UK And Poland Sign New DTA

by Jason Gorringe, Tax-News.com, London

24 July 2006

A new comprehensive double taxation convention between the United Kingdom and Poland was signed in London on Thursday by the Paymaster General, Dawn Primarolo and the Deputy Finance Minister of Poland, Jaroslaw Neneman.

The new Convention will replace an existing Convention that was concluded on 16 December 1976.

Among other things, the new Convention will introduce changes to the tax treatment of dividends, interest, royalties and employment income received by residents of one country from sources in the other.

Dividends will be paid with no withholding tax if the recipient owns at least 10 per cent 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 Convention has a maximum withholding tax rate of 5 per cent.

All other dividends may be taxed in the country of source at a maximum rate of 10 per cent. The current Convention has a maximum rate of 15 per cent.

Under the new agreement, interest payments on bank loans, payments for equipment leasing 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 Convention provides for taxation only in the country of residence of the person receiving the interest.

Royalties may be taxed in their country of source at a maximum rate of 5 per cent under the new DTA. The current Convention has a maximum rate of 10 per cent.

Finally, with regard to the treatment of employment income, the new Convention provides that 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 Convention, Poland uses the credit method to relieve the double taxation of employment income.

The Convention will enter into force once both countries have completed their legislative procedures. In the United Kingdom the provisions of the Convention will take effect from 1 April (for corporation tax purposes), and from 6 April (for income tax and capital gains tax purposes) in the calendar year following the date of entry into force.

In Poland, the provisions will take effect (in respect of income tax and capital gains tax) from 1 January in the calendar year following the date of entry into force.

Recommended