The largest inconvenience in proving BO status is verifying whether business activity is in fact carried out in the country of residence, and if payments are received in relation to the business operations performed. This process is usually complex, requiring not only evidence of an office, employees, required equipment, but proof of individually performed business activities with the use of own resources, source documentation (extracts from register of entrepreneurs, financial statements), etc.
It must be noted that Polish law provides two definitions of a beneficial owner, each explaining an entirely different case. To avoid confusion, a distinction between these definitions must be made.
Act on counteracting money laundering and terrorist financing:
Beneficial owner - natural person(s) who exercises, directly or indirectly, control over a customer through powers held, as a result of legal or actual circumstances, enabling the exertion of impact on activities / actions undertaken by a customer or natural person(s), on whose behalf a business relationship is established, or an occasional transaction conducted.
Namely, a beneficial owner is:
- a natural person who is a shareholder with over 25% of total company shares, or in case of no such person, a person with over 25% of the total votes in the body constituting the company, including as a pledgee or usufructuary, or on the basis of arrangements with others entitled to vote; or in the absence of such person,
- a natural person with control over a legal person(s) who jointly own over 25% of total company shares, or over 25% of the total votes in a company body, including as a pledgee or usufructuary or on the basis of arrangements with others entitled to vote; or in the absence of such person,
- a natural person exercising control through possession of entitlements with respect to the company of a dominant entity within the meaning of the Accounting Act; or
- in case of a documented inability to determine such natural person(s), or doubts concerning their identity - a person holding a senior managerial position.
The Act specifies rules and procedures for counteracting money laundering and financing of terrorism, and the conditions for conducting business activity by certain obligated institutions. Hence, this act does not define rights and obligations resulting from tax law and its definition is not applicable in the context of withholding tax (WHT).
Act on Corporate Income Tax (CIT):
This Act governs income taxation of legal persons and capital companies in the process of incorporation. Within this Act, a beneficial owner is an entity:
- receiving payments for its own benefit, to use at its own discretion, while bearing the economic risk of losing these payments,
- which is neither an intermediary, representative, trustee, or any other entity legally obliged to transfer the received payments to another entity,
- conducting genuine business activity in the country of its residence, if payments are received in relation to the business operations performed.
Only this definition of a beneficial owner should be considered in the context of WHT.
Should you have any questions/issues related to WHT feel free to contact us.