Other DTA Germany–Poland: Avoiding Double Taxation on Investments in Poland

Purpose of the Double Tax Treaty (DTA)

The Germany–Poland DTA was concluded to prevent the same income from being taxed both in Germany and in Poland. It determines which state has the right to tax specific types of income.

The aim is to avoid tax conflicts, ensure legal certainty, and promote cross-border economic activity. At the same time, the treaty is designed to prevent situations in which income is either taxed twice or not taxed at all.

Tax differences between Germany and Poland

Poland offers attractive tax conditions for companies. The corporate income tax (CIT) rate is 19%, and 9% for small taxpayers. In Germany, the overall tax burden often reaches 30–33%. These differences make Poland an interesting investment location, but they also require the correct application of the DTA to avoid double taxation.

How the Germany–Poland DTA works

The DTA clearly sets out which country is entitled to tax particular types of income. The key factors are where the company is tax resident and where the business activity is actually carried out – for example, through a permanent establishment.

Example 1:

A German company establishes an office in Poland, employing its own staff and occupying its own premises. Under the DTA, this office qualifies as a permanent establishment in Poland. The profits generated in Poland are taxed in Poland, while Germany takes this income into account in its own tax calculation in a manner that prevents double taxation.

Example 2:

A German company establishes a subsidiary in Poland. The Polish subsidiary pays tax on its profits in Poland.

If the German parent company receives dividends from the Polish subsidiary, Poland may levy withholding tax on these dividends. Depending on the level of shareholding and fulfilment of certain conditions, this tax may be 0%, 5%, 15% or 19%.

Germany then either exempts this income from tax, subject to progression, or credits the tax paid in Poland against the German tax due. We assess individually, for each company, which method provides the best protection against double taxation.

Avoiding double taxation in practice

The DTA provides for two main methods to avoid double taxation of income between Germany and Poland:

• Exemption method (with progression)

Income that has already been taxed in the other state – for example, profits of a permanent establishment – is exempt from taxation in the company’s state of residence. However, it may still be taken into account when determining the applicable tax rate (so-called exemption with progression).

• Credit method

Tax paid in the other state is credited against the tax due in the company’s state of residence. This method is particularly common for dividends, interest or royalties.

Typical sources of error

In practice, applying the Germany–Poland DTA often leads to mistakes that can result in double taxation or an unnecessarily high tax burden:

• Incorrect assessment of a permanent establishment:

Many companies underestimate the point at which a Polish permanent establishment arises. Even a small presence with staff or an office can be tax-relevant.

• Incorrect withholding tax calculation:

Dividends, interest, or royalties are sometimes taxed incorrectly or in contravention of the DTA or domestic rules.

• Failure to apply the exemption with progression correctly:

Polish-source income must be properly reflected in the German tax return, even if it is exempt there, to apply the correct tax rate.

Conclusion: Tax planning is crucial

The Germany–Poland DTA provides the basis for legally secure taxation of cross-border activities. Nevertheless, practical application is complex and prone to error.

Companies should regularly review whether their permanent establishments, shareholdings, and payment flows are correctly structured. Specialist tax advice in the German–Polish context helps to minimise risks and fully exploit the benefits of the double tax treaty.