How to Avoid Double Taxation Between Poland and Russia in 2025?

• Key Aspects of a DTT
• The Agreement Between Poland and Russia
• What the Agreement Provides
• Practical Recommendations
• IMPORTANT! Suspension of the Agreement
• Contact

To avoid double taxation, countries provide various tax reliefs and exemptions enshrined in Double Taxation Treaties (DTTs) that they conclude with other countries. A DTT is an international agreement concluded between two or more countries to prevent a situation where the same income is taxed in both jurisdictions. The main goal of such agreements is to eliminate or reduce the tax burden for individuals and legal entities operating in multiple countries.

Key Aspects of a DTT:

1. Avoidance of Double Taxation: A DTT establishes rules according to which income earned by residents of one country from sources in another country may be taxed in only one of the countries or at a reduced rate.
2. Determination of Residency: The agreements define the criteria for determining the tax residency of individuals and legal entities, which is crucial for establishing which country has the right to tax.
3. Categories of Income: DTTs typically cover various types of income, such as:
   • Dividends
   • Interest
   • Royalties
   • Salaries
   • Business profits
4. Methods for Eliminating Double Taxation: The agreements may provide for different methods of eliminating double taxation, such as:
   • Exemption method (income is exempt from tax in one of the countries)
   • Tax credit method (tax paid in one country is deducted from the tax in the other country)
5. Exchange of Information: Many DTTs include provisions for cooperation and exchange of information between the tax authorities of the participating countries to prevent tax evasion and ensure compliance with tax legislation.

The advantages of DTTs include reducing the tax burden, simplifying business operations, and attracting investment.

The Agreement Between Poland and Russia

Conducting business and earning income between Poland and Russia requires careful attention to taxation issues. One of the key tools for preventing double taxation is the international agreement between the countries. In the case of Russia and Poland, this document is the Agreement of May 22, 1992, “on the Avoidance of Double Taxation with respect to Taxes on Income and on Capital.” The agreement, signed in 1992, aims to eliminate the situation where the same income or property is taxed simultaneously in both countries. This is important for individuals and companies that conduct economic activities or earn income in both jurisdictions.

What the Agreement Provides

• Allocation of Taxing Rights – The document clearly defines which country has the right to tax various types of income—for example, dividends, interest, royalties, and business profits.
• Methods for Eliminating Double Taxation – The agreement provides for two main methods:
  • Exemption method – income is exempt from tax in one of the countries.
  • Tax credit method – tax paid in one country is credited against the tax in the other.
• Determination of Residency – The agreement contains criteria for determining the tax residency of individuals and legal entities, which helps to identify the country of primary taxation.
• Exchange of Information – To combat tax offenses, the exchange of tax information between the competent authorities of Russia and Poland is provided for.

Practical Recommendations for Businesses and Citizens

1. Verify your residency status—it affects where you are required to pay taxes.
2. Use the benefits of the agreement—with proper documentation, you can reduce your tax burden or avoid paying tax twice.
3. Submit necessary documents on time—meeting reporting and declaration deadlines is important to confirm eligibility for benefits.
4. Consult with tax specialists—the specifics of applying the agreement may depend on individual circumstances.

IMPORTANT! Suspension of the Agreement

On August 8, 2023, the Decree of the President of the Russian Federation No. 585 “On the suspension of certain provisions of international treaties of the Russian Federation on taxation issues” came into force. This decree suspended the application of agreements on the avoidance of double taxation of income and property with a number of countries (a total of 38 states). This list includes the Republic of Poland. According to Decree No. 585, the application of Articles 4–20 and 22 of the Agreement between the government of the Russian Federation and the government of the Republic of Poland, signed on May 22, 1992, has been suspended. As a result of these changes, in accordance with the provisions of Articles 284 and 309 of the Tax Code of the Russian Federation, Russian tax authorities have the right to withhold tax on income received in Russia from Polish citizens and companies. By a note dated October 18, 2023, No. PD.2701.2.2023, the Republic of Poland informed that Poland does not take note of the information about the suspension by the Russian side of the application of certain provisions of the Agreement. Due to these circumstances, we recommend seeking consultation from specialists on this matter.

Contact

If you would like more information or have any questions, please contact our managers for a prompt consultation: office@progressholding.pl