corporate income earned during a given fiscal year, whereas dividend withholding tax applies exclusively to the distribution of profits already subjected to corporate-level taxation. This sequential imposition gives rise to the phenomenon of economic double taxation, wherein the same economic income is taxed twice: first at the corporate level as business income, and subsequently at the shareholder level as dividend income.

Certain jurisdictions have implemented ameliorative mechanisms to address this concern, most notably the imputation system employed in Australia and New Zealand, whereby shareholders receive a tax credit (franking credit) corresponding to the quantum of tax already discharged by the corporation. It should be noted that even under imputation systems, not all forms of double taxation are eliminated—non-residents, for instance, may not benefit from franking credits, and excess credits may arise.

II. Historical Genesis and Institutional Evolution

A. The Origins of Dividend Taxation (Seventeenth and Eighteenth Centuries)

The genesis of dividend taxation traces to the seventeenth century and is inextricably linked to the development of early modern commercial capitalism and the emergence of the first publicly traded joint-stock companies. The Dutch East India Company (Vereenigde Oostindische Compagnie, VOC), established in 1602, is generally considered the first modern joint-stock company listed on an exchange and distributing dividends regularly to shareholders. The success of the VOC and its British counterpart—the East India Company, chartered in 1600—precipitated an explosion of capital investment and the development of securities markets in Amsterdam and London.

The authorities of the United Provinces (the Dutch Republic) were among the first to perceive the fiscal potential of capital income. In 1672, during the catastrophic Rampjaar (Year of Disaster), when the Republic faced simultaneous attacks from France, England, Münster, and Cologne, Dutch authorities introduced extraordinary war taxes encompassing, inter alia, income from securities. Early forms of source-taxation on interest and other capital income emerged in the Dutch Republic during the early eighteenth century; some scholars view these measures as antecedents of modern withholding taxes, though the precise characterization of these early levies remains a matter of historical debate.

The relative attractiveness of Dutch versus British securities, including their differential tax treatment, is discussed by historians as one of several factors contributing to the eventual displacement of Amsterdam by London as Europe’s preeminent financial center, though the causal weight of taxation among other variables (political stability, debt management, market depth) remains contested.

In England, the fiscal system remained comparatively disorganized, relying primarily on land tax and indirect customs and excise duties. Only in 1799, during the Napoleonic Wars, did Prime Minister William Pitt the Younger introduce the first modern income tax, which encompassed income from securities, including dividends. Initially conceived as a temporary wartime measure, this tax was abolished in 1816 but subsequently reintroduced by Robert Peel in 1842, becoming a permanent fixture of the British fiscal architecture. The British Schedule F system governing dividend taxation, introduced in the mid-nineteenth century, served as a model for numerous other common law jurisdictions.

B. The Era of Industrialization and Internationalization (Nineteenth to Early Twentieth Century)

Throughout the nineteenth century, concurrent with industrialization and the rapid proliferation of industrial corporations, dividends assumed increasing significance as a source of income for the emergent class of capitalist rentiers. Major railway companies, mining enterprises, metallurgical works, and textile manufacturers generated substantial profits distributed to shareholders as regular dividends. European states and the United States progressively introduced or expanded the taxation of capital income, although considerable debate persisted regarding whether dividends ought to be taxed at all, given that corporate profits had already been subjected to entity-level taxation.

In the United States, the constitutional controversy surrounding income taxation was not resolved until the ratification of the Sixteenth Amendment in 1913, which expressly conferred upon Congress the authority to levy income taxes. The Revenue Act of 1913 instituted a federal income tax with initial rates ranging from one to seven percent, with dividends qualifying for partial exemption to mitigate double taxation. This framework evolved over subsequent decades; the Revenue Act of 1936 strengthened shareholder-level taxation and removed earlier exemptions and reliefs, moving the system closer to a classical double-taxation model, though the precise integration of corporate and shareholder taxation continued to evolve in subsequent legislation.

A pivotal development in the evolution of international dividend taxation was the emergence of cross-border capital flows and portfolio investment. In the late nineteenth and early twentieth centuries, European investors invested extensively in American railway enterprises, Argentine government bonds, Russian petroleum companies, and other foreign assets. This created a fundamental legal and fiscal quandary: which jurisdiction possessed the right to tax dividends paid by a corporation in one country to a shareholder resident in another?

In the absence of international agreements, many states unilaterally imposed substantial withholding taxes on payments to non-residents, resulting in double or even multiple taxation of the same income and distortions in international capital flows.

C. The Era of Tax Conventions and International Standardization (1920–2000)

The First World War and its financial aftermath dramatically increased revenue requirements, leading to significant increases in income tax and withholding tax rates across most European states. Simultaneously, the importance of cross-border commercial transactions and investment intensified, exacerbating the problem of international double taxation. The League of Nations, established in 1920, undertook pioneering efforts toward international coordination of tax policy.

In 1921, the League of Nations convened a Financial Committee, which commissioned a group of four distinguished economists—Bruins, Einaudi, Seligman, and Stamp—to prepare a report on international double taxation. Their foundational Report on Double Taxation (League of Nations Document E.F.S.73.F.19, 1923) first articulated the fundamental principles for allocating taxing rights between states, distinguishing the source principle from the residence principle. This report provided the theoretical foundation for all subsequent model tax conventions.

In the 1920s and 1930s, the League of Nations elaborated draft conventions addressing double taxation. Later, the Mexico Model Convention (1943) and the London Model Convention (1946) further developed these approaches. These models contained provisions concerning dividends, although they differed significantly in their allocation of taxing rights. The Mexico Model, favored by developing countries (predominantly capital importers), accorded broad taxing rights to the source state. The London Model, preferred by developed countries (predominantly capital exporters), circumscribed source-state rights in favor of the residence state.

Following the Second World War, standardization efforts were assumed by the Organisation for European Economic Co-operation (OEEC), subsequently transformed into the OECD in 1961. In 1963, the OECD published the first version of the Model Tax Convention on Income and on Capital, which became the foundation for the overwhelming majority of bilateral double taxation treaties concluded in ensuing decades.

Article 10 of the Convention, dedicated to dividends, established fundamental principles that largely remain operative. The OECD Model, particularly from the 1977 update onward, established a characteristic pattern of reduced withholding tax rates:

1. Shared Taxing Rights: Dividends may be taxed both in the beneficiary’s residence state (without limitation) and in the source state (where the distributing corporation is established), although source-state taxation is subject to rate limitations.
2. Differentiated Rate Ceilings: The OECD Model Convention prescribes a maximum rate of 15% for most cases, with a reduced rate of 5% for dividends paid to companies holding at least 25% of the distributing company’s capital (substantial participation or qualifying holdings)—designed to facilitate profit repatriation within corporate groups. (Note: The specific rate thresholds crystallized in successive Model updates; individual treaties may vary.)
3. Beneficial Ownership Requirement: The term “beneficial owner” was introduced in the 1977 update to Articles 10–12 of the OECD Model. Reduced withholding tax rates apply only where the dividend beneficiary constitutes the “beneficial owner,” a concept intended to prevent abuse through the interposition of intermediary entities solely to obtain treaty benefits (treaty shopping). The concept has been elaborated in subsequent Commentary updates and extensive case law.
4. Methods for Eliminating Double Taxation: The residence state is obligated to eliminate double taxation either through the exemption method or the credit method, pursuant to which the taxpayer may deduct from residence-state tax liability the amount of tax paid in the source state.

The OECD Model Convention has been updated on multiple occasions (significant versions in 1977, 1992, 2000, 2005, 2008, 2010, 2014, and 2017), accompanied by Commentaries that, while not legally binding, constitute authoritative interpretation of convention provisions and are widely cited by domestic courts and international arbitral tribunals.

It bears noting that the United Nations developed an alternative UN Model Double Taxation Convention between Developed and Developing Countries, first published in 1980. The UN Model, reflecting the interests of developing nations, accords broader taxing rights to the source state than does the OECD Model, including higher withholding tax rate ceilings on dividends (typically 10–15% irrespective of participation level, although certain versions provide for differentiation).

III. Contemporary Legal Framework and Jurisdictional Practice

A. The Polish Regulatory Regime

The contemporary Polish system of dividend withholding tax is governed by the Act of 26 July 1991 on Personal Income Tax (Journal of Laws 1991 No. 80, item 350, as amended) and the Act of 15 February 1992 on Corporate Income Tax (Journal of Laws 1992 No. 21, item 86, as amended), together with numerous implementing regulations and interpretative guidance issued by the Minister of Finance.

Polish domestic law sets a 19% withholding rate on dividends, which may be reduced or eliminated under applicable treaties or EU law. This tax is collected by the dividend-distributing corporation (the withholding agent) at the moment of making income available to the shareholder, irrespective of whether the shareholder has actually received the funds. The concept of “making available” (postawienie do dyspozycji) has been elaborated in administrative court jurisprudence and tax authority interpretations, encompassing not only actual monetary payments but also dividend capitalizations, distributions in kind, and set-offs of mutual obligations.

Poland has concluded more than ninety bilateral double taxation treaties that modify this standard rate. The typical rate structure in Polish DTTs comprises:

• 0% (Exemption): Certain treaties provide for exemption on dividends distributed between related companies satisfying specified conditions (most commonly, holding at least 25% of share capital for a minimum period). The availability of 0% rates depends on specific treaty provisions and may be affected by subsequent amendments, including modifications under the Multilateral Instrument (MLI).
• 5%: For dividends paid to companies holding a qualifying capital participation (typically 10% or 25%, depending on the treaty). This rate is prevalent in the Polish treaty network.
• 10%: For dividends paid to other recipients (natural persons, investment funds, companies without qualifying participation).
• 15%: Applied in certain older treaties or as a residual rate.

Note: Treaty rates are subject to change through renegotiation and MLI modifications. Practitioners should verify current treaty texts before relying on specific rate assumptions.

To avail oneself of reduced treaty rates, the dividend beneficiary must satisfy both substantive and formal requirements. Substantive requirements include, principally, possessing tax residence status in the other contracting state (evidenced by a certificate of tax residence issued by the foreign tax authority) and possessing beneficial owner status with respect to the dividend.

The question of beneficial ownership constitutes one of the most contested and litigated issues in treaty application practice. The Minister of Finance has issued Tax Explanations regarding the application of Article 4a(29) of the Corporate Income Tax Act, containing detailed interpretation of the beneficial ownership concept within the Polish tax law context (see: How the Tax Authorities Examine Substance of Foreign Companies).

In recent years, Polish tax authorities have consistently challenged holding structures wherein the foreign intermediary company lacks sufficient economic substance or is contractually obligated to transfer received dividends onward to another entity. In such circumstances, authorities deny the application of treaty rates, invoking the absence of beneficial owner status on the part of the direct dividend recipient. The beneficial owner requirement is now intertwined with GAAR (General Anti-Avoidance Rule), SAARs (Specific Anti-Avoidance Rules), and MDR (Mandatory Disclosure Rules) schemes, reinforcing its practical importance.

B. The Parent-Subsidiary Directive

Within the European Union, the Parent-Subsidiary Directive exercises fundamental influence on dividend taxation. Originally adopted as Council Directive 90/435/EEC of 23 July 1990, it was subsequently codified as Council Directive 2011/96/EU of 30 November 2011, and amended notably in 2003 (Directive 2003/123/EC), 2014, and 2015 (anti-hybrid and anti-abuse amendments). The Directive aims to eliminate economic double taxation in cases of profit distribution within corporate groups operating across multiple EU Member States.

The Directive provides for exemption from withholding tax on dividends paid by a subsidiary in one Member State to a parent company in another Member State, subject to the following conditions:

1. Participation Threshold: The parent company must hold at least 10% of the subsidiary’s share capital (reduced from the original 25% to 20% in 2003, to 15% in 2005, and to 10% in 2009).
2. Holding Period: Shares must be held for an uninterrupted period of at least 12 months (this condition may be satisfied prospectively—i.e., it need not be fulfilled at the time of dividend distribution, provided it is satisfied within the subsequent months, whereupon the exemption applies retroactively).
3. Legal Form: Both companies must assume legal forms enumerated in the Directive’s Annex (including Polish joint-stock companies [spółka akcyjna] and limited liability companies [spółka z ograniczoną odpowiedzialnością], German Aktiengesellschaft and GmbH, French SA and SARL, et cetera).
4. Tax Residence: Both companies must be tax residents in EU Member States, without the possibility of utilizing double taxation treaties to avoid EU taxation through recognition of residence outside the EU.
5. Full Taxation: Both companies must be subject to one of the taxes enumerated in the Directive’s Annex (principally corporate income taxes) without exemptions or reliefs that would result in de facto non-taxation.
6. Beneficial Ownership: The Parent-Subsidiary Directive itself does not use the term “beneficial owner” in its text. However, the Court of Justice of the European Union has read a beneficial ownership requirement into PSD relief through the prohibition of abuse and general EU law principles, particularly following the landmark Danish cases.

The Directive has been transposed into Polish law through Article 22(4)–(4d) of the Corporate Income Tax Act. The Polish legislature introduced several additional formal requirements for application of the exemption, including an obligation for the parent company to submit a declaration confirming satisfaction of the Directive’s conditions, as well as verification obligations on the payer and interaction with anti-abuse rules.

The Court of Justice of the European Union has developed Directive interpretation through a series of judgments, particularly in the context of tax abuse. In the landmark judgment in Joined Cases C-116/16 T Danmark and C-117/16 Y Denmark (the so-called Danish dividend cases, judgment of 26 February 2019), the CJEU held that Member States are entitled and obligated to deny application of the Directive in circumstances where a structure has been established principally for the purpose of obtaining tax advantages without genuine economic activity. The Court relied on general EU law abuse doctrine and Article 1(2) PSD (anti-abuse clause). It should be noted that the Danish cases addressed both the Parent-Subsidiary Directive (dividends) and the Interest and Royalties Directive. This judgment significantly strengthened the position of Member State tax authorities in combating aggressive tax planning exploiting the Directive.

IV. Conclusion

Dividend withholding tax occupies a central position within the architecture of international taxation, embodying the fundamental tension between source-state fiscal sovereignty and the facilitation of cross-border capital flows. Its evolution—from the early levies in seventeenth- and eighteenth-century Europe to the sophisticated treaty networks of the contemporary era—reflects the broader trajectory of international economic integration and the persistent challenge of allocating taxing rights among competing sovereign claims.

The contemporary legal framework, anchored in the OECD Model Convention and the EU Parent-Subsidiary Directive, represents an intricate compromise between the interests of capital-exporting and capital-importing states, between revenue mobilization and investment promotion, and between anti-abuse imperatives and legal certainty. As the CJEU’s Danish dividend cases demonstrate, this equilibrium remains contested terrain, with courts and tax authorities increasingly scrutinizing structures that lack genuine economic substance.

For practitioners and scholars alike, dividend withholding tax thus presents not merely a technical compliance challenge but a window into the deeper normative questions animating international tax law: the legitimate scope of fiscal sovereignty in an integrated global economy, the appropriate balance between taxpayer rights and anti-avoidance measures, and the ongoing project of constructing a coherent international tax order from the building blocks of bilateral treaty relationships.

Dividend Withholding Tax in Poland – further reading

Robert Nogacki: Beneficial Ownership and Dividend Distributions

2026-01-31: In December 2025, the Regional Administrative Court in Olsztyn rendered a judgment that may significantly reshape how Polish corporate taxpayers structure and execute dividend distributions within capital groups. The decision addresses a fundamental question: whether a company distributing dividends must verify that the recipient constitutes the beneficial owner of those proceeds as a precondition for claiming tax exemption. The court’s answer was unequivocal: no such requirement exists. This holding carries particular significance for enterprises operating within holding structures, where dividends routinely flow between affiliated entities.

Robert Nogacki: Beneficial Owner of Interest and Preferential Withholding Tax Rate

The interpretation of the beneficial ownership requirement in double taxation treaties has long presented considerable challenges for tax authorities, courts, and practitioners alike. The central question—whether the interposition of an intermediary in the payment chain necessarily precludes the ultimate beneficial owner from claiming preferential withholding tax rates—goes to the heart of international tax policy.

Robert Nogacki: Foreign Tax Credit for Dividend Income

2026-01-12: The Full 19% Statutory Rate Prevails Over Treaty Limitations. Polish taxpayers may reduce their withholding tax liability by the full amount of income tax paid abroad, up to the statutory ceiling of 19%, rather than being constrained by the lower rates prescribed in applicable double taxation treaties. This principle was authoritatively established by the Supreme Administrative Court in its judgment of February 28, 2023 (case no. II FSK 1171/22), which dismissed the cassation appeal filed by the Director of the National Tax Information Service.

Robert Nogacki

Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.