• Anna Koval

Real Estate in Poland - Tax Summary



Rental income

Based on the Polish Corporate Income Tax Law (CIT Law), there is a distinction between "capital gains basket" and "other operational activity basket”. Consequently, the taxpayers are now obliged to recognise revenues and costs related to each “basket” separately.

Net income received by corporate taxpayers is taxable in Poland at the general corporate income tax (CIT) rate of 19%. The lower 9% CIT rate applies to income from “other operational activity basket”, but only in case of taxpayers:

• who qualify as the so-called “small taxpayers”, ie, their revenues from sale including value-added tax (VAT) charged did not exceed the Polish zloty (PLN) equivalent of the amount of 2 million EUR in the previous year; and

• whose revenues for the previous tax year did not exceed the PLN equivalent of 1.2 million EUR. The real estate rental income should fall into “other operational activity basket”.

Generally, all expenses incurred by companies on earning or securing their taxable income, including interest paid, are deductible for CIT purposes (except those costs remaining specifically disallowed in the law) as long as they have been properly documented. As regard the costs of discontinued projects, they may also be deductible for CIT purposes in certain cases (such costs should however be analysed on a case-by-case basis, as the Polish CIT Law does not provide clear guidance in this respect and the standpoint presented by the tax authorities/administrative courts is not homogeneous).

Consolidation for income tax purposes is possible in Poland under specific and relatively strict conditions.


Thin capitalisation rules

The CIT deductibility of financing costs is limited by the deductibility limitation rules. These rules are based on 30% tax EBITDA threshold and are applicable both to related and non-related party (bank) debt financing.

Under these deductibility limitation rules, a taxpayer should exclude from tax deductible costs the part of “debt financing costs” (tax-deductible interest and other financing costs minus taxable interest revenue) exceeding 30% of:

• taxable revenue from all sources, decreased by interest revenue (if any), minus

• tax-deductible costs from all sources, decreased by tax-deductible depreciation write-offs and the so-called

“debt financing costs”, not included in the initial value of fixed assets/intangible assets,

holistically referred to as tax EBITDA. In principle, in real estate entities tax EBITDA should be similar to NOI.

The above restrictions do not apply to “debt financing costs” to the amount of 3 million PLN in the tax year (approximately 680,000 EUR), so-called “safe harbour”. It is not entirely clear whether (i) the “safe harbour” should increase the limit of deductible interest irrespective of the tax EBITDA (ie, 30% of the tax EBITDA plus the “safe harbour” – preferential for taxpayers); or (ii) whether the “safe harbour” is applicable only if higher than 30% of the tax EBITDA (non-preferential, ie, the “safe harbour” or 30% of the tax EBITDA) applies. Generally, the Polish tax authorities are presenting the non-preferential approach in individual tax rulings, while there are some court verdicts presenting the opposite (ie, preferential) approach. Further developments should be observed


Depreciation

Tax-deductible depreciation of buildings is subject to maximum straight-line rates. Depending on the type of building, these rates generally range from 1.5% to 10% annually.

Usually, non-residential buildings are depreciated over 40 years (using 2.5% tax depreciation rate). Most of non- residential second-hand or improved buildings can be depreciated over a period of 40 years, decreased by the number of full years that elapsed from the day of the building being put into use for the first time until entry thereof into the taxpayer’s fixed assets register. Nevertheless, the depreciation period calculated this way cannot be shorter than ten years, ie, 10% is the maximum annual tax depreciation rate.

Real Estate Going Global – Poland | Real Estate Tax Summary PwC | 2Land is not subject to tax depreciation. The acquisition costs of land may be recognised as tax-deductible at its disposal.


Loss carryforward

Tax losses carried forward in one “basket” may be utilised over the period of five consecutive years solely to set-off taxable income from the same “basket”. Under grandfathering rules, tax losses carried forward from years preceding the entry of the so-called “basketing rules” into force (ie, in principle, before the tax year 2018) may be set-off against any profits, irrespective of the “baskets”.


There are two base methods of utilisation of the tax losses:

  • Basic method: according to which the tax losses may be carried forward for five consecutive tax years, subject to the restriction that not more than 50% of the tax loss from a given past year can be utilised in any single subsequent tax year.

  • Alternative method (applicable only to the tax losses generated in tax years commencing after 31 December 2018): according to which (i) the tax losses may also be set-off with income obtained from the same “basket” during one of the immediately following consecutive five tax years by an amount not exceeding 5 million PLN, while (ii) the amount not utilised may be deducted within the remaining years of this five-year period (however, the amount of such reduction in any of these years may not be higher than 50% of the tax loss). It should be noted, that the “alternative” method cannot be applied to the tax losses from the sale of virtual currencies.

The wording of the law implies that once the basic or alternative method of set-off of tax losses from a given year is chosen, it may not be changed.

 

Withholding taxes


Dividends

Based on the Polish CIT Law, the WHT rate with respect to dividend payments is 19%, regardless of whether the dividend recipient is a Polish tax resident or not. However, certain WHT exemptions/reduced WHT rates/WHT deductions may be available based on (depending on the case):

(i) the general provisions of the Polish CIT Law;

(ii) provisions of the Polish CIT Law implementing the EU Parent-Subsidiary Directive; and

(iii) the appropriate double tax treaty (DTT).

With respect to dividends paid by the Polish tax-resident companies, the Polish CIT Law is generally in line with the Parent-Subsidiary Directive. Namely, a WHT exemption (the so-called “participation exemption”) applies to dividends being paid by a Polish taxpayer to Poland/European Union (EU)/European Economic Area (EEA)/Swiss parent companies, provided that certain level of shareholding is maintained for an uninterrupted period of two years and certain additional conditions are met. Note that this participation exemption, as a rule, does not apply to distributions other than dividends (in particular, since 1 January 2018, liquidation proceeds and remuneration for compulsory or automatic redemption of shares no longer benefit from this exemption).

In case of dividends paid by the non-Polish tax-resident companies to the Polish tax-resident companies, the similar participation exemption applies (under certain conditions).

Based on the specific anti-abuse clause provided in the Polish CIT Law, the participation exemption on dividends does not apply if (a) benefiting from this exemption remains (in given circumstances) contrary to the aim of the exemption; or (b) benefiting from the exemption was the main aim or one of the main aims of the transaction(s)/taxpayer’s action(s) and the way in which the taxpayer acted was artificial.


Interest and royalties

The WHT rate on interest and royalties amounts to 20%, unless the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive and/or an appropriate DTT provides for respective WHT exemption/reduced WHT rates. There is no WHT on interest and royalties paid between CIT taxpayers within Poland (and they are generally treated as taxable revenue upon receipt).

Based on the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive, Poland applies a WHT exemption (under certain conditions) for interest and royalties paid to associated companies from the EU/EEA/Switzerland.

The said WHT exemption may be applied to interest and royalties paid to certain related companies (direct shareholders, direct subsidiaries or third companies having the same direct shareholder), provided that certain capital links are maintained for an uninterrupted period of two years and certain other conditions are met.


Intangible services

Payments for services of intangible character (eg, management, consulting services, guarantees) to non-residents are subject to 20% WHT in Poland, unless an appropriate DTT provides for more preferential taxation.


Certificates of tax residence, new WHT regime and beneficial ownership

The application of WHT reliefs (ie, exemptions/reduced WHT rates) with respect to payments to foreign recipients based on the provisions of the Polish CIT Law implementing the EU directives or based on the DTTs is conditional inter alia upon:

• possession by the Polish payer of a certificate of tax residence of the foreign payment recipient; in case of certificates of tax residence which do not specify the period for which they are issued, such certificates should be generally treated as valid for 12 months from the date of issue;

• existence of provisions (in the relevant DTTs) allowing for exchange of tax information between the tax authorities of Poland and the country of the payment recipient.

Please also note that Poland has recently changed the provisions of the Polish CIT Law regarding WHT by introducing the new WHT regime, covering in particular:

(i) the so-called “WHT collect and refund mechanism”; and

(ii) the so-called “due care” obligation of the payers.


In short:

• The “WHT collect and refund mechanism” is applicable by default if the payments subject to WHT per a given entity per tax year exceed the threshold of 2 million PLN. The mechanism assumes that the payer is obliged to collect WHT under the standard rate, as if the WHT exemptions/reduced WHT rates (available based on the provisions of the Polish CIT Law implementing the EU directives or based on the DTTs) did not apply - unless specific conditions are met. In practice, these conditions include (but definitely are not limited to) the beneficial ownership requirement, which (i) is directly stipulated as a condition of applying a WHT exemption based on the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive, while (ii) with respect to WHT reliefs for interest and royalties based on the DTTs, as well as WHT reliefs for dividends and payments for intangible services, this matter is controversial and should be carefully analysed, taking into account the practical approach of the tax authorities).

• As regards the “due care” obligation, it means that the payers are obliged to verify the conditions of applying the WHT exemptions/reduced WHT rates with “due care”, regardless of whether the payments subject to WHT per entity per tax year exceed 2 million PLN or not.

Applicability of the above provisions introducing the new WHT regime is generally suspended until the end of December 2020. However, this suspension does not cover the “due care” obligation, which is already applicable.

For more information, please refer to the chapter “Real Estate Investments”.


Taxes on capital

There are no separate capital taxes. However, commercial companies should remember that capital increases are generally subject to notary fees and Civil Law Activities Tax (CLAT) of 0.5%. Loans are generally subject to 0.5% CLAT, but a number of exemptions are available (in particular, exemption for loans granted to the corporation by its direct shareholder).


Capital gains on sale of property

The direct sale of a real property should be recognised in the “other operational activity basket”, while the sale of shares in a company holding real property should be recognised in the “capital gains basket”.

Capital gains on the sale of the real property/shares in a company holding real property are taxed at the general CIT rate of 19%. In case of the direct sale of the real property (which – as mentioned above – qualifies to the “other operational activity basket”), the 9% rate applies for entities qualifying as “small taxpayers” meeting certain conditions as mentioned above (in case of a sale of shares in a company holding real property, which qualifies to “capital gains basket”, this reduced rate is not available). The above rates apply unless otherwise determined by the provisions of an applicable DTT.

Historically, many DTTs concluded by Poland have provided exclusions/exemptions from Polish taxation of capital gains on the sale of shares of Polish real estate holding companies. However, there is a tendency to renegotiate various DTTs and currently more and more of them include the so-called “real estate clause” allowing Poland to tax capital gains on the sale of shares in the Polish companies holding real estate, qualifying as so-called “real estate rich companies”. Such provisions were also partly introduced to the DTTs based on the so-called Multilateral Instrument (MLI). Still, some DTTs, including those with the Netherlands and Cyprus, do not contain such clause. Further developments should be observed.


Real estate transfer payments/VAT

The sale of development land is generally subject to VAT at the 23% rate, recoverable under standard VAT rules. The standard 23% VAT rate is reduced to 8% with respect to supply of residential buildings qualifying for the social housing programme.

VAT treatment of sale of developed properties depends on a number of conditions, including classification of the object of transaction as assets on piecemeal basis or a going concern, certain features of the property sold, as well as, to some extent, the decision of the parties to the transaction. Namely, sale of assets on piecemeal basis may be (i) obligatorily taxed with VAT (at the relevant rate); (ii) obligatorily exempt from VAT (ie, subject to the so-called “obligatory VAT exemption”); or (iii) exempt from VAT with the option to tax the supply (ie, subject to the so-called “voluntary VAT exemption”). In case of classification of the object of transaction as going concern, such sale is out of scope of VAT. If the acquisition of real estate (land and/or buildings, constructions) is VAT-exempt or out of scope of VAT, CLAT of 2% is levied. As opposed to VAT, CLAT is not recoverable.

VAT at the rate of 23% is also generally applicable to income from the lease of buildings (with certain exceptions).

VAT on the sale/lease of real properties is generally recoverable by the buyer/tenant as input VAT. However, companies providing exempt services (eg, financial services) are generally unable to recover input VAT.

Charges for the lease or rental of property situated in Poland are subject to Polish VAT, even if the charge is made to a non-resident foreign company.


Anti-abuse and mandatory disclosure rules

A general anti-abuse rule (GAAR) was reintroduced to Polish tax law as of 15 July 2016.

In line with GAAR, the taxpayer’s action does not result in a tax benefit if obtaining this tax benefit, which, in given circumstances, remains contrary to the object or aim of the tax act or provision of the tax act, remained main or one of the main reasons for the action, if the way in which given action had been performed was artificial.

The specific Polish GAAR regulations differ in certain aspects from standard set by the EU Anti-Tax Avoidance Directive (EU ATAD)1, being generally stricter.

Apart from GAAR, the Polish CIT Law also contains specific anti-abuse/anti-avoidance provisions eg, (i) anti-abuse provisions in the Polish CIT Law, covering certain types of transactions (eg, mergers, dividend payments, interest payments); (ii) other anti-abuse provisions in the CIT Law (eg, provisions regarding the so-called “exit tax”); (iii) anti-abuse provisions in other tax acts, eg, in the VAT Law.

In addition, anti-hybrid regulations based on EU ATAD II were implemented and shall be binding as of 1 January 2021.

Poland has also implemented restrictive mandatory disclosure rules (MDR). Under MDR, qualifying promoters, supporters or taxpayers are required to disclose information on reportable arrangements to the authorities. Those regulations are generally stricter than the DAC 6 standard.

In order to be reportable, an arrangement must contain one of 24 hallmarks. Hallmarks cover a wide range of features and the majority of them do not require a tax benefit (ie, the events not involving tax planning may also be reportable).

1 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.


Legal considerations

As of 1 May 2016, foreign investors seated in the EEA/Switzerland are in principle free to acquire real estate through entities with a legal personality, partnerships or even through registered branches. However please note, there are regulations providing for limitations relating to acquisition of agricultural land. These regulations generally restrict the possibility to acquire land classified as agricultural (which may be the case even where the land is located in cities) by entities other than individual farmers and a narrow circle of other entities and imposes rather strict conditions for permissibility of agricultural land sale. The above-described agricultural regulations are in force as of 30 April 2016.

The firmest form of title to land is an absolute property ownership (freehold). Another widely encountered form of legal title to land recognised by the Polish Civil Code is perpetual usufruct (lease). It can be established only on land owned by the State Treasury or local authorities.

Perpetual usufruct can be contracted for a fixed period of time, not shorter than 40 years and not exceeding 99 years. Nevertheless, in the last five years of the duration of perpetual usufruct, the person holding the perpetual interest may request for an extension for a further period not exceeding 99 years. Such a request can be rejected only for reasons of important public interest. The perpetual tenant is obliged to pay annual rent, up to 3% of the market value of the real estate, notwithstanding the so-called first fee for leasing the land for perpetual usufruct, which constitutes 15% to 25% of the value of the real estate. The perpetual usufruct agreement can be terminated if the perpetual tenant uses the land in a manner which is obviously contradictory to the purpose specified in the agreement, in particular if the perpetual tenant failed to erect the buildings or facilities specified in the agreement. This mechanism permits creation of a perpetual usufruct interest in land simultaneously with a freehold one, which can be retained by the State or a local authority. This interest can be used effectively in development and investment situations. The perpetual tenant can dispose of its interest in the land without consent of the real estate owner.

The third most common form of title is a short lease. This is a lease granted for a period determined in the lease contract, whether definite or indefinite, where rights and obligations are also open to negotiation between the parties.


Tax considerations

BEPS actions and domestic considerations recently forced substantial and frequent changes in tax legislation, as well as considerable change in approach of tax authorities into more restrictive one.

In Poland, a court ruling is normally binding only for the parties to the case. That is to say, there is not a case law system of universally binding precedents. Nevertheless, court rulings are growing in importance, and published cases are studied by both the tax authorities and tax practitioners. To resolve doubts on specific issues, experts on tax matters should be consulted, or clarification should be requested from the tax authorities. However, it is important to note that the interpretation of the tax laws is constantly changing as new questions are brought to the government’s attention, and those seeking to do business in Poland should ensure that the information they have is as up to date as possible.


Anti-abuse regulations

In line with GAAR, the taxpayer’s action does not result in a tax benefit if obtaining this tax benefit, which, in given circumstances, remains contrary to the object or aim of the tax act or provision of the tax act, remained main or one of the main reasons for the action, if the way in which given action had been performed was artificial.

As a rule, individual tax rulings shall not provide protection in case GAAR is applied. In this respect, the Tax Ordinance provides for a new tax clearance instrument, ie, so-called “protective opinion” which is issued by the Head of National Revenue Administration (NRA). The protective opinion is issued if the circumstances presented in the motion for issuance of the protective opinion indicate that the tax benefit described in the motion is not subject to GAAR. In case of the motions for issuance of the protective opinions, the Head of NRA analyses the case more deeply than in case of individual tax rulings (eg, tax ruling fully relies on the descriptions of the backgrounds presented by the taxpayers).

Similarly, as mentioned in the chapter “Real Estate Tax Summary”, except GAAR the following aspects should also be taken into account when speaking about anti-abuse/anti-avoidance: (i) specific anti-abuse/anti-avoidance provisions provided in the Polish tax laws (in particular, in the CIT and VAT Laws); as well as (ii) MDR.


Related-party transactions

The tax regulations contain rules to prevent the abuse of transfer pricing, both international and domestic, as well as specific rules for the market valuation of consideration in kind. Thin capitalisation rules are also in place.


Intangible services − Limitation on tax deductibility of costs

Since 1 January 2018, there is a limitation on tax deductibility of costs of certain intangible services rendered by related parties or entities from territories deemed as tax havens.

The restrictions cover in particular (but are not limited to): (i) intangible services (including advisory, market research, advertising services, management and control, data processing, insurance, guarantees, etc); (ii) royalties (including inter alia licences, trademarks and know-how).

Restrictions may affect the excess over 3 million PLN (approximately 680,000 EUR) plus 5% of tax EBITDA (which calculation slightly differs from calculation of tax EBITDA for interest limitation). Costs exceeding this limit and – accordingly – excluded from tax deductible costs in a given year could be carried forward to five subsequent years (still subject to the above restrictions).

In specific situations, the limitations should not apply. This covers (but is not limited to) in particular: (i) costs of intangible services, payments and fees classified as tax deductible costs and directly related to manufacturing or acquisition of goods/provision of services by a taxpayer (the matter of a “direct relation” is however not precisely regulated in the Polish CIT Law, which in practice leads to interpretative disputes); and (ii) costs of intangible services rendered by related party which are subject to an Advance Pricing Agreement (APA).


Tax rulings, APAs and opinions

The Tax Ordinance generally provides for two types of rulings which may be issued by the tax authorities: general tax rulings and individual tax rulings.

General tax rulings are issued by the Minister of Finance, generally ex officio (ie, on his own initiative), but the taxpayers are allowed to request for issuing such rulings in case of discrepancies in interpretation of the law by the local tax authorities. General tax rulings are not addressed to any specific recipient and – as a rule – the conclusions presented thereon relate to all taxpayers.

Individual rulings are issued by the Head of National Revenue Information (NRI). Generally, the individual tax ruling should be issued within three months of filing the application for the ruling (however, currently this term is temporarily extended due to COVID-19). The Head of NRI is entitled to prolong this period if, in his view, a taxpayer causes delay, eg, if the actual state or the taxpayer’s standpoint presented in the application is not sufficiently clear. If the deadline is not met – either the original mentioned in the Tax Ordinance or the prolonged one – it is assumed that the Head of NRI appraises the standpoint presented in the taxpayer’s application as correct.

The individual tax ruling provides protection only to the entity which requested the ruling. However, if the same factual state or future event applies to two or more taxpayers (eg, parties to the same transaction), they may submit a joint application for an individual tax ruling. In case an application for an individual tax ruling covers matters in relation to which a general tax ruling had already been issued (in the same state of legislation), the tax authorities shall deny issuing individual tax ruling and confirm that the general tax ruling should be applied to the taxpayer’s case. Note that while the taxpayer may challenge individual tax ruling in court, there is no such possibility with respect to general tax rulings.

The ruling is not binding to other tax authorities (eg, tax offices and fiscal control offices) from the formal point of view. Nevertheless, according to the law, compliance with the interpretation should not lead to any harm to the taxpayer, ie, the taxpayer should not be obliged to pay any penalty interest or be subject to fiscal-penal responsibility, even if the tax authorities do not agree with the ruling in their proceedings. Only in the case where negative tax implications result from compliance with the ruling that covers future transactions, will the taxpayer also be free of tax.

Under the GAAR regulations, if under description of the case presented by the taxpayer the tax authorities have a reasonable presumption, that GAAR could apply, the Head of NRI shall deny issuing an individual tax ruling. Additionally, even if the Head of NRI issues such a ruling, the taxpayer is not protected.

Entities performing related party transactions may also apply to the Head of NRA for APAs available under certain conditions.

Certain other protective instruments, such as eg, (i) the so-called “protective opinions”; or (ii) the opinions on applicability of WHT exemptions (“WHT Opinion(s)”), are also available under the Polish tax law.


Late payment of taxes

The standard penalty interest rate for late payment of taxes is calculated based on the formula stipulated in the Tax Ordinance based on the National Bank of Poland interest rates and currently amounts to 8% per annum (which is the minimum provided for in the law).

In case of the tax arrears arising after 31 December 2015, the standard rate may be reduced by 50% (ie, to 4% per year taking into account the current standard rate) provided that the taxpayer: (i) voluntarily corrects the tax return within six months; and (ii) pays the tax arrears within seven days following the correction (with some exceptions). In case of the tax arrears which arose before 1 January 2016, the standard rate may – if voluntarily disclosed (and under some additional conditions) – be reduced by 25% (ie, to 6% per year taking into account the current standard rate).

On the other hand, in certain cases of VAT/excise duty arrears stipulated in the Tax Ordinance, the standard rate is increased by 50% (ie, to 12%). As a rule such an increase applies (i) if the tax authorities reveal (in the course of tax audit, tax and customs audit or tax proceedings) that the taxpayer understated the tax liability/overstated the tax overpayment/did not file the tax return and pay the tax resulting thereof; or (ii) where the taxpayer corrects the tax return after: (a) receiving notice of a tax audit/the end of the tax audit; (b) made as a result of the “checking activities”; or (c) receiving an authorisation to perform the tax and customs audit – provided that the amount of understated liability/overstated overpayment/refund exceeds both 25% of the amount due and five times the minimum wage.

Since 1 January 2017, there is also a specific VAT “sanction”, ie, additional VAT liability applicable broadly if a taxpayer unrightfully deceased its VAT liability or increased VAT refund, amounting (as a rule) to 30% of such VAT liability decrease/VAT refund increase. The VAT sanction may also apply if a taxpayer did not submit its VAT return and did not pay corresponding liability at all. In certain cases, in particular if the VAT liability decrease/VAT refund increase results from so-called “empty invoices” issued by non-existent entities or documenting transactions which did not take place (VAT frauds), the VAT sanction amounts to 100%.

Please also note that – based on the Tax Ordinance – in certain cases, the tax authorities alongside late payment interest impose additional tax liability on a taxpayer. The rates applicable/calculation methods differ depending eg, on the reason for imposing the additional tax liability, the type of the respective tax, etc.


Legal implications

Real estate permits

According to provisions of Act on Acquiring Real Estate by Foreigners, purchase of Polish real estate by foreign investors (companies and individuals) generally requires a permit issued by the Minister of Internal Affairs and Administration. However, this general rule does not apply to acquisitions made by investors of the EEA and Switzerland.

A permit from the Minister of Internal Affairs and Administration is subject to stamp duty of approximately 400 EUR. The procedure for a foreign-owned company to obtain such a permit is relatively straightforward, yet it may take up to three or six months and requires providing certain documents and information.

In addition, permits from the Minister of Internal Affairs and Administration are required for the acquisition of a stake in a Polish company that owns real estate or holds it in perpetual usufruct, if as a result of the purchase of shares, the company in question will become a controlled company, in the meaning of the Polish Act on Acquiring the Real Estate by Foreigners, or the company in question is already such a controlled company, and the stake is acquired by a foreign investor who is not yet a stakeholder.

The obligation to obtain the above permit does not apply to the acquisition of a stake in a Polish company that owns real estate or holds it in perpetual usufruct by investors of the EEA and Switzerland.

Such a permit is also subject to stamp duty of approximately 400 EUR.

The permits mentioned above are valid for two years. A promise of a permit (which is valid for one year) may also be obtained.

Acquisition of Polish real estate without a permit, if such a permit is required, is invalid by the virtue of law.


Restrictions on acquisition of agricultural land

The Law on the Shaping the Agricultural System provides for limitations relating to acquisition of land classified as agricultural (even where the land is located in cities).

The restrictions do not apply to agricultural land (i) designated for purposes other than agricultural in the local masterplan adopted by municipal council; (ii) with a total area not exceeding 0.3 hectare; as well as (iii) such land which – as of 30 April 2016 – was designated for such other purposes based on final zoning permits.

The regulations generally restrict the possibility to acquire such land (ownership or perpetual usufruct right) of an area equal to or exceeding 1 hectare by others than individual farmers, State Treasury, local authorities, churches and close relatives of the seller.

Other entities will be permitted to acquire agricultural land only in specific cases and – in principle – based on decisions issued by the National Support Centre for Agriculture (KOWR).

Additionally, the buyer of agricultural land will be obliged to run (in case of a natural person – “in person”) a farm (part of which is formed by the acquired property) for five years and – in principle – would not be allowed to sell this real property/give it into use of third parties. This restriction does not apply inter alia to the acquisition of agricultural real property of an area smaller than 1 hectare which is located within administrative boundaries of the city.

Moreover, the KOWR has the pre-emption rights covering the acquisition of:

• ownership/perpetual usufruct of the real estate of agricultural character (with some exceptions, in particular, the Centre does not have the pre-emption right when it issued the decision permitting to acquire agricultural land);

• shares in a company being an owner and/or perpetual usufructuary of agricultural land with a total area equal to or exceeding 5 hectares (but in case of inter alia (i) sale of shares in entities operating on the regulated market; as well as (ii) sale made to close relatives of the vendor, State Treasury, Centre’s pre-emption rights would not be applicable). In case of acquisition of shares based on other transaction than the agreement on sale of shares, the Centre is entitled to buy out shares.

Additionally, the KOWR has the right to make a statement on the acquisition of a real estate of agricultural character, in particular in case of the acquisition of such real estate:

• based on agreement other than sale agreement (eg, in-kind contribution agreement, exchange agreement, donation);

• based on unilateral legal act;

• based on the decision of the court of administrative body;

• as a result of a merger, de-merger or transformation.

The above right of the KOWR (to make a statement on acquisition of a real estate of agricultural character owned/held in perpetual usufruct by the company) also applies in case of change of the partner or joining by new partner of the partnership being owner or perpetual usufructuary of agricultural land.

The acquisition of the real estate in breach of the above regulations is invalid by virtue of law.

Separate regulations apply to “agricultural portfolio of the state”. Until 30 April 2021, real properties (and parts thereof) constituting the so-called “agricultural portfolio of the state” cannot be subject to sale. This general rule does not apply inter alia to the real properties (and parts thereof):

• intended (based on the provisions of local development plan/final zoning permit) for aims other than agricultural (including inter alia technology/industrial park or storehouses);

• located in special economic zones;

• constituting agricultural properties of an area not exceeding 2 hectares.


Anti-monopoly consent

Under certain conditions, the President of the Polish Anti-Monopoly Office should be notified of enterprises’ concentrations (mergers, takeovers, creation of a joint-venture, and purchase of a part of the target’s assets). Generally, an intention to concentrate must be reported if it involves enterprises whose aggregate worldwide turnover exceeds the equivalent of 1 billion EUR or whose aggregate turnover in Poland exceeds the equivalent of 50 million EUR in the financial year preceding the notification.


Choice of entity

Foreigners from the EU Member States, Member States of the European Free Trade Agreement (EFTA) – parties to the Agreement on the EEA – and foreigners from the states not being parties to the Agreement on the EEA who may enjoy freedom of establishment under agreements concluded by those States with the European Community and its Member States, may undertake and carry on economic activity on the same terms as Polish citizens.

In case of other foreigners, subject to reciprocity, unless international agreements ratified by Poland provide otherwise, foreigners can undertake and carry on economic activity on the territory of Poland on the same terms and in the same forms as the Polish entrepreneurs.

There are generally two groups of entities recognised in Poland: partnerships and commercial companies. Commercial companies are separate legal entities and their shareholders are not liable for the company’s obligations, while in case of the partnerships, in general, at least some of the partners have unlimited liability for the partnership’s obligations.

At present, Polish commercial law allows for the formation of the following types of vehicles open to foreign investors:

• registered partnership;

• limited partnership;

• joint-stock partnership;

• limited liability company;

• joint-stock company.

In the absence of reciprocity, foreigners (subject to certain exemptions) may form only limited partnerships, joint- stock partnerships, limited liability companies and joint-stock companies, or they may join such partnerships and companies and take up or acquire their shares.

Apart from establishing Polish companies, a foreign investor may also operate on the Polish market via

a registered branch, which may be allowed to carry out economic activities in Poland. The main activities of the registered branch of a foreign entity may comprise the development and/or lease of real estate in Poland, provided that such activities are also performed by that foreign entity.

Below we briefly outline the key features of the above presented vehicles.


Registered partnership

A registered partnership is based on the provisions of the Commercial Companies Code. The partners have unlimited liability, and the partnership is not a legal person, yet may acquire the rights and assume the obligation on its own.

The concept of legal personality separates business operations and liabilities resulting from activity of that legal person from the property of partners. As a consequence, partners in the registered partnership are jointly and severally liable with regard to all liabilities and obligations of the partnership, without any limit, to the whole of their estate.


Limited partnership

A limited partnership is a specific form of a registered partnership. A limited partnership has at least one partner who is responsible for the management of the partnership and has unlimited liability. The other partner or partners have limited liability and are liable only to the extent indicated in limited partnership’s Articles of Association. Additionally, the limited partner is exempt from the above liability up to the value of the contribution made to the limited partnership. A limited partnership is not a legal person.


Joint-stock partnership

A joint-stock partnership is a partnership of a hybrid character, the legal construction of which is based on selected regulations concerning a limited partnership and a joint-stock company. A joint-stock partnership should have at least one partner who bears unlimited liability for the partnership’s obligations, ie, the general partner, and the other partner, the shareholder, whose responsibility for the partnership’s obligations is excluded, and who may represent the partnership only as its proxy. Both general partners and shareholders are entitled to participate in the partnership’s profits in proportion to their contributions. A joint-stock partnership does not have legal personality.


Limited liability company

A limited liability company is the most frequently used entity for specific investment in Poland when the shares in the company are not intended for public subscription. In the case of large investments that require a public profile and may lead to a listing or public raising of capital, formation of a joint-stock company would be advisable.

Establishment of a limited liability company is, however, much more straightforward than establishment of a joint- stock company. Furthermore, a limited liability company may be established by a sole shareholder, unless this shareholder is a limited liability company having only one shareholder.

The minimum share capital required for the establishment of a limited liability company amounts to approximately 1,250 EUR.


Joint-stock company

A joint-stock company is more suitable for large investments that require a public profile, and that may lead to a listing or public raising of capital, since it is perceived on the local market as being a more substantial entity than a limited liability company.

The minimum share capital required for the establishment of a joint-stock company amounts to approximately 25,000 EUR.


Closed-end investment fund

In the past, closed-end investment funds (FIZ) – in combination with certain partnerships – were a popular vehicle for investing suitable for larger portfolios.

FIZ is a distinct type of legal person, which should not be associated with a company, partnership or contractual arrangement. Technically, the fund is not a subsidiary of the investors and their rights result from the possession of investment certificates issued by FIZ. The fund is managed by an external investment fund management company, but it is possible for the investors to keep economic control over the assets of the FIZ.


Tax implications

Buying and selling property

Capital gains

The direct sale of a real property should be recognised in the “other operational activity basket”, while the sale of shares in a company holding real property should be recognised in the “capital gains basket”.

Capital gains from a direct sale of a real property/going concern are combined with other business income of the taxpayer within the “other operational activity basket” and taxed at the general CIT rate of 19% (9% for “small taxpayers” meeting certain conditions as mentioned in the chapter “Real Estate Tax Summary”). On the other hand, capital gains from a sale of shares in a Polish real estate rich entity are subject to 19% CIT in a separate “basket”, ie, the “capital gains basket”, unless otherwise determined by the provisions of an applicable DTT.

Historically, many DTTs concluded by Poland provide exclusions/exemptions from Polish taxation of capital gains on the sale of shares of Polish real estate holding companies. However, there is a tendency to renegotiate various DTTs, introducing, among others, changes in taxation of sales of shares in real estate companies. Generally, new or recently renegotiated DTTs feature a clause for the application of Polish tax on the sales of shares in a company deriving most of its value from real estate located in Poland (while the general rule is non-taxation of such profits in Poland). Still, some DTTs including those with the Netherlands and Cyprus, do not contain such a clause.

In any case, foreign companies are subject to Polish CIT at the standard tax rate on capital gains realised on the sale of Polish real estate.


Value-added tax (VAT) and transfer taxes


Initial comments on the sale of real property


The Polish VAT/CLAT implications of the sale of the real property depend on whether the object of a transaction consists of:

  • undeveloped land; or

  • buildings and/or constructions along with the plots of land on which they are located.

Irrespective of the above, the taxation also depends on whether the sold assets are classified as a going concern (an enterprise or an organised part thereof) or assets on a piecemeal basis.


Object of a transaction consisting of undeveloped land


The sale of undeveloped land designated for construction purposes is generally subject to VAT at the 23% rate, recoverable under standard VAT rules.

The sale of undeveloped land other than the above is VAT-exempt.


Object of a transaction classified as assets on a piecemeal basis


The sale of real estate property classified as assets on piecemeal basis is usually subject to VAT at the 23% rate payable by the seller (for more details, please see below), if effected (i) before or within so-called “first occupation”; or (ii) within less than two years after the first occupation. The VAT is effectively financed by the buyer as part of gross purchase price and in many cases fully recoverable by the latter. The “first occupation” is understood as:

• giving into use of the buildings, constructions or their parts (after their construction or improvement amounting to at least 30% of the initial value) to the first purchaser or the first user (eg, via sale, lease, etc); or

• starting using the buildings, constructions or parts thereof for own purposes.

Under this definition, the real property may be subject to “first occupation” more than once (eg, the new “first occupation” may take place after improvement of the real estate provided that the improvement value exceeds 30% of the initial value).

After the two-year period from the „first occupation”, sale by default is VAT-exempt under so-called “voluntary VAT exemption”. The parties to the transaction are entitled to jointly resign from the voluntary VAT exemption and choose to impose VAT on the transaction (provided that certain conditions are met).

The sale effected (i) before or within the so-called „first occupation”; or (ii) within less than two years from the first occupation may:

• either be taxed with VAT; or

• be subject to the so-called “obligatory VAT exemption” (which applies to supplies of buildings, constructions or their parts, not subject to the voluntary VAT exemption, provided that: (i) in relation to these buildings, constructions or their parts, the vendor was not entitled to decrease the output VAT by the amount of input VAT; and (ii) the vendor has not incurred improvement costs related to the supplied buildings, constructions or their parts, with respect to which they were entitled to recover input VAT or such improvement costs were lower than 30% of initial value of the supplied buildings, constructions or their parts.

The latter condition is not applicable in case the improved buildings, constructions or their parts have been used by the taxpayer for at least five years for the purposes of effecting taxable activities.

If the sale remains exempt from VAT, 2% CLAT calculated based on fair market value (FMV) of real estate, shall be levied on the buyer. CLAT will not be recoverable for the buyer.


Object of a transaction classified as a going concern


On the other hand, the sale of a going concern is out of scope of VAT, but subject to 2% CLAT on the FMV of real property as well as other tangible items and 1% CLAT on other assets. CLAT is not recoverable.

In this context, transactions classified as sales of assets on a piecemeal basis are market preference.


Proper classification


Classification of the object of the transaction as going concern or sale of assets on a piecemeal basis is judgmental. Until mid-2016, commercial real deals were typically classified as sales of assets on a piecemeal basis – what was often confirmed in individual rulings of the Polish tax authorities.

In mid-2016, Polish tax authorities started challenging classification of the object of the transaction and denying recovery of input VAT to the taxpayers, hence the market generally switched to enterprise deals (subject to 2% CLAT). However, certain court verdicts confirmed correctness of the previous practice. On 11 December 2018, the Polish Ministry of Finance issued official guidelines on transfer tax treatment of commercial real estate deals in Poland (MF Guidelines). The MF Guidelines were intended to clarify whether a given set of assets constitutes: (i) a going concern (an enterprise/organised part thereof); or (ii) assets on a piecemeal basis, thus, to provide investors with more comfort in this respect.


MF Guidelines


Based on our understanding of the MF Guidelines, the Ministry of Finance leans strongly towards classification of commercial real property deals as deals concerning assets on piecemeal basis, while transactions involving the going concerns should rather be seen as exceptions in specific cases.

The MF Guidelines provide that to consider a transaction as covering a going concern (enterprise/organised part thereof), a buyer must factually continue business activities of a seller using the same set of assets, without need to engage additional ones and taking additional actions.


Other aspects


With respect to supply of residential buildings qualifying for social housing programme, the VAT rate amounts to 8% (instead of 23%).

Construction services are generally subject to VAT at the standard 23% rate. The exception to this rule is 8% VAT rate applicable to construction services connected with real estate, covered by a social housing programme.

It should also be noted that construction services are generally subject to an obligatory split payment mechanism.

In some cases (eg, when the property is used for the purpose of non-VAT-able activity), deducted input-VAT on creation (ie, construction) or acquisition of real properties may be subject to obligatory corrections (ie, pay back to the tax office) within correction period stipulated in the Polish VAT law.


Use of separate property holding companies


It is a common practice to hold properties in separate special purpose companies. Disposals are effected by sale of shares in such companies.

The taxation of capital gains on disposal of shares in real estate holding companies, and WHT treatment of various payments may differ depending on where the holding company is located. The business justification should be held for choice of holding company. Such holding company should also demonstrate adequate level of substance. In this context, beneficial owner requirements, as well as anti-abuse provisions should be carefully analysed.


Financing real estate in Poland


Debt


Interest deductions


Generally, interest on loans should be tax deductible on a cash basis (ie, when paid or, based on established practice, capitalised to a loan principal), provided that the loan:

(i) is used to earn or secure sources of taxable revenues;

(ii) has been provided on “arm’s length” terms;

(iii) does not fall into thin capitalisation limitations;

(iv) is not subject to limitations under EU ATAD II (ie, in short, does not result in a hybrid mismatch); and

(v) is not listed in the tax law as non-tax deductible.


Thin capitalisation


The CIT deductibility of financing costs is limited by the deductibility limitation rules. These rules are based on 30% tax EBITDA threshold (implementation of the EU ATAD) and are applicable both to related and non-related party (bank) debt financing.

Under these deductibility limitation rules, a taxpayer should exclude from tax deductible costs the part of “debt financing costs” (tax-deductible interest and other financing costs minus taxable interest revenue) exceeding 30% of:

• taxable revenue from all sources, decreased by interest revenue (if any), minus

• tax-deductible costs from all sources, decreased by (i) tax-deductible depreciation write-offs and (ii) the so-called “debt financing costs” not included in the initial value of fixed assets/intangible assets,

holistically referred to as tax EBITDA. In principle, in real estate entities tax EBITDA should be similar to NOI.

The above restrictions do not apply to “debt financing costs” to the amount of 3 million PLN in the tax year (approximately 680,000 EUR), so-called “safe harbour”. It is not entirely clear whether (i) the “safe harbour” should increase the limit of deductible interest irrespective of the tax EBITDA (ie, 30% of the tax EBITDA plus the “safe harbour” – preferential for taxpayers); or (ii) whether the “safe harbour” is applicable only if higher than 30% of the tax EBITDA (non-preferential, ie, the “safe harbour” or 30% of the tax EBITDA) applies. Generally, the Polish tax authorities are presenting the non-preferential approach in individual tax rulings, while there are some court verdicts presenting the opposite (ie, preferential) approach. Further developments should be observed.


Transfer pricing considerations


Transfer pricing rules are applicable to loans. Loans must bear market terms, including a market rate of interest. Poland, as a member of the Organisation for Economic Co-operation and Development (OECD), has adopted the “arm’s length” standards enumerated in the OECD Transfer Pricing Guidelines.

Transfer pricing regulations also apply to permanent establishments (PEs) of foreign entities.


Other considerations


Interest on loans drawn in order to acquire shares is, as a rule, tax-deductible. However, the timing of deductibility of such interest (at the moment of payment or at the moment of subsequent disposal of shares) is not specifically regulated in the Polish CIT Law.

Interest on construction loans accrued during the construction period must be capitalised to the value of the development and depreciated. Interest accrued after bringing the asset into use is tax-deductible on a cash basis.

Loans are generally subject to CLAT of 0.5% of the amount of the loan. Loans made by banks and other loans subject to VAT are CLAT exempt. Please note that in Poland it is somehow disputable whether all loans granted by entrepreneurs should be considered as granted within VATable activity and thus exempt from CLAT.

Moreover, loans granted to corporations by their direct shareholders are also CLAT-exempt.

In some cases, the cross-border loans are required to be reported to the relevant authorities (eg, to the National Bank of Poland).

Please note that payments between the Polish residents can be agreed and settled in a foreign currency.


Equity


Equity funding allocated to registered share capital is subject to CLAT at the rate of 0.5%. Share premium (agio) should not be subject to CLAT. It is recommended that business justification is held for allocation ratio between share capital and share premium.

The equity contribution of the investor may be made either in cash or in kind. The company may, however, also be provided with non-equity capital such as additional payments (subject to certain restrictions) or loans.

 

Operating real estate


Rental income

Net income received by corporate taxpayers falls into “other operational activity basket” and is taxable in Poland at the general CIT rate of 19% (9% for “small taxpayers” meeting certain conditions as mentioned in the chapter “Real Estate Tax Summary”).

Generally, all expenses incurred by companies on earning or securing their taxable income, including interest paid, are deductible for CIT purposes (except those costs specifically disallowed in the law) as long as they have been properly documented. Consolidation for income tax purposes is possible in Poland under specific and relatively strict conditions.


Depreciation

The CIT Law provides for standard depreciation rates depending on the type of asset. Thus, it is possible for differences to arise between accounting and tax-deductible depreciation.

Generally, taxpayers can use two basic methods of depreciation: straight line (for all assets) and reducing balance (selected assets, mostly machinery and equipment, using a coefficient not higher than 2).

Within the straight-line method:

• The Polish tax law provides inter alia for accelerated depreciation for assets used in conditions of intensive use (the assets is considered being subject to intensive use if it is used more intensive than in average conditions or subject to exceptional technical demands).

• On the other hand, the taxpayers may individually decrease the depreciation rates for fixed assets, upon their entry into the fixed assets register or as of the beginning of a given tax year.

Tax-deductible depreciation of buildings is subject to maximum straight-line rates. Depending on the type of building, these rates generally range from 1.5% to 10% annually (in case of certain second-hand buildings).

Usually, non-residential buildings are depreciated over 40 years (using 2.5% tax depreciation rate). Most of non- residential second-hand or improved buildings can be depreciated over a period of 40 years, decreased by the number of full years that elapsed from the day of the building being put into use for the first time until entry thereof into the taxpayer’s fixed assets register. Nevertheless, the depreciation period calculated this way cannot be shorter than ten years, ie, 10% is the maximum annual tax depreciation rate.

Land is not subject to tax depreciation. The acquisition costs of land may be recognised as tax-deductible at its disposal.


Loss carryforward

Tax losses carried forward in one “basket” may be utilised over the period of five consecutive years solely to set-off taxable income from the same “basket”. Under grandfathering rules, tax losses carried forward from years preceding the entry of the so-called “basketing rules” amendments into force (ie, in principle, before the tax year 2018) may be set-off against any profits, irrespective of the “baskets”.

There are two base methods of utilisation of the tax losses:

• Basic method: according to which the tax losses may be carried forward for five consecutive tax years, subject to the restriction that not more than 50% of the tax loss from a given past year can be utilised in any single subsequent tax year.

• Alternative method (applicable only to the tax losses generated in tax years commencing after 31 December 2018): according to which (i) the tax losses may also be set-off with income obtained from the same “basket” during one of the immediately following consecutive five tax years by an amount not exceeding 5 million PLN, while (ii) the amount not utilised may be deducted within the remaining years of this five-year period (however, the amount of such reduction in any of these years may not be higher than 50% of the amount of the tax loss). It should be noted that the “alternative” method cannot be applied to tax losses from the sale of virtual currencies.

The wording of the law implies that once the basic or alternative method of set-off of tax losses from a given year is chosen, it may not be changed.


Taxes on capital

There are no separate capital taxes. Companies should, however, remember that capital increases are, generally, subject to notary fees and 0.5% CLAT (share premium is not subject to CLAT).


Property tax/Real estate tax

A local annual property tax is levied on real property, also called real estate tax (RET). The RET rates are dependent on the location, type and purpose of a property, and are applied to the area (in case of land and buildings) or value (in case of constructions/structures).

The maximum RET rates for property used for business purposes for the year 2020 may not exceed the following:

• 0.95 PLN per square metre of land;

• 23.90 PLN per square metre of buildings;

• 2% of the value of constructions/structures.


Minimum tax

Minimum tax (also called “tax on commercial properties” or “minimum CIT”, or MinCIT) is a special type of tax on kind of “deemed” taxpayer’s income from buildings, ie, initial value of the taxpayer’s buildings, decreased by 10m PLN ; approximately 2.3 million EUR. Please note that the provisions on the application of 10 million PLN “safe harbour” have been subject to changes between 2018 and 2019 – as in principle in 2018 the “safe harbour” could be used with respect to (deducted from) the initial value of each of taxpayer’s buildings, while as of 2019 the “safe harbour” may be used (deducted) only once regardless of the number of taxpayer’s buildings.

The basic principles regarding MinCIT are as follows:

• MinCIT is calculated separately from the “regular” CIT.

• MinCIT was first introduced in 2018 as a tax relating only to specific types of commercial buildings, while – due to the changes introduced as of 2019 – since then all types of commercial buildings subject to lease/tenancy are subject to MinCIT.

• MinCIT base is generally the initial value of the buildings/parts thereof (located in Poland, owned or co-owned by a taxpayer and subject to lease/tenancy), decreased by 10 million PLN. As mentioned above, as a rule currently the “safe harbour” of 10 million PLN may be used (deducted) by the taxpayer only once. Additionally, it should be noted that in certain cases this “safe harbour” (amount) is even shared with taxpayer’s related parties (while the definition of a “related party” is not entirely clear). In case the building is only partially leased, the MinCIT base is calculated proportionally to the leased usable floor space (and MinCIT is not due if the leased floor space ratio is below 5%).

• In case of buildings subject to operational/financial leasing (as defined in the CIT Law), MinCIT is payable by entity depreciating the building.

• MinCIT is payable on a monthly basis, at the rate of 0.035% (which roughly translates to the rate of 0.42% per annum).

• The taxpayer may either decrease CIT liability by value of paid MinCIT or not pay MinCIT if the CIT liability exceeds value of MinCIT. Therefore, in practice MinCIT, results in additional tax burden only if: (i) no regular CIT is paid by the taxpayer; or (ii) taxpayer’s regular CIT is lower than the MinCIT.

• MinCIT may be refunded to taxpayer on an annual basis and the conditions of the refund are as follows: (i) the taxpayer files the refund request; (ii) the tax authority does not identify any irregularities regarding the amount of regular CIT liability/loss (indicated in the CIT return) and the amount of MinCIT paid.


VAT

VAT at the rate of 23% is generally applicable to income from the lease of buildings. This is generally recoverable by the tenant as input VAT. However, companies providing exempt services (eg, financial services) are generally unable to recover input VAT.

Charges for the lease or rental of property situated in Poland are subject to Polish VAT, even if the charge is made to a non-resident foreign company.


Withholding taxes


Dividends

Based on the Polish CIT Law, the WHT rate with respect to dividend payments is 19%, regardless of whether the dividend recipient is Polish tax resident or not. However, certain WHT exemptions/reduced WHT rates/WHT deductions may be available based on (depending on the case):

(i) the general provisions of the Polish CIT Law;

(ii) provisions of the Polish CIT Law implementing the EU Parent-Subsidiary Directive; and

(iii) the appropriate DTT.

Note that the WHT exemption under the EU Parent-Subsidiary Directive, as a rule, does not apply to distributions other than dividends (in particular, since 1 January 2018, liquidation proceeds and remuneration for compulsory or automatic redemption of shares no longer benefit from this WHT exemption).


Outbound dividends (dividends paid by Polish taxpayers to foreign taxpayers)

As mentioned above:

• the standard CIT rate for dividend payments made by the Polish taxpayers to the foreign taxpayers is 19%;

• this may be modified, in particular by the WHT exemptions/reduced WHT rates, which may be available under the Polish CIT Law and DTTs (provided that certain conditions are met).

As regards WHT exemption for such dividends based on the Polish CIT Law implementing the EU Parent- Subsidiary Directive, the key conditions of applicability thereof (which should be met jointly) are as follows:

• dividend payer has the seat or management on the territory of Poland;

• dividend recipient has its worldwide income (irrespective of the place where it is derived) subject to taxation in the EU, EEA, or Switzerland;

• dividend recipient holds directly at least 10% of shares in the dividend payer for an uninterrupted period of at least two years (in case of the dividend payments made to the Swiss taxpayers, the required direct shareholding amounts to at least 25%);

• dividend recipient is not exempt from tax on all its income, regardless of its source.

Please note that:

• the conditions listed above are the key ones, while the Polish CIT law contains further conditions/requirements/clarifications in this respect.

• based on the specific anti-abuse clause provided in the Polish CIT Law, the participation exemption on dividends does not apply if (a) benefiting from this exemption remains (in given circumstances) contrary to the aim of the exemption, or (b) benefiting from the exemption was the main aim or one of the main aims of the transaction(s)/taxpayer’s action(s) and the way in which the taxpayer acted was artificial.


Domestic dividends (dividends paid between Polish companies)

In case of Polish CIT taxpayers who receive dividends from domestic companies, the taxation rules are similar as in case of dividends between a Polish CIT taxpayer and foreign CIT taxpayers. The major exception is that in case of dividends between Polish CIT taxpayers the WHT reliefs under the DTTs are not available.

In short, in case of dividends between Polish CIT taxpayers:

• the standard CIT rate is 19%;

• certain WHT deductions/WHT exemption based on the Polish CIT Law may be available (under certain conditions);

• as regards WHT exemption under the CIT Law, the key conditions thereof are similar as in case of dividends paid by a Polish taxpayer to a foreign taxpayer (in particular, the condition of a minimum 10% shareholding applies).


Inbound dividend (dividends paid by foreign taxpayers to Polish taxpayers)

In case of dividends paid by the foreign taxpayers to Polish CIT taxpayers:

• In principle they are included in Polish taxpayer’s income and taxed with 19% CIT.

• The proportional part of the tax paid in connection to these dividends in a foreign country may be deducted under certain conditions from the Polish CIT liability;

• Additionally, under certain conditions (in particular, the minimum shareholding of 10%), the CIT exemption may be applied.


Interest and royalties

The WHT rate on interest and royalties amounts to 20%, unless the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive and/an appropriate DTTs provide for the WHT exemption/reduced WHT rate. There is no WHT on interest and royalties paid between CIT taxpayers within Poland and they are generally treated as taxable income upon receipt.

Based on the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive, Poland applies a WHT exemption (under certain conditions) for interest and royalties paid to associated companies from other EU/EEA Member States. The key conditions of applying the said WHT exemption (which should be jointly met) are as follows:

• The recipient has the seat or management on the territory of Poland.

• The recipient has its worldwide income (irrespective of the place where it is derived) subject to taxation in an EU or EEA Member State (other than Poland);

• The recipient has a direct minimum holding of 25% in the capital of the payer company, or the payer has a direct minimum holding of 25% in the capital of the recipient, or a third company has a direct minimum holding of 25% both in the capital of the recipient and in the capital of the payer (and the minimum holding period is two years).

• The recipient is not exempt from tax on all its income, regardless of its source.

• the beneficial ownership status of the recipient.

Please note that:

• the conditions listed above are the key ones, while the Polish CIT law contains further conditions/requirements/clarifications in this respect;

• based on the specific anti-abuse clause provided in the Polish CIT Law, this WHT exemption does not apply if (a) benefiting from this exemption remains (in given circumstances) contrary to the aim of the exemption; or (b)

Real Estate Going Global – Poland | Real Estate Investments PwC | 17

benefiting from the exemption was the main aim or one of the main aims of the transaction(s)/taxpayer’s action(s) and the way in which the taxpayer acted was artificial.


Intangible services

Payments for services of intangible character (eg, management, consulting services, guarantees) to non-residents are subject to 20% WHT in Poland, unless appropriate DTT provides otherwise.


Certificates of tax residence, new WHT regime, beneficial ownership


Certificates of tax residence/Exchange of information

The application of WHT reliefs (ie, exemptions/reduced WHT rates) with respect to payments to foreign recipients based on the provisions of the Polish CIT Law implementing the EU directives or based on the DTTs is conditional inter alia upon:

• possession by the Polish payer of a certificate of tax residence of the foreign payment recipient (in case of certificates of tax residence which do not specify the period for which they are issued, such certificates should be generally treated as valid for 12 months from the date of issue);

• existence of provisions (in the relevant DTTs) allowing for exchange of tax information between the tax authorities of Poland and the country of the payment recipient.


New WHT regime

Please also note that Poland has recently changed the provisions of the Polish CIT Law regarding WHT by introducing the new WHT regime, covering in particular:

• the so-called “WHT collect and refund mechanism”;

• the so-called “due care” obligation of the payers. In short:

• The “WHT collect and refund mechanism” is applicable by default if the payments subject to WHT per a given entity per tax year exceed the threshold of 2 million PLN. The mechanism assumes that the payer is obliged to collect WHT under the standard rate (ie, depending on the payment, 19% or 20%, respectively), as if the WHT exemptions/reduced WHT rates (available based on the provisions of the Polish CIT Law implementing the EU directives or based on the DTTs) did not apply unless specific conditions are met. In practice, these conditions include (but definitely are not limited to) the beneficial ownership requirement, which (i) is directly stipulated as a condition of applying a WHT exemption based on the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive, while (ii) with respect to WHT reliefs for interest and royalties based on the DTTs, as well as WHT reliefs for dividends and payments for intangible services, this matter is controversial and should be carefully analysed, taking into account the practical approach of the tax authorities).

• As regards the “due care” obligation, it means that the payers are obliged to verify the conditions of applying the WHT exemptions/reduced WHT rates with “due care”, regardless of whether the payments subject to WHT per entity per tax year exceed 2 million PLN or not.

Applicability of the above provisions introducing the new WHT regime is generally suspended until the end of December 2020. However, this suspension does not cover the “due care” obligation, which is already applicable.

Please find below further information on both the new WHT regime and the beneficial ownership requirements.


Payments not exceeding 2 million PLN/recipient/tax year

Should the payments subject to WHT/entity/tax year not exceed the threshold of 2 million PLN, the payer (remitter) will still be entitled to apply WHT relief (assuming that the conditions for applying WHT exemption/reduced WHT rate are met). The WHT remitter is however obliged to act with "due care" while applying WHT exemptions/rate reductions resulting from EU directives/DTTs, which in practice includes inter alia verification of the beneficial ownership status of payment recipient (please find below further remarks on the beneficial owner). Please note that the applicability of the beneficial ownership requirement is in practice controversial as:

• the beneficial ownership requirement is directly stipulated as a condition of applying a WHT exemption based on the provisions of the Polish CIT Law implementing the EU Interest and Royalties Directive, while

• with respect to WHT reliefs for interest and royalties based on certain DTTs, as well as WHT reliefs for dividends and payments for intangible services, such requirement is not (directly) provided for in the tax law, however, it seems that the tax authorities tend to apply an approach, according to which the beneficial ownership requirement also applies to these payments; in other words, this matter is controversial and should be carefully analysed, taking into account the practical approach of the tax authorities).


Payments over 2 million PLN/recipient/year

Should the payments subject to WHT/entity/tax year exceed the threshold of 2 million PLN, a "collect-and-refund” mechanism will principally apply, ie,

• the Polish the payer (WHT remitter) cannot apply any WHT reliefs resulting from EU directives/DTTs; and

• should collect the Polish WHT at the domestic rate (ie, 19 % or 20%, depending on a given payment) on the part

of the payments subject to WHT exceeding 2 million PLN (ie, on the excess over 2 million PLN).

In the above case, the non-resident payment recipient (ie, the taxpayer) or the Polish payer (WHT remitter, if he paid WHT using his own funds and incurred the economic burden thereof) will be entitled to claim WHT refund. In order to get a refund, the applicant should submit the respective motion to the tax authorities with a number of documents attached thereto. As a rule, the tax authorities should refund the WHT within six months from the date of receipt of the application. However, this deadline can be prolonged if the grounds for the refund require further investigation.

Notwithstanding the above, there are certain cases in which the Polish payer will be entitled to apply WHT relief to payments subject to WHT (per foreign recipient per tax year) exceeding 2 million PLN, ie,

• with respect to WHT reliefs based on EU directives: if the special statement (Remitter's Statement) is filed by the Polish WHT remitter or specific formal opinion on applicability of WHT exemption (ie, WHT Opinion) is obtained by the foreign recipient (taxpayer) or the Polish payer (WHT remitter);

• with respect to reliefs based on DTTs: if the Remitter's Statement is filed by the Polish WHT remitter (it is not possible to obtain the WHT Opinion in this respect).

As regards Remitters Statement, the key information is as follows:

• It must be signed by the remitter’s management board members (with no possibility of signing via proxies).

• It should include a confirmation that (i) the Polish payer completed appropriate verification that conditions for the given WHT relief were fulfilled and holds adequate documents certifying that applying WHT exemption/reduced WHT rate is justified; and (ii) after performing the respective verification (with due care/diligence), the Polish payer is not aware of any circumstances prohibiting application of WHT exemption or reduced WHT rate.

• If it is deemed false/untrue, the person(s) signing Remitter's Statement may be subject to a fiscal penalty and additional 10% (or 20%, if certain threshold is exceeded) tax liability may be applicable to the remitter.

As regards WHT Opinion:

• while analysing specific cases, the tax authorities perform thorough verification of the motions and documents provided by the applicants; and

• the WHT Opinion shall be issued within six months from the date of application (in practice, however, the tax authorities tend to prolong this period) and, in principle, be valid for 36 months.


Beneficial ownership

As of 2019, the new definition of beneficial owner was introduced into the Polish CIT Law, according to which the beneficial owner is an entity that meets the following conditions:

1. receives a receivable (payment) for its own benefit and decides independently about the way of utilisation of the receivable (payment) and bears the economic risk due to total or partial loss of the receivable (payment);

2. does not act as intermediary, proxy, trustee or any other entity that is (legally/actually) obliged obliged to transfer the relevant payment (in whole or in part) to another entity; and

3. conducts a real business activity in the country of its registered seat, if receiving a receivable (payment) is obtained in the course of that business activity. In order to assess whether the entity conducts a real business activity, the provisions concerning the real business activity (for the purposes of controlled foreign companies) should apply accordingly, ie, it should be analysed, whether in particular:

‒ the recipient of the payment (interest) has an enterprise with which it actually carries out business activities (especially if it has premises, qualified personnel and equipment used for the business activities carried out);

‒ the recipient does not function without economic reasons in the structure;

‒ there is a balance between the scope of activities carried out by the entity and its premises, personnel, and equipment;

‒ arrangements made by the entity are in line with economic reality, have business reasons and are not clearly contrary to the general economic interest of the entity;

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‒ the recipient autonomously carries out its basic economic functions using its own resources, including management persons present in the place where the entity is located.


Source: PwC Real Estate Going Global 2020