New tax rules for real estate holding companies in Poland

Poland

On 1 January 2021 new rules on taxation of real estate holding companies entered into force. According to these new regulations “real estate companies” will be subject to additional tax burdens.

1. Definition of a real estate company

A real estate company is an entity (other than an individual person) in which on the first day of the tax year (for entities starting their activity) or on the last day of the year preceding the tax year (for other entities):

  1. at least 50% of the market value (for entities starting their activity); or
  2. at least 50% of the book value (for other entities) of the assets;

comprised real estate (or rights to real estate) located in Poland.

Also, the real estate value should exceed PLN 10 million and entities that did not start their activities in a given year should earn at least 60% of their income from lease/sublease/transfer of real property or transfer of shares in other “real estate companies”.

2. Real estate company’s obligations

Generally, if a seller of shares (min. 5%) in a real estate company is not resident in Poland, then the real estate company will be responsible–as the payer–for remitting the tax due on the shareholders’ income to the tax office (PIT or CIT). The seller should provide the real estate company with information on the tax on the transaction. If the company does not have this information, the tax base is the market value of the shares sold (e.g. without including tax deductible costs). The seller should also provide the real estate company with cash to pay the tax before the due date.

Additionally, a real estate company not having its seat or management board in Poland will be obliged to appoint a tax representative in Poland, under threat of a fine of up to PLN 1 million. Entities from the EU or EEA are exempt from the obligation to appoint a tax representative.

Real estate companies that are part of tax capital groups or have more than PLN 50 million in revenue are required to publish their tax strategies. Finally, real estate companies may be required to provide the tax authorities will information about the real estate entity’s partners or shareholders (as well as some additional information).

3. Practical considerations

In general, the regulations on taxation of real estate companies should be analysed in the context of the various double tax treaties concluded by Poland. Some of these treaties include a “real estate clause”. According to this clause, a sale of shares in a company in which more than 50% of the value is derived from real estate in Poland is subject to tax in Poland (as opposed to the standard rule that a sale of shares is subject to tax in the state of the shareholder). On the other hand, some double tax treaties do not contain such clauses or contain a different definition of a real estate rich company; this may lead to shares in such companies being taxed in the country of the shareholder. Consequently, in each case a careful review should be carried out of the issue of what tax regulations will apply and to what extent.

In regard to sales of real estate companies, the company itself may be potentially held liable for the tax arrears of the selling shareholder, e.g. in a case of tax underpayment or when the seller fails to provide the cash for the payment of tax. When negotiating the sale and purchase of real estate companies, the sale agreement must include appropriate contractual safeguards against such situations.

Our tax team is available to answer any questions you may have. For more information, please get in touch with our Tax team in Poland or your usual contact at CMS.