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Country - Poland
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in Poland?
Investors who wish to invest in real estate in Poland have various options for structuring their acquisitions. These are: direct acquisition of the real estate; indirect acquisition via a partnership; and indirect acquisition via a corporation. To avoid organisational problems, indirect investment through a vehicle established in Poland is recommended. Due to unfavourable rules of liability of partners, investment through companies or funds is recommended rather than through partnerships.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
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) and a fee for the registration in the Land and Mortgage Register amounting to PLN 200 (EUR 55) are due. For acts between entities conducting business activity, VAT is to be paid at 22%. In such cases the PCC is not due.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
Acquisition of shares in an SPV holding real estate is subject to a 1% tax on civil law transactions (PCC). The base for calculation of the tax is the market value of shares. Income earned as a result of sale of shares in SPV is subject to Personal Income Tax (in the case of sale of shares held by an individual) or Corporate Income Tax (in the case of sale of shares held by a company), paid in accordance with general rules.
Who normally pays the transfer taxes, the buyer or the seller?
Costs are subject to negotiation and agreement between the buyer and the seller. Normally, the buyer pays the transaction costs. The tax on civil transactions is paid by the buyer according to the law.
Are there any other costs relating to the purchase of real estate assets or SPVs?
The cost of professional advisers, notary fees, court fee.
The notary fee depends on the value of real estate, but should not exceed PLN 10,000 (EUR 2,800). Usually court fee amounts to PLN 200 (EUR 55).
C. TAXATION OF RUNNING INCOME
How is income generated from the letting of real estate taxed in Poland?
(a) Direct investment
As a rule, all the income earned by a foreign company on Polish territory is subject to Corporate Income Tax (CIT) in Poland and the income earned by foreign individuals on Polish territory is subject to Personal Income Tax (PIT). Double tax treaties may modify this rule.
Corporate Income Tax is payable at a flat rate of 19% on net income. Personal Income Tax rate is progressive. The following tax rates are applied: 19% (with regard to income not exceeding PLN 37,024), 30% (with regard to income not exceeding PLN 74,048) and 40% (with regard to income not exceeding PLN 600,000). The higher rate is applied only with regard to the amount exceeding the lower threshold. With regard to some sources of income, flat rate of PIT is applied.
(b) Indirect investment through a partnership (a transparent entity)
Since a partnership is considered to be transparent for income tax purposes, any profits generated by the partnership are regarded as the profits of individual partners and are therefore treated as their income. As a result, relevant income tax is applied (Personal Income Tax or Corporate Income Tax).
(c) Indirect investment through a corporation (a non-transparent entity)
The tax basis is the net income, i.e. income minus tax deductible expenses.
Corporation tax is charged at a flat rate of 19%.
A parent company and its subsidiaries can create a capital group for tax purposes on condition that a participation threshold is achieved (95%) and some other requirements are fulfilled. The companies should conclude an agreement in a form of a notarial deed and submit this agreement to the Director of the relevant Tax Office.
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment
Income generated by direct investment is subject to the relevant income tax (Personal Income Tax or Corporate Income Tax) in accordance with general rules. Double tax treaties may be applied.
(b) Indirect investment through a partnership
Where foreign investors have invested through a Polish partnership, the partnership is treated as transparent for income tax purposes. Business profits should be included in the partners' income and the relevant tax (PIT or CIT) should be paid by the partners, in accordance with applicable rules, including double tax treaties).
(c) Indirect investment through a corporation
Distribution of dividends to shareholders
For tax-resident shareholders there is normally a 19% tax on dividends. For individuals, there is also 19% tax on dividends. The tax is paid by the shareholders entitled to the dividend within the frameworks of 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, as a rule, is subject to 19% withholding tax on dividends. However, in the case of EU/European Economic Area corporate residents, withholding tax may be exempt if a relevant parent subsidiary directive is applicable (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.
Provisions of EU Parent-Subsidiary Directive were implemented in Poland. The relevant provisions of the Polish Act on Corporate Income Tax stipulate that no withholding tax is levied on dividends paid by a Polish company to another EU company, provided that the latter has held at least 10% of the shares in the former (until 31 December 2008 the number of shares should be at least 15%) for an uninterrupted period of two years preceding the date of distribution of the dividends.
Are there local taxes on the possession of real estate assets?
Real estate tax is paid with regard to lands, buildings and their parts. The base for calculation of the tax is the surface of land/building or its part or, in some cases, value of the real estate.
Real estate tax is a local tax and its exact amount is defined by a resolution of the relevant Community Council (which is a local self-governing body). However, rates of real estate tax defined in the Community Council's resolution cannot exceed the following rates: with regard to lands connected with conducting business activity – PLN 0.71 per square metre, with regard to buildings and their parts (in case they are connected with conducting business activity) – PLN 19.01 per square metre, with regard to some constructions – 2% of their value.
Special rules apply to agricultural and forest lands.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
With the exception of land, most tangible assets are depreciable. There are several methods of depreciation available (e.g. by use of rates indicated in the specification of depreciation rates annexed to the Act on Income Tax, by use of increased depreciation rates, by use of decreased depreciation rates, by use of individual depreciation rates and degressive method). Depreciation rates depend on the method chosen.
Depreciation rates for the most typical buildings and constructions indicated in the specification of depreciation rates (which is annexed to the Polish Act on Corporate Income Tax) range from 1.5% to 10%. However, depreciation rates for some specific constructions may amount to up to 20%. Under certain circumstances, different methods of depreciation and consequently different depreciation rates may be applied.
Can land be depreciated?
No.
Can a participation in an SPV holding real estate be depreciated?
No.
E. VAT
Is the purchase of real estate assets subject to VAT?
In principle, the sale of real estate is subject to VAT on condition that the seller is a VAT payer within the meaning of the Polish Act on Value Added Tax. In principle, VAT payers are entrepreneurs and VAT is paid by them with regard to the transactions performed within the framework of their business activity. The basic VAT rate is 22%.
In the case the seller is a VAT payer and the buyer conducts business activity, the seller must provide the buyer with a VAT invoice for the sale price. Otherwise, the seller must provide the invoice on request of the buyer. The seller then pays the VAT received to the relevant financial authority and the buyer is entitled to deduction of input VAT as long as he is a VAT payer, as defined by the Polish Act on Value Added Tax.
F. TAXATION OF CAPITAL GAINS
How are capital gains made on real estate in Poland taxed?
Capital gains, including gains made as a result of sale of real estate, made by an individual are taxed in accordance with the general rules at the applicable Personal Income Tax rates (as set out above). Capital gains realised by corporate investors from the sale of real estate are taxed with Corporate Income Tax at flat rate of 19%.
Additionally, sale of real estate located in Poland is subject to the tax on civil law transactions (PCC) at 2% rate (the base for calculation is market value of the real estate) or, in the case of entrepreneurs, to VAT.
How are capital gains deriving from the sale of shares/interests in a corporate entity taxed in Poland?
Capital gains made by an individual, including gains made as a result of sale of shares/interests in accordance with the general rules at the applicable Personal Income Tax rates (as set out above). Capital gains realised by corporate investors from the sale of shares are taxed with Corporate Income Tax at a flat rate of 19%. Additionally, sale of shares/interests in a company having its seat in Poland is subject to the tax on civil law transactions (PCC) at a 1% rate. The base for calculation is market value of the shares/interests.
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