Tax Treaty: U.S. & Poland

Understanding the Tax Treaty Between the U.S. and Poland: Key Benefits and Provisions

The tax treaty between the United States and Poland is a crucial agreement that ensures fair tax treatment for individuals and businesses operating in both countries.

Officially known as the Convention Between the United States of America and the Republic of Poland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, this treaty works towards achieving economic cooperation and tax efficiency.

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Key Provisions of the U.S.-Poland Tax Treaty

1. Prevention of Double Taxation
   • The treaty ensures that individuals and businesses are not taxed twice on the same income by allowing tax credits, exemptions, and deductions.
2. Taxation of Different Types of Income
   • Employment Income: Typically taxed in the country where the work is performed, with exceptions for short-term assignments.
   • Dividends, Interest, and Royalties: The treaty limits withholding tax rates to reduce the tax burden on cross-border payments. For instance:
     • Dividends: Capped at 5% for corporate shareholders with significant ownership and 15% for others.
     • Interest and Royalties: Subject to reduced withholding rates.
   • Capital Gains: The country of residence typically has the primary right to tax capital gains, with exceptions for real estate and business assets.
3. Relief for U.S. Expats and Polish Residents
   • U.S. citizens in Poland and Polish citizens in the U.S. can use foreign tax credits and exclusions to mitigate double taxation on worldwide income.
   • Additionally, the Foreign Earned Income Exclusion (FEIE) allows qualifying U.S. expats to exclude a portion of their foreign income from U.S. taxation.
4. Permanent Establishment (PE) Rules
   • A company is only subject to taxation in the other country if it has a substantial presence. For example, a fixed place of business may qualify for substantial presence.
5. Exchange of Information and Anti-Tax Evasion Measures
   • The treaty includes provisions for exchange of tax information between the IRS and Polish National Revenue Administration to prevent tax fraud and evasion.

Benefits of the U.S.-Poland Tax Treaty

• Reduced Tax Rates on Cross-Border Payments: Lower withholding taxes encourage business and investment activities.
• Greater Tax Certainty: Clear rules reduce disputes and provide guidance on tax treatment for different income types.
• Protection Against Double Taxation: Individuals and businesses can claim tax credits and deductions to avoid being taxed twice.
• Encouragement of Economic Growth: The treaty promotes trade and investment by clarifying tax obligations.

How to Claim Benefits Under the Treaty

To claim treaty benefits, taxpayers may need to file specific forms with the IRS and/or the Polish National Revenue Administration. For example, U.S. taxpayers often use Form 8833 (Treaty-Based Return Position Disclosure) to report income under treaty provisions.

Conclusion

The U.S.-Poland tax treaty simplifies international taxation and supports economic relations between the two nations. Whether you are an individual, business owner, or investor, this treaty can optimize your tax obligations and avoid unnecessary financial burdens. We recommend consulting a tax professional (like us!) to ensure compliance and maximize available benefits.

By leveraging the these provisions, individuals and businesses can navigate cross-border taxation more efficiently and benefit from reduced tax liabilities.

Link to treaty document via the IRS website