The Parliament of the Republic of Poland is working on a draft amendment to the acts on income tax from natural persons and legal persons, which provides for revolutionary changes, including the income taxation of limited partnerships and the introduction of new rules for the so-called real estate companies.
The new regulations, which we refer to below, are to enter into force on January 1, 2021, and in relation to some of them – in the field of taxation of limited partnerships – taxpayers may decide to introduce them from May 1, 2021.
The planned changes are particularly important for:
- entrepreneurs operating through a limited partnership with its seat or management board in Poland,
- entrepreneurs who have real estate located in the territory of the Republic of Poland,
- entities holding shares in Polish companies holding real estate,
- foreign entities who have shares in other entities whose assets consist – directly or indirectly – of real estate located in Poland or rights thereto,
- taxpayers with annual revenues exceeding EUR 50 million and for tax capital groups.
We invite you to contact our experts on the next steps to be implemented in order to prepare for the upcoming changes.
Limited partnerships and some general partnerships as CIT taxpayers
As of January 1, 2021, income taxation is planned for limited partnerships (9% for small taxpayers or 19% for others), so far recognized as income tax transparent. The draft provides for the inclusion in the scope of the CIT Act of limited partnerships having their seat or management board in the territory of the Republic of Poland, as well as those general partnerships whose partners are not exclusively natural persons and additionally such partners being legal persons will not be disclosed as part of a specific information. This means that income obtained from the activity of a limited partnership will be taxed twice – first at the level of the limited partnership and then at the level of partners. The draft act provides for certain exemptions from taxation – defined in amounts for limited partners, with additional conditions, or the possibility to deduct the tax paid by the partnership for general partners. However, in most cases, the change in the settlement rules will lead to an increased tax burden in connection with activities through a limited partnership.
According to the proposed transitional provisions, limited partnerships have the possibility to choose a later date for the adoption of new regulations, i.e. May 1, 2021. In that case, their tax year ending normally between 31 December 2020 and 31 March 2021 may continue until 30 April 2021.
Real estate company
A new entity category was introduced – the so-called real estate company, which is defined as an entity other than a natural person, obliged to prepare a balance sheet on the basis of accounting regulations, in which:
- as at the first day of the fiscal year (or financial year), at least 50% of the market value of assets, directly or indirectly, was composed of market value of real estate located in the territory of Poland or rights to such real estate, and at the same time this value exceeded PLN 10 million (definition for entities starting activity) or
- as at the last day of the year preceding the fiscal (or financial) year, at least 50% of the balance sheet value of assets, directly or indirectly, was composed of the balance sheet value of real estate located in the territory of Poland or rights to such real estate, and at the same time this value exceeded PLN 10 million, and in the year preceding the fiscal (or financial) year, tax revenues (or revenues recognized in profit or loss account, respectively) from leases and similar contracts, or from the sale of real estate or shares from other real estate companies, accounted for at least 60% of total revenues (definition for entities other than indicated in the point above).
Settlement of sales of shares in real estate companies
A real estate company whose shares, all rights and obligations or rights of a similar nature would be disposed of, will be obliged to pay to the account of the competent tax office – as a remitter – 19% tax on this income, by the 20th day of the month following the month in which the income was generated. The above obligation arises when:
- the selling party is a Polish non-resident (legal or natural person) and
- shares or rights are sold which give at least 5% of the voting rights (or 5% of the profit participation rights).
Importantly, in case that the company would not have information about the transaction amount, the tax due is set at 19% of the market value of the shares sold.
Obligation to appoint a tax representative
An obligation is introduced to appoint a tax representative for a real estate company which does not have its registered office or management in the territory of Poland – with real estate companies which are subject to unlimited tax liability in an EU or EEA country being exempt from this obligation.
The role of the tax representative is to perform on behalf of the real estate company the duties of the remitter, as well as joint and several liability for the tax on the sale of shares in the real estate company.
Failure to comply with the above obligation is punishable by a fine of up to PLN 1 million.
Real estate companies are obliged to submit to the Head of Inland Tax Administration, by the end of the third month after the end of the tax year, information about entities holding shares, all rights and obligations, participation units or rights of a similar nature, directly or indirectly in this entity.
The obligation will also apply to taxpayers who have, directly or indirectly, shares and rights in a real estate company that give at least 5% of voting rights (or profit participation rights), in terms of the number of owned – directly or indirectly – shares in a real estate company.
Limiting the settlement of tax losses
A limitation has been introduced in the settlement of tax losses by a taxpayer of income tax in cases where
- the taxpayer took over another entity or
- the taxpayer has acquired an enterprise or an organized part of an enterprise
and as a result of these transactions:
- the subject of the taxpayer’s business, in whole or in part, is different from the core business carried out prior to such acquisition or takeover, or
- at least 25% of the taxpayer’s shares or stocks are owned by an entity or entities that did not have such rights at the end of the tax year in which the loss was incurred.
Obligation to publish information about the implemented tax strategy
- annual revenues exceed EUR 50 million or
- are a part of Tax Capital Group regardless of the value of their income
will have to prepare and provide a range of information, on their own websites, including among others:
- approach to processes and procedures for managing the performance of obligations arising from tax regulations and ensuring their proper performance,
- the number of information on reported tax schemes (MDR) broken down by taxes,
- information on transactions with related entities, the value of which exceeds 5% of the balance sheet value of assets,
- settlements in countries applying harmful tax competition,
- restructuring activities planned or undertaken by the taxpayer,
- submitted applications for a tax interpretation, binding rate information or binding excise information,
- voluntary forms of cooperation with the bodies of Inland Tax Administration.
If you have any questions or concerns – please contact us.
Katarzyna Klimkiewicz-Deplano – Managing Partner, Tax Adviser, email@example.com
Sławomir Patejuk – Partner, firstname.lastname@example.org
Mirosław Siwiński – Partner, Tax Adviser, Legal Counsel, email@example.com