Renting equipment and machinery abroad - is it always beneficial?

Service-Tax

Entrepreneurs must use specialized equipment when providing services. They often do not have their own, so they decide to rent it. Sometimes, renting equipment and machinery abroad is cheaper than in Poland. However, very often taxpayers are not aware of the additional obligations imposed on them related to the rental of such equipment.

Rental of equipment and machinery abroad in the light of tax law

When a Polish entrepreneur purchases rental or equipment leasing services from foreign entities, the withholding tax regulations apply.

Article 29 of the PIT Act introduces special rules for taxing certain types of income obtained by taxpayers who do not have their registered office or management board in the territory of the Republic of Poland. This difference lies in the fact that in the case of the income referred to in Art. 29 orders to tax the income in a flat-rate manner, without taking into account the costs of obtaining them. In such a situation, the tax is set at 20% of revenues.

Pursuant to the aforementioned provision, withholding tax levied in Poland is subject to, inter alia, use or right to use an industrial or commercial device, including a means of transport. Polish tax regulations do not define the concept of industrial equipment (equipment). Industrial equipment is a general formulation, containing all possible devices constituting a set of technical elements.

This definition is also used by tax authorities, an example of which can be the individual interpretation of the Director of the Tax Chamber in Katowice of June 17, 2014, no. IBPB1 / 2 / 423-316 / 14 / CzP:

(...) according to the "Dictionary of the Polish Language" (Dictionary of the Polish Language, PWN SA Scientific Publishers, sjp.pwn.pl), equipment is "devices needed for the proper functioning of something; additional device for the machine in question or for the main device '. It can also be indicated here that "equip" means "provide with items needed for the proper functioning of something or for the performance of something."

On the other hand, the adjective "industrial" means industry, related to industry, used in industry (Mały dictionary of the Polish language; PWN Warsaw 1995).

As a result, it can be argued that the concept of industrial equipment should be understood as broadly as possible, because it has the character of a general formulation, including all possible devices constituting a set of technical elements. Therefore, it cannot be narrowed down to devices used directly in production (…).

International agreements and the tax rate

The above-mentioned regulations on the withholding tax rate will apply in a situation where the agreement on avoidance of double taxation concluded with the country to which the receivables will be transferred does not provide otherwise. As a rule, agreements on the avoidance of double taxation provide for lower rates or an exemption from this tax.

However, the condition for the application of the provisions of the international agreement is the presentation by the recipient of the receivable (the contractor for whom the payment is made) of a tax residence certificate. It is a certificate issued by the competent tax authority of his country confirming his place of residence or domicile for income tax purposes, i.e. stating that his income is taxable in the given country as the country of residence or domicile.

Only on the basis of a tax residence certificate of a given country, an international agreement concluded by the Republic of Poland with that country may be applied.

Example 1.

The entrepreneur rented an industrial device from a company based in Germany. The contract tax is 5%. However, due to the fact that the entrepreneur does not have a residence certificate, he is obliged to collect tax in accordance with the provisions of the Polish Tax Act.

Obligations of a Polish entrepreneur

A Polish entrepreneur collecting withholding tax on a payment made to a foreign contractor is obliged as a payer:

  • pay the tax by the 7th day of the month following the month in which the flat-rate tax was collected,

  • send the PIT-8AR declaration (in the case of payments to natural persons) by the end of January of the year following the tax year,

  • send the CIT-10Z declaration (in the case of payments to legal persons) by the end of the first month of the year following the tax year in which the obligation to pay the tax arose,

  • provide information to the competent tax office about the amount of income earned on the territory of Poland by a foreign entity - on the IFT-1R or IFT-2R form. This obligation arises regardless of whether the entrepreneur in Poland has collected withholding tax or not. This information should also be provided to the foreign contractor after the end of the tax year. At the request of a foreign contractor, the information form may also be issued earlier. However, this does not release an entrepreneur in Poland from the obligation to send the annual information subsequently.

Importantly, there are severe consequences for failure to provide information on time. According to Art. 54 § 1 of the Act of September 10, 1999 - Fiscal Penal Code (consolidated text: Journal of Laws of 2007, No. 111, item 765, as amended) or the tax base or does not submit a declaration, thus exposing the tax to depletion, shall be punishable by a fine of up to 720 daily rates or imprisonment, or both of these penalties jointly.

When imposing a fine, the property and family relations of the perpetrator as well as his income and earning capacity are taken into account.