Tax consequences of payments for advertising and promotional services to a non-resident

Publication date: April 07, 2025

Payment for advertising and promotional services to a non-resident involves many tax issues that result from domestic regulations as well as international double taxation treaties (DTTs). To properly account for these payments, entrepreneurs must understand both the general rules on withholding tax and the provisions of international treaties that may affect the amount and principles of taxation.

1. Obligation to withhold tax at source (WHT)

1.1. General rules for withholding tax

In Poland, the rules for withholding tax (WHT) are set out in Article 21, Section 1 of the Corporate Income Tax Act (CIT). In the case of payments for advertising services to non-residents, the payer in Poland is required to withhold flat-rate income tax on this payment. The basic rate of this tax is 20% of the gross value of the payment.

Advertising and promotional services, including all forms of promotion, marketing, advertising and branding activities, are classified as services subject to WHT, which means that any payment for such services is subject to 20% tax, unless a double taxation treaty (DTT) provides otherwise.

1.2. Possibility of applying a double taxation treaty (DTT)

International double taxation treaties concluded by Poland with other countries may provide for preferential conditions for withholding tax. In the case of UPO agreements it is possible to:

• Apply a reduced tax rate (e.g. 10% instead of 20%),
• Complete exemption from withholding tax if certain conditions are met.

In order to benefit from the preferences resulting from the UPO, a non-resident must provide the payer with a tax residence certificate issued by the tax authorities of their country, which confirms that they are a tax resident in a given country. In addition, the payer must verify that the foreign contractor does not conduct business in Poland through a permanent establishment (e.g. a branch, office), which may affect the possibility of applying the preferences resulting from the UPO.

1.3. Due diligence regulations and documentation obligations

Since 2019, Poland has been implementing stricter regulations regarding due diligence in the scope of applying tax preferences provided for in the UPO. The payer, making payments to non-resident, must:

• Make sure that the actual recipient of the payment (beneficial owner) has the right to the received receivables.
• Verify that the contractor is not merely an intermediary (e.g. a so-called “shell company”).
• Document that the advertising services are actually provided by the foreign contractor and the business activity is conducted in accordance with the regulations of the country of residence.

If due diligence is not exercised, the tax authority may question the exemption from withholding tax and request its collection with interest.

2. Classification of receivables as “corporate profits”

In accordance with Article 7 of the OECD Model Convention and the provisions contained in double taxation treaties (DTTs), the profits of a non-resident enterprise are subject to taxation only in its country of residence, unless the enterprise conducts business in Poland through a permanent establishment (e.g. branch, office).

2.1. Tax interpretation in the context of the Polish-Irish agreement

In the context of the Double Taxation Agreement between Poland and Ireland (UPO Poland-Ireland), the tax interpretation (ref. 0114-KDIP2-1.4010.464.2019.2.SP) indicated that payments for advertising services to the Irish contractor should be treated as business profits. This means that:

• If the Irish contractor does not conduct business through a permanent establishment in Poland, the amounts paid for advertising services are not subject to taxation in Poland.
• In such a case, tax on these liabilities should be settled exclusively in Ireland, in accordance with Irish tax rules.

2.2. Impact of case law on future tax interpretations

The Polish Supreme Administrative Court (NSA) judgment in this case introduces a significant change in tax interpretations in Poland, especially for payments to Irish contractors. The determination that payments for advertising services are treated as profits of the company within the meaning of the UPO is a precedent that can be used by other taxpayers when analyzing the obligation to withhold WHT. Payers can now refer to this line of case law when applying for exemption from WHT, especially in the context of advertising services provided by foreign contractors.

3. Payer’s obligations and consequences of errors in settlements

A payer making a transfer to a non-resident has a number of obligations that must be fulfilled in order to avoid tax consequences:

1. Verify withholding tax obligations, taking into account UPO agreements and the counterparty’s residence status.
2. Obtain a non-resident tax residence certificate.
3. Collect and remit WHT if exemption under UPO cannot be applied.
4. Submit an IFT-2R form to the tax office and provide it to the non-resident if withholding tax has been withheld.
5. Document the verification performed to demonstrate due diligence, particularly in verifying the actual recipient of the payment and confirming that the services are actually provided.

Billing errors can lead to:

• Tax penalties, such as a penalty for improper withholding of tax.
• The obligation to pay outstanding tax plus interest.
• Criminal and fiscal liability for persons responsible for incorrect tax settlements.

4. Conclusions and practical consequences

In light of the regulations and case law, entrepreneurs making payments to non-residents should take the following steps to avoid tax risk:

• Carefully analyze the tax treatment of the payment – Advertising services may be treated as business profits and will then not be subject to WHT.
• Check the content of double taxation treaties – You should familiarize yourself with the terms of applying tax preferences arising from such treaties.
• Protect yourself with documentation – Having up-to-date certificates of residence, contracts and evidence of actual provision of services will help in the event of tax audits.
• Monitor changes in tax regulations and interpretations – In Poland, tax authorities often modify their positions, and changes in regulations may affect the obligations of payers.
• Obtain individual interpretations in the event of doubts regarding the obligation to collect WHT or the application of UPO.