Withholding tax – tax authorities are increasingly strict with respect to cloud services

Adam Wnuk

Both the law and the case practice on withholding tax have been in a flux in recent years. Now the taxman has set his sights on modern IT solutions, including cloud-based services. Tax authorities are increasingly eager to consider that what the law calls remuneration for use of industrial devices includes not only fees for access to virtual disc space but also fees for use of on-line (cloud) software. In effect, they claim such payments are subject to WHT.

Current practice

Payments for cloud-based software have been recently in the spotlight via a private tax ruling dated 20 May 2025 (ref. 0111-KDIB1-1.4010.139.2025.2.MF). The case involved the SaaS (Software-as-a-Service) model where the entire infrastructure (hardware, systems, applications) is located with the vendor while the user accesses the desired software via the internet without having to engage its own technical resources. According to the applicant, the payment of a fee for access to cloud-based software should not be subject to withholding tax.

The authorities disagreed and ruled that:

• The monies you pay to your Vendor for use of cloud-based Software is payment for use of an industrial device.
• The remuneration you pay to the Vendor for use by you of cloud-based Software, being an industrial device, falls within Article 21(1)(1) of the CIT Act.
• Therefore, you will as a rule be under the withholding agent duties with respect to such payments.

Impact on companies

Such an approach generates a real tax risk for companies using the SaaS model for their software requirements. It is a common practice in corporate groups for local companies to pay, sometimes a lot, for access to software remotely provided by headquarters (e.g. accounting applications, ERP software). Given the current practice of tax authorities, local businesses should verify if they are under the duty to withhold tax from such payments. Inappropriate treatment may lead to arrears of tax.

If you use cloud solutions or would like to resolve any other WHT-related issues, do not hesitate to contact us.