Poland: Planned tax changes for real estate sector
Poland: Planned tax changes for real estate sector
The real estate sector has become the target of proposed tax changes, including amendments to income tax treaties (in the form of real estate clauses) and new tax settlement requirements.
According to unofficial information from the Ministry of Finance, there are at present ongoing negotiations on a Protocol to the income tax treaty between Poland and the Netherlands that would introduce, inter alia, a real estate clause that would impose on Dutch shareholders the obligation to pay, in Poland, income tax on profits from the sales of shares in real estate companies owning assets in Poland. Currently, the exact content of the clause and the date of its entry into force remain unknown.
Proposed legislative changes
Furthermore, on 23 October 2020, a draft bill amending the individual (personal) income tax law, the corporate income tax law, and the “flat-rate tax” law was published on the website of the lower house of the Lower House of the Polish Parliament.
Definition of real estate company
The legislation intends to amend the definition of a “real estate company” so that an entity would be considered to be a real estate company as follows:
- If a newly established entity—as at the first day of a tax year, the percentage share of real estate in Poland of its total asset value is at least 50% and the value of its real estate is greater than PLN 10 million.
- If an entity continuing its business activity—as at the last day of the year preceding the tax year, the percentage share of real estate in Poland of its total asset value is at least 50%; the value of its real estate is greater than than PLN 10 million; and its taxable revenues from rental, sublease, lease or contracts of similar nature represented at least 60% of the total taxable revenues.
Sale of shares in a real estate company and transfer of tax remitting obligations to a real estate company
One of the primary goals of the new measures would be to transfer the requirement for paying the tax on capital gains realized from the sale of shares in a real estate company to that real estate company if the seller is not a Polish tax resident. In such instances, the real estate company—as the tax remitter—would be required to calculate the 19% tax and collect it from the seller (and then to remit that account of the tax office by the 20th day of the month following the month in which the transaction took place).
In order to satisfy this requirement, the real estate company would need to know the details of the transaction (including revenues and costs on the seller's side). Absent the knowledge of such information, the real estate company would be required to settle the tax based on the market value of the shares.
In the event of difficulties in collecting funds from the seller to cover the tax on the transaction, the real estate company would be required to pay the tax with its own funds.
Appointing a tax representative
Under the proposed legislation, real estate companies having no registered office or place of management in Poland would be required to appoint a tax representative. However, this requirement would not apply with regard to EU and EEA real estate companies.
The role of the tax representative would be to perform tax remittances and reporting obligations in the name of and on behalf of the real estate company. The tax representative would be jointly and severally liable with the real estate company for tax obligations arising from the sale of shares in this real estate company.
Failure to appoint a tax representative of a real estate company could result in an administrative penalty of up to PLN 1 million.
New disclosure obligations
The draft bill would impose new disclosure obligations on real estate companies and on taxpayers holding, directly or indirectly, at least 5% of the voting rights or at least 5% of the total number of participation units or rights of a similar nature in a real estate company.
Under the proposal, real estate companies would have to disclose information about those entities holding, directly or indirectly, shares, participation units or rights of a similar nature in the real estate company, along with the number of such participation rights held by each of them. Partners of real estate companies would be required to disclose information on the number of shares, participation units or similar rights held, directly or indirectly, in the real estate company. This information would be required to be supplied, electronically, within three months from the end of the tax year.
Key transfer pricing changes
The draft legislation also includes a number of transfer pricing amendments, such as extending the scope of transactions that must be verified for compliance with the arm's length principle, especially when the beneficial owner is located in a “tax haven” jurisdiction (i.e., a country or territory with a harmful tax competition regime).
The obligation to prepare a Local file would also be imposed on taxpayers and companies that are not legal entities conducting “non-controlled transactions” with entities having their place or residence, seat or place of management in a tax haven jurisdiction, provided that the transaction value in the given tax year exceeds PLN 500,000.
This provision would apply to taxpayers and companies that are not legal entities conducting controlled and/or non-controlled transactions if the transaction’s beneficial owners have their place or residence, seat or place of management in a country or territory applying harmful tax competition regime.
For transactions conducted with entities located in tax haven jurisdictions, the Local file also would need to contain an economic justification for undertaking the transaction, and would need to include a description of the expected economic and tax benefits.
Report on implementation of tax strategy
The draft bill includes a provision requiring that certain taxpayers prepare and publish a report on implementation of their tax strategy in a given tax year. This reporting obligation would apply with regard to taxpayers whose revenue exceeds €50 million in the tax year.
The report would need to include certain information about the nature, type, and size of the taxpayer's business activity. The report would be due within 12 months from the end of the tax year. A failure to comply with this obligation would be subject to penalties.
Read an October 2020 report [PDF 250 KB] prepared by the KPMG member firm in Poland
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