Poland: Definition of “real estate company” and new obligations introduced by regulations
Poland: Definition of “real estate company”
Beginning in 2021, there are new obligations for real estate companies.
First, the new measures provide a definition of a “real estate company”—one that refers to the entity's asset structure, meaning that it can also be met by entities that do not have legal personality or are not income taxpayers (including foreign companies). Under the amended provisions, a real estate company means an entity required to prepare a balance sheet in line with provisions of the accounting law such as:
- For entities beginning their business activity—as at the first day of the tax year, at least 50% of the market value of assets (directly or indirectly) consists of real estate located in Poland (or rights thereto) with the value exceeding PLN 10 million
- For other entities—
- As at the last day of the year preceding the tax (financial) year, at least 50% of the book value of assets (directly or indirectly) consisted of real estate located in Poland (or rights thereto) with the book value exceeding PLN 10 million or an equivalent amount determined according to the relevant exchange rate; and
- In the year preceding the tax (financial) year, taxable revenues (revenues included in the net financial income) constitute at least 60% of total taxable revenues (revenues included in the net financial income) from:
- Letting, subletting, lease (and other similar contracts) or
- From the transfer of ownership to real estate or rights thereto, and from shares in other real estate companies
Polish law and provisions of income tax treaties
The introduction and application of the real estate company rules must be considered in the context of Poland’s network of income tax treaties. The real estate clause in a number of income tax treaties relates to entities with assets consisting mainly (typically at least 50%) directly or indirectly, of real estate located in the territory of one of the treaty's signatories. In turn, the country where the real estate is located has the right to impose tax on the alienation of shares in such an entity.
Thus, correct identification of requirements or duties imposed on real estate companies can only be made based on a thorough analysis of Polish regulations and the applicable income tax treaty provisions.
Collecting tax advance payments by real estate companies, practical concerns
One change under the amended provisions is that the tax remittance obligations are shifted to the real estate companies. In a situation of alienation of more than 5% of shares (or rights of a similar kind) in a real estate company by a foreign entity, the real estate company will be required to settle the income tax advance payment on the realized income from the transaction on behalf of the seller.
The new regulations provide for a situation when a real estate company has no knowledge of the amount of income earned by the seller through the transaction. In such situations, the real estate company will be required to pay an income tax at a tax rate of 19% based on the market value of the alienated shares (or rights of a similar kind), without regard to the actual value of the transaction and with no right to deduct the related expenses. Under the amended provisions, there is no possibility for a real estate company to be released from this liability as a remitter when there is uncollected tax.
Moreover, the seller (taxpayer) is required to transfer the amount of the income tax advance to the real estate company (remitter) before the deadline for making the tax payment.
Other obligations of real estate companies
Other obligations imposed on real estate companies include:
- Providing the head of the tax administration with information about the real estate entity’s partners or shareholders (whereas partners and shareholders in real estate companies will be required to report on the contributions or shares held in these companies)
- Appointing a tax representative, provided that such real estate companies have no seat or place of management in Poland or an EEA Member State
- Establishing a report on the “executed tax strategy” (for entities being part of tax capital groups or exceeding the cap of PLN 50 million in revenue)
Read a January 2021 report prepared by the KPMG member firm in Poland
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