Country - Poland
Corporate Vehicles
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INTRODUCTORY NOTE
Direct investment, i.e. purchase of real estate by a foreign entity, is allowed by Polish law; however sometimes some additional requirements have to be fulfilled. Nevertheless, to avoid organisational problems connected with conducting business activity, it is advisable to set up one of the following establishments: joint stock company; limited liability; or company investment fund. Theoretically, it is possible to invest through partnerships, however, due to unfavourable rules of liability of partners, this form is rarely chosen for investments in real estate. Market practice shows that a limited liability company is usually the most favourable form of investment in real estate.
A. DIRECT INVESTMENT
As a rule, all the income earned by the foreign company on Polish territory is subject to Corporate Income Tax (CIT) in Poland and income earned by the foreign individuals on Polish territory is subject to Personal Income Tax (PIT). Double tax treaties may modify this rule.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
Two types of corporate vehicle can be used for investments in real estate: the limited liability company ("Spółka z ograniczoną odpowiedzialnością", "Sp. z o.o.") and the joint stock company ("Spółka Akcyjna", "S.A.").
1. Limited Liability Company ("Sp. z o.o.")
Minimum capital
PLN 50,000 (approx. EUR 14,136).
Set-up costs
Approximately PLN 4,000 (approx. EUR 1,130).
Time required to become operative
Four to six weeks (including obtaining Tax Identification Number, statistical number – REGON and registration in the Register of Entrepreneurs of the National Court Register).
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities, the turnover and the number of employees.
Corporate governance
Considerable flexibility on corporate governance is possible through the company's articles of association. Obligatory corporate bodies for a limited liability company are the Shareholders' Meeting and the Board of Directors.
In case the share capital exceeds PLN 500,000 (approx. EUR 141,510) and the number of shareholders is more than 25, establishing the Supervisory Board is compulsory, otherwise it is optional. The rules of appointment of members of the Supervisory Board and the Supervisory Board (if applicable) can be defined in the articles of association. If the articles of association do not regulate this issue, directors and members of the Supervisory Board are appointed and recalled by the Shareholders' Meeting. Directors cannot be members of the Supervisory Board and vice versa. Supervisory Board should comprise of at least three members.
The Board of Directors represents the company (the detailed rules of representation may be provided in the articles of association); however, for some activities, consent of the Shareholders' Meeting is required (e.g. purchase and sale of real estate, unless the articles of association exclude the necessity of obtaining consent of the Shareholders' Meeting for such transactions). Consent of the Shareholders' Meeting is also required in the case of acquisition of any asset for the company at the price exceeding one quarter of the share capital and not less than PLN 50,000 in the case the transaction takes place within two years of registration of the company, unless this transaction was foreseen in the articles of association.
Shareholders' Meetings should be held at least once a year.
Regulatory control
Anti-monopoly control may be applicable in the case of M&A transactions, establishment of a new entrepreneur and acquisition of property by the sp. z o.o. if certain turnover thresholds are exceeded.
Taxation of current income in Poland
Corporate Income Tax is payable at a flat rate of 19% on net income. Entities having their seats in Poland, as a rule pay Corporate Income Tax in Poland with regard to their whole income.
Taxation of distribution of current income to investors
For tax-resident shareholders there is normally a 19% tax on dividends. For individuals, there is also a 19% tax on dividends. The tax is paid by the shareholders entitled to the dividend within the frameworks of the relevant income tax (Personal Income Tax or Corporate Income Tax). The base for the tax is gross value of a dividend.
For non-tax-resident corporate shareholders dividend income, in principle, is subject to 19% withholding tax on dividends. However, in the case of EU/European Economic Area corporate residents, withholding tax may not be applicable if a relevant parent subsidiary directive is in force (parent subsidiary directive was implemented into the Polish Act on Corporate Income Tax). In the case of non-tax-residents (both corporate and individual) not being EU/European Economic Area residents, the rules of taxation of dividend may be modified in a double tax treaty, in which case usually a withholding tax of between 5% and 15% applies.
Taxation of capital gains
Sale of real estate
Net income earned as a result of sale of real estate is subject to income tax (Corporate Income Tax) which is paid by the Sp. z o.o. in accordance with general rules.
Sale of participation in a Sp. z o.o.
Sale of shares in a limited liability company by a corporate tax-resident is subject to the 19% Corporate Income Tax. The base for calculation of the tax is net income. The sale of shares in a limited liability company by an individual tax-resident is subject to Personal Income Tax. The rates of Personal Income Tax in Poland, in principle, are progressive (19%, 30% and 40% rates are applied).
Sale of shares in a limited liability company owning (directly or indirectly) real estate by a corporate non-tax-resident, in principle, is subject to taxation in Poland and also a 19% tax rate should be applied. The majority of double tax treaties confirm that the tax on sale of a company owning (directly or indirectly) real estate by non-tax-resident should be paid in Poland. However, in the case of double tax treaties with some countries, the rules of payment of tax on dividends may be modified.
Sale of shares in a limited liability company is not subject to VAT.
Sale of shares in a limited liability company is subject to the tax on civil law transactions amounting to 1% of the market value of the shares.
Real estate transfer tax
A 2% tax on civil law transactions (PCC) calculated on the basis of the market value, which, in most cases, is the purchase price (in the event that the purchase price does not correspond with the market value, the tax authority will request a correction and may finally assess the value based on an authorised expert's opinion). For acts between entities conducting business activity, VAT is to be paid at 22%. In such cases, the PCC is not due.
2. Joint stock company ("S.A.")
Minimum capital
PLN 500,000 (approx. EUR 141,510).
Set-up costs
Approximately PLN 6,000 (approx. EUR 1,698).
Time required to become operative
Four to eight weeks (including obtaining Tax Identification Number, statistical number – REGON and registration in the Register of Entrepreneurs of the National Court Register).
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities, the turnover and the number of employees.
Corporate governance
Considerable flexibility on corporate governance is possible through the company's articles of association. Obligatory corporate bodies for a limited liability company are the General Shareholders' Meeting, the Board of Directors and the Supervisory Board.
The Supervisory Board should comprise at least three members and, in the case of public companies, of at least five members. The rules of appointment of members of the Supervisory Board and the Board of Directors can be defined in the articles of association. If the articles of association do not regulate this issue, directors and members of the Supervisory Board are appointed and recalled by the Shareholders' Meeting. Directors cannot be members of the Supervisory Board and vice versa.
The Board of Directors represents the company (the detailed rules of representation may be provided in the articles of association); however, for some activities, consent of the General Shareholders' Meeting is required (e.g. purchase and sale of real estate, unless the articles of association exclude the necessity to obtain the consent of the Shareholders Meeting for such transaction). Consent of the General Shareholders Meeting is also required in the case the company is going to acquire any asset to or from some entities related to the company, at the price exceeding one-tenth of paid-up share capital within two years of the company's registration, and such consent should be adopted with majority of two-thirds of the votes.
Shareholders Meetings should be held at least once a year.
Regulatory control
Anti-monopoly control may be applicable in the case of M&A transactions, establishment of a new entrepreneur and acquisition of property by an S.A. if certain turnover thresholds are exceeded.
Taxation of current income in Poland
Corporate Income Tax is payable at a flat rate of 19% on net income. Entities having their seats in Poland, as a rule pay Corporate Income Tax in Poland with regard to their whole income.
Taxation of distribution of current income to investors
For tax-resident shareholders there is normally a 19% tax on dividends. For individuals, there is also a 19% tax on dividends. The tax is paid by the shareholders entitled to the dividend within the frameworks of the relevant income tax (Personal Income Tax or Corporate Income Tax). The base for the tax is the gross value of a dividend.
For non-tax-resident corporate shareholders, dividend income, in principle, is subject to a 19% withholding tax on dividends. However, in the case of EU/European Economic Area corporate residents, withholding tax may not be applicable if a relevant parent subsidiary directive is in force (parent subsidiary directive was implemented into the Polish Act on Corporate Income Tax). In the case of non-tax residents (both corporate and individual) not being EU/European Economic Area residents, the rules of taxation of dividend may be modified in a double tax treaty, in which case usually a withholding tax of between 5% and 15% applies.
Taxation of capital gains
Sale of real estate
Net income earned as a result of sale of real estate is subject to income tax (Corporate Income Tax) which is paid by the S.A. in accordance with general rules.
Sale of a participation in an S.A.
Sale of shares in an S.A. by a corporate tax resident is subject to 19% Corporate Income Tax. The base for calculation of the tax is net income. The sale of shares in an S.A. by an individual tax-resident is subject to Personal Income Tax. In principle, rates of Personal Income Tax in Poland are progressive (19%, 30% and 40% rates are applied).
Sale of shares in an S.A. owning (directly or indirectly) real estate by a corporate non-tax resident, as a rule, is subject to taxation in Poland and also a 19% tax rate should be applied. The majority of double tax treaties confirm that the tax on sale of a company owning (directly or indirectly) real estate by non-tax-resident should be paid in Poland. However, in the case of double tax treaties with some countries, the rules are not applied.
Sale of shares in an S.A. is not subject to VAT.
Sale of shares in an S.A. is subject to the tax on civil law transactions amounting to 1% of the market value of the shares.
Real estate transfer tax
A 2% tax on civil law transactions (PCC) calculated on the basis of the market value, which, in most cases, is the purchase price (in the event that the purchase price does not correspond with the market value, the tax authority will request a correction and may finally assess the value based on an authorised expert's opinion). For acts between entities conducting business activity VAT is to be paid at 22%. In such cases the PCC is not due.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
1. Limited Partnership (Spółka komandytowa – "Sp. k.")
The Sp. k. is a partnership which has one partner with unlimited liability and at least one partner with limited liability. Partners may be both natural persons and legal entities.
Minimum capital
Not applicable.
Set-up costs
The cost varies depending on the total value of contributions of partners which should be defined in the partnership agreement. For example set-up cost for the Sp. k. in which value of contributions' shall amount to PLN 10,000 (approximately EUR 2,830) set-up costs may amount to approximately PLN 1,600 (approximately EUR 453). Minimum value of partners' contributions is not defined in the law.
Time required to become operative
Four to six weeks (including obtaining Tax Identification Number, statistical number – REGON and registration in the Register of Entrepreneurs of the National Court Register).
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities, the turnover and the number of employees.
Corporate governance
Considerable flexibility on corporate governance can be agreed in the partnership agreement.
In principle, a limited partner does not have a right to manage a partnership however, the partnership agreement may provide otherwise.
General (unlimited) partner(s) by law represent(s) the partnership in relations with third parties. A limited partner can represent the partnership only on the basis of a power of attorney. For activities exceeding the scope of activities undertaken in the normal course of business, consent of unlimited partner is required, unless the partnership agreement provides otherwise.
A limited partner is liable for partnership's undertakings only up to the amount defined in the partnership agreement ("suma komandytowa") and this liability is reduced by the value of contribution of a limited partner to the partnership.
Regulatory control
Anti-monopoly control may be applicable in the case of M&A transactions, establishing a new entrepreneur and acquisition of property by the Sp.k. if certain turnover thresholds are exceeded.
Taxation of current income in Poland
The Sp. k. is treated as transparent for tax purposes so that it does not pay tax itself. The income is allocated directly to the partners who are taxed individually in accordance with the applicable rate of the Corporate Income Tax (legal entities) or Personal Income Tax (individuals). For income tax purposes, partners are treated as if they held the real estate themselves.
In principle, Personal Income Tax rates are progressive. The following rates are applied: 19%, 30% and 40%.
As a rule, non-tax-residents pay in Poland Personal Income Tax on the net income earned in connection with real estate located in Poland. Double tax treaties may be applied in this regard.
Corporate Income Tax basic rate is flat and amounts to 19%. In the case of corporate non-tax residents, as a rule a tax is paid in Poland on the income earned on Polish territory. However, double tax treaties may modify this rule.
Taxation of distribution of current income to investors
There is no taxation on distributions: income is simply allocated to the partners who pay income tax on the amount in accordance with general rules. In the case of cross-border income distribution, double tax treaties may apply.
Taxation of capital gains
Sale of real estate
Net income earned as a result of sale of real estate is subject to income tax (Personal Income Tax or Corporate Income Tax), which is paid by partners.
Sale of a participation in an Sp. k.
Participation in Sp. k. may be sold only on condition that possibility of sale is explicitly allowed in a partnership agreement. Income earned as a result of sale of participation in an Sp. k. is subject to Personal Income Tax (in case of sale by an individual) or to Corporate Income Tax (in case of sale by a legal entity subject to CIT). Sale of participation in Sp. K. is subject to 1% tax on civil law transactions (PCC).
2. Unlimited partnership (Spółka jawna - "Sp. j.")
The Sp. j. is a partnership which has at least two partners with unlimited liability.
Minimum capital
Not applicable.
Set-up costs
The cost varies depending on the total value of contributions of partners which should be defined in the partnership agreement. For example, set-up cost for the Sp. j. in which the value of contributions' shall amount to PLN 10,000 (approximately EUR 2,830) set-up costs may amount to approximately PLN 1,400 (approximately EUR 396). Minimum value of partners' contributions is not defined in the law.
Time required to become operative
Four to six weeks (including obtaining Tax Identification Number, statistical number – REGON and registration in the Register of Entrepreneurs of the National Court Register).
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities, the turnover and the number of employees.
Corporate governance
Considerable flexibility on corporate governance can be achieved through the partnership agreement. Each partner can manage the company, unless otherwise stated in the partnership agreement. In the case of activities exceeding the scope of activities undertaken in the normal course of business, consent of all partners is required.
Regulatory control
Anti-monopoly control may be applicable in case of M&A transactions, establishing a new entrepreneur and acquisition of property by the Sp.j. if certain turnover thresholds are exceeded.
Taxation of current income in Poland
The Sp. j. is treated as transparent for tax purposes so that it does not itself pay tax. The income is allocated directly to the partners who are taxed individually in accordance with the applicable rate of the Corporate Income Tax (legal entities) or Personal Income Tax (individuals). For income tax purposes, partners are treated as if they held the real estate themselves.
In principle, Personal Income Tax rates are progressive. The following rates are applied: 19%, 30% and 40%.
As a rule, non-tax residents pay in Poland Personal Income Tax on the net income earned in connection with real estate located in Poland. Double tax treaties may be applied in this regard.
Corporate Income Tax basic rate is flat and amounts to 19%. In case of corporate non-tax residents, as a rule tax is paid in Poland on the income earned on Polish territory. However, double tax treaties may modify this rule.
Taxation of distribution of current income to investors
There is no taxation on distributions: income is simply allocated to the partners who pay income tax on the amount in accordance with general rules. In the case of cross-border income distribution, double tax treaties may apply.
Taxation of capital gains
Sale of real estate
Net income earned as a result of sale of real estate is subject to the income tax (Personal Income Tax or Corporate Income Tax) which is paid by partners.
Sale of a participation in an Sp. j.
Participation in Sp. j. may be sold only on condition that the possibility of sale is explicitly allowed in the partnership agreement. Income earned as a result of sale of participation in a Sp. j is subject to Personal Income Tax (in the case of sale by an individual) or to Corporate Income Tax (in case of sale by a legal entity subject to CIT) paid by the seller. Sale of participation in Sp. j. is subject to a 1% tax on civil law transactions (PCC).
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
1. Closed-End Real Estate Investment Fund ("Fund")
In Poland only Closed-End Investment Funds may invest in perpetual usufruct rights or ownership/co-ownership of:
(a) land (within the meaning of legal regulations on real estate management);
(b) buildings and premises representing separate real estate.
A Fund may only acquire rights to real estate of a clear legal status, which does not serve as a collateral and is not subject to enforcement. A Fund may acquire real estate encumbered with third party rights only if the exercise of such rights does not create the risk of a loss of the ownership of such real estate.
The number of items of real estate owned by the Fund and held under perpetual usufruct shall not be less than four.
Management company
A real estate Fund may only be set up by an investment company (Towarzystwo Funduszy Inwestycyjnych - "TFI"), which holds and manages the assets of the Fund on behalf of the shareholders as a trustee.
Only a joint-stock company (S.A.) which has a registered seat in the Republic of Poland and holds the Polish Financial Supervisory Commission's (the "FSA") authorisation may operate as a TFI. A supervisory board is mandatory.
Minimum capital
A TFI's initial capital necessary to carry out its activities shall be no less than the PLN equivalent of EUR 125,000. If a TFI's scope of activities includes discretionary management of securities portfolio, the initial capital shall be increased to the PLN equivalent of EUR 730,000.
The total payments to the Fund to be collected in the amount stipulated in the Fund's articles of association may not be less than PLN 4,000,000 (approx. EUR 1,250,000). In the case of a Fund issuing non-public investment certificates, the total minimum amount of payments to the Fund shall be defined in the articles of association of the fund.
Set-up costs
TFI: for a standard set-up, costs are from EUR 10,000 upwards, depending on the complexity of the structure.
Fund: for a standard set-up, costs are from EUR 10,000 upwards, depending on the complexity of the structure.
Time required to become operative
TFI: up to three months.
Fund: up to three months.
Costs per annum for corporate and accounting compliance
Depends on many factors, e.g. the complexity of a structure, assets value, etc.
A valuation of the Fund's assets shall be performed by a team of at least three persons, composed exclusively of property appraisers qualified to appraise real estate based on legal regulations on real estate management, appointed by the supervisory board of the TFI.
A valuation of the assets shall be performed a month prior to the conclusion of the agreement to acquire the assets and two years following the previous valuation, and at any time a reasonable suspicion arises that certain circumstances have occurred which would result in a significant change in the value of the assets.
A revaluation of the assets shall be performed at least once every six months, taking into consideration changes in prices on the real estate market and the types of such assets.
The costs depend on the size and quantity of assets.
Corporate governance
The TFI is supervised by the FSA and needs to have an authorisation to create and operate investments funds in accordance with the Polish Act on Investment Funds.
Regulatory control
A TFI and an investment fund shall provide the FSA with periodic reports and current information regarding their activities and financial situation. At the request of the FSA or its authorised representative, a management company and an investment fund shall provide other information, documents or explanations necessary to exercise effective supervision.
Taxation of current income in Poland
No taxation of income at the level of the Fund.
Taxation of capital gains
Sale of participation
For individuals: capital gains are taxable at the 19% Personal Income Tax rate.
For corporations: capital gains are taxable at the 19% Corporate Income Tax rate.
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