On 28th November 2020, the President signed a bill introducing changes to the Corporate Income Tax Law, Personal Income Tax Law, Act on Lump-sum Income Tax on Certain Revenues Earned by Individuals and certain other acts.
Please find below the summary of key changes impacting RE business in Poland.
Taxation of limited partnerships with CIT
According to the adopted Act ll, limited partnerships will become CIT taxpayers. The new regulations will allow limited partnerships to choose whether to become taxpayers from 1 January 2021 or 1 May 2021.
For more details please refer to our tax alert on this specific area.
Changes to the domestic real estate clause
The newly established regulations introduce changes to local real estate clause. In line with the new provisions, the following sources of income may trigger taxation in Poland:
- Sale of shares (stocks), all rights and obligations in an company which is not a legal person or participation units in investment fund, collective investment institution or ther legal person and rights of similar nature or rights of a similar nature or receivables resulting from holding these shares (stocks), all rights and obligations, participation units or rights if at least 50% of value of assets of such entity consisted (directly or indirectly) of real estate located in Poland or rights to such real estate;
- Sale of shares (or interest of similar nature) in a real property company (for a definition of “real estate company” please refer to the below).
Changes of the real estate clause may be important for determining whether taxation may apply in Poland to various transactions (sales, redemptions etc.) affecting companies deriving their value - directly or indirectly - from real estate located in Poland. Still, please note that the above clause should be applied with due regards also to the wording of the respective double tax treaties. This should be analysed in details prior to each real estate transaction.
Definition of real property company and changes to local real estate clause
New provisions introduce a definition of real property company (which was extended during the Parliamentary works). Based on the new law, real property company should be understood as an entity other than natural person, obliged to prepare balance sheet based on provisions on accounting, in which:
a) as of first day of the tax year at least 50% of market value of assets directly or indirectly consisted of market value of real estate located in Poland or rights to such real estate - in case of entities commencing their activity
b) as of the last day of the year preceding their current tax year at least 50% of balance sheet total value of assets directly or indirectly consisted of balance sheet value of real estate located in Poland or rights to such real estate - in case of entities other than mentioned above, and
Additionally, in order to qualify as real property company:
a) the respective value of the real estate must exceed PLN 10m and
b) in case of entities mentioned in the point b) above, in the previous tax year the company obtained at least 60% of tax revenues from (sub)lease, of real estate and agreements of similar nature or from ownership rights relating to real estate/other real property companies.
If an entity qualifies as a real property company, it will fall within the scope of application of the real estate clause as well as it may be subject to certain new obligations, including i.a. a new mechanism for reconciliation of capital gains on sale of its shares (as discussed below).
Reconciliation of capital gains tax on disposal of real property company
The new bill provides that in case the Seller of shares (or interest of similar nature), is a non-resident and the transaction covers at least 5% of the voting rights/interest of the real property company, the obligation to settle the capital gains tax on on such transaction (as tax remitter, i.e. on behalf of the seller) will be imposed on the real property company (whose shares are sold).
Real property company would be obliged to pay the advance payment for CIT in the amount of 19% on the gain in this respect to the competent tax office, by the 20th day of the month following the month in which taxable gain has arisen. If a real property company does not have information about the value of the transaction, the tax due is to be determined as 19% of the fair market value of shares in the company subject to transaction.
The taxpayer (i.e. the Seller) would be obliged to transfer to the real property company the amount corresponding to the advance payment for CIT due to the transaction before the above mentioned deadline, while the real property company would be obliged to inform the Seller on the advance paid (in line with a predetermined pattern).
The taxpayer of capital gains tax would still be the seller, but a real property company as tax remitter would be liable with all its assets for proper calculation, collection and payment of tax to the tax office. This should be taken into account when concluding share purchase agreement.
This mechanism may apply to certain other transactions entailing disposal of shares such as redemption (buy-back) of shares.
Notification on shareholders of the real property company
The real property company as well as taxpayers holding directly or indirectly at least 5% of shares (or interest of a similar nature) in such a company will be obliged to notify tax authorities about entities holding directly or indirectly such interest. The companies would be obliged to provide information for the fiscal or financial year, by the end of the third month after the end of the financial year. The information should reflect the data as of the last day of the tax/financial year.
Obligation to prepare and publish a report on execution of a tax strategy
Real property companies are not explicitly obliged to prepare and publish a report on execution of a tax strategy. However, please note that this obligation will apply to taxpayers whose revenues exceeded EUR 50 million in a tax year (and - as a result - real estate companies may be still obliged to prepare the report based on the revenue criterion, e.g. after the sale of a real estate property).
The report should cover i.a.
(i) the approach to processes and procedures for managing the tax-related obligations,
(ii) the number of provided information on tax schemes,
(iii) transactions with related entities, the value of which exceeds 5% of the balance sheet total,
(iv) restructuring activities planned or undertaken by the taxpayer.
Taxpayers will have 12 months after the deadline for submitting the annual CIT return to publish a report on execution of the strategy on the website and submit relevant information to the tax office. Non-compliance with this obligation will result in a fine up to PLN 250k.
Publication of tax data
Real estate companies have been added to the catalog of entities whose individual tax data are annually published by the Minister of Finance. This data covers e.g. taxable revenue, tax deductible costs, taxable income and tax paid.
Obligation to appoint a fiscal representative for non-EU/EEA real property company
The new regulation provides for the obligation to appoint a fiscal representative for a non-resident real property company. However, the obligation to appoint a fiscal representative will not apply to companies subject to unlimited tax liability in an EU Member State or in another EEA country. Non-compliance with this obligation will result in a fine up to PLN 1m on the real property company.
Prolonging the exemption from the minimum tax in relation to commercial real property for period of epidemics
The new bill provides for extension of the exemption from the minimum tax in relation to commercial real property in the period between 1 March 2020 and 31 December 2020 and also from 1 January 2021 until the end of the month in which the state of the epidemic due to COVID-19 would be revoked.
Changes to Transfer Pricing regulations
The new Bill extends arm’s length principle and transfer pricing documentation burdens for transactions which are concluded with parties which are not established in so called “tax haven”, but with respect to which a beneficial owner is established in such a “tax haven”.
This may require detailed analysis whether in your structure such cases occur and whether certain additional obligations may arise.
Ultimately, the changes relating to the definition of beneficial owner proposed in the earlier version of the draft bill were not introduced.. Also, contrary to earlier announcements, the new regulation does not provide for major changes in tax depreciation rules of EBITDA-based interest deductibility limitations.