What is a beneficial owner declaration?
A beneficial owner declaration is a document confirming that a given entity is the beneficial owner of the receivables received. The status of beneficial owner is derived from the provisions of the CIT and PIT Acts, which stipulate that a beneficial owner is an entity meeting the following conditions:
- receives the receivable for their own benefit, including deciding independently on its use and bearing the economic risk associated with the loss of the receivable or part thereof,
- is not an intermediary, representative, trustee or other entity obliged to transfer all or part of the receivables to another entity,
- carries out genuine business activities in the country of its registered office, where the receivables are obtained in connection with such business activities; in assessing whether the entity carries out genuine business activities, account is taken of the nature and scale of the activities carried out by that entity in relation to the receivables received.
The beneficial owner declaration serves as proof that the entity receiving the receivables meets these conditions. It is particularly important in the context of applying withholding tax exemptions or reduced rates under double taxation agreements.
When should a beneficial owner declaration be obtained?
A beneficial owner declaration is essential in several key situations, which are mainly related to the payment of receivables abroad:
- application of preferential withholding tax rates:
To benefit from reduced rates or exemptions under double taxation agreements, the payer must verify that the recipient of the payment is the beneficial owner of the funds received.
- due diligence obligation
National regulations (including Article 26(1) of the CIT Act) require payers to exercise due diligence when making payments, including confirming that the recipient of the amount paid is the beneficial owner.
- payment of interest, royalties and dividends
In the case of these types of payments, the payer is obliged to verify the recipient’s status in order to confirm the right to apply reduced withholding tax rates or exemption from withholding tax.
- Prevention of ‘treaty shopping’
Verifying beneficial owner status helps prevent situations where the contractual benefits arising from a double taxation agreement are abused to obtain tax advantages.
In practice, obtaining a beneficial owner declaration is becoming standard practice for all transactions with foreign entities that involve the possibility of applying tax relief.
Beneficial owner declaration – key information
The beneficial owner declaration plays a key role in the correct settlement of withholding tax. A payer making payments to foreign counterparties must ensure that the recipient meets the requirements of a beneficial owner. This document is essential, above all, when utilising preferential tax rates under double taxation agreements and to fulfil due diligence obligations. Regularly verifying beneficial owner status and obtaining the relevant declaration is now an indispensable part of conducting international transactions safely. If you need assistance with a beneficial owner declaration, please contact HWW Hewelt Wojnowski Lindner i Wspólnicy.
The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.
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