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Certificate of tax residency
Certificate of tax residency and withholding tax
Entrepreneurs carrying out transactions between foreign entities must take into account the need to pay withholding tax. In most cases, this obligation can be avoided by referring to the relevant provisions of the double taxation avoidance agreement. In addition to this, international treaties on the avoidance of double taxation in many cases significantly reduce the amount of withholding tax. One of the necessary documents that reduces the withholding tax obligations is the certificate of residence.
Certificate of tax residency
The definition of a certificate of residency can be found in the Income Tax Acts. In the light of these definitions, a certificate of residency is a certificate of the taxpayer's place of residence for tax purposes, issued by the competent tax administration authority of the state where the taxpayer is domiciled. Thus, this certificate is issued by a foreign authority and the Polish taxpayer has no influence on its content and design.
A certificate of residency is, in practice, a certificate that proves in which country the taxpayer is subject to unlimited tax liability. As we emphasized, there is no single certificate template. The taxpayer receiving the certificate should pay attention to whether the document contains:
- data of the issuer of the certificate (data of the foreign tax authority);
- name and address of the foreign contractor;
- determination of the counterparty's tax residence for income tax purposes;
- the date of issue of the certificate and the date or period of its validity.
Important information
If the certificate of residence does not have a validity period, it should be used for a period of 12 consecutive months from the date of its issue.
Importantly, the taxpayer cannot replace the certificate of residence with other documents, even such as:
- excerpts from registry courts,
- excerpts from the business register,
- certificates certified by notaries
- certificates of assigning a tax identification number
even if the documents clearly show that the entity is established for tax purposes in another country.
Certificate validity issues
In many countries (e.g. Germany), the certificate of residency consists of two parts. One part is completed by the applicant and the other body.
In the first part, the applicant wishes to obtain a certificate of residency. In this important part, the taxpayer indicates information about himself and for which 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 necessity to withhold tax at source. The tax authority, when checking the certificate, may decide that it is valid in the period from the date of its issue to the date indicated by the applicant. Thus, at the moment of payment of income, the certificate may no longer be valid, and the tax authority may decide that the certificate applies only to the income listed in the first part of it.
In our opinion, such a procedure is not correct. The certificate should confirm tax residence at the moment the non-resident obtains income resulting in withholding tax collection. Therefore, the payer does not need to have a physical residence certificate at the time of payment. Thus, the certificate can be obtained even after the payment, as long as it confirms the tax residence of the foreign contractor at the time of payment. Therefore, the payer must in practice have a certificate of residency at the time of the tax audit.
As it was previously emphasized, as a rule, 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 to the time of calculation of income. Thus, it is difficult to conclude that the certificate is valid only from the moment it is issued until the time specified by the applicant as the calculation time.
On the other hand, it is problematic to assess whether the certificate of residence should be used only for a specific type of income indicated by the applicant. Polish regulations do not indicate that the certificate of residence should be used only for the income specified by the applicant. That is, a certificate from another country presented by a resident, despite the fact that the income concerned is marked on it, should be taken into account when paying any income on which we charge withholding tax.
Change of the seat of a company and certificate validity
In case of certificates, they are issued for a specified period of time. During this time, the company may change its seat. There is no reference to such a situation in the tax regulations.
Example 1
The Polish taxpayer received a certificate of residency issued by the tax authority from Italy. 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 seat to Turin. In this case, has the certificate expired?
In this case, the certificate has not expired. The change of the seat did not change the tax jurisdiction.
Tax authorities may adopt a different, broader interpretation of the provision. In this case, any change of seat would require a new certificate. It seems, however, that since the country of residence does not change, this interpretation is not correct.
Summing up, the purposeful interpretation of the provisions indicates that the certificate of residence of the Italian contractor confirms his tax residence in that country, regardless of the change of the place of the registered office from Rome to Turin.
Here, however, the rules in force in Italy should also be examined. Is the certificate still valid on the basis of these regulations?
That is, the obtained residence certificates should be verified not only in terms of formal requirements resulting from Polish regulations, but also in terms of the applicable requirements in a given country.
Example 2
The Polish company has concluded a loan agreement with an entity based in Germany. A German entity presented her with a certificate of residence. After three months, the German taxpayer moved its seat and operations to Austria. Interest on the loan will be paid every six months. In such a situation, is the presented certificate still valid?
In this case, the certificate of residence has lost its validity upon payment of the interest. The taxpayer changed his seat and the country of residence also changed. Thus, if the taxpayer granting the loan does not present a new certificate, the taxpayer will be obliged to collect withholding tax. Considering the above, failure to send a new certificate of residence by the lender results in liability for the failure to collect the tax by the payer.
Certificate of residency – form
In most cases, the taxpayer receives the original certificate. Now, you can also use a copy of the certificate.
In many countries, a certificate of residence is only issued in electronic form. Our authorities accept such electronic documents. In such a case, the electronic certificate is a document comparable to our electronic excerpts from the National Court Register or CEIDG certificates.
Thus, it is currently important to have a certificate, regardless of the form of its issuance.
To sum up
The issue of certificates of residency issued by foreign tax authorities still raises many problems. Taxpayers often do not know whether the certificate they hold entitles them not to withhold tax at source or to collect it at a lower amount. Taxpayers have to know not only know Polish regulations but often the legal regulations of the countries issuing the certificate.
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