The draft version of tax changes presented by the Ministry of Finance under the so-called “Polish New Deal” act introduces a number of modifications important for real estate companies. Most of the planned regulations are expected to enter into force as of the tax year 2022.
Below we present some of the major issues that might have an impact on your business in Poland.
Please note that the presented changes are currently in the draft phase which means that the final shape of these regulations might be different. We will keep you updated on the legislation process.
No deduction of interest on loans granted by related entities for capital transactions
- tax depreciation write-offs exceeding the write-offs made according to accounting regulations may not be recognized for tax purposes by real estate entities;
- this in fact means no possibility to recognize these costs up to the moment of sale of the real estate, as long as the real estate is treated as investment for accounting purposes.
New “thin capitalisation” rules
The taxpayer will be entitled to recognize for CIT purposes the excess of debt financing:
- either up to the threshold of 30% EBITDA or;
- up to the threshold of PLN 3M.
Combining these thresholds (30% EBITDA plus PLN 3M) will be no longer possible.
The prohibition on deduction of interest on loans granted by related entities for capital transactions
- Capital transactions are i.a. increase of share capital, acquisition of shares (e.g. share for share exchange), acquisition of rights in tax transparent entity, acquisition of shares for the purpose of their redemption, additional payments to the share capital.
- Debt financing costs from related parties connected with these transactions will be not deductible.
- The proposed changes are intended to counteract situations whereby the income tax base is reduced as a result of the debt-to-equity swap transactions within the group.
“Hidden dividend”. Introduction of the new tax for shifted profits
Payments will not be deductible in case the beneficiary is a shareholder or a related party in two scenarios:
- provided that the payment will not be provided to the taxpayer in a “mirror-like” situation;
- in case as a result of the payment, the taxpayer will change is the financial position from profit to loss-making.
Changes to health contribution
- Health insurance contribution will not be tax-deductible any longer – today it is almost fully (86.11%) deductible.
- 9% contribution will be imposed on actual income and will encompass also individuals engaged under B2B contracts.
- Board members appointed under the resolution will be subject to 9% health insurance contributions – today there are not subject to it.
- VAT group- a group of entities related financially, economically, and organizationally – may be registered for VAT purposes as a single VAT taxpayer and submit a joint VAT settlement, to include the VAT SAF-T file.
- Intra-group tax neutrality – supplies of goods and services by entities belonging to the group will not be treated as activities subject to VAT.
- Exemption from tax on civil law transactions (PCC) for entities belonging to the VAT group, with the exception for real estate transactions and share transactions.
- Exclusion of the split payment mechanism for transactions within the VAT group.
Simplification of withholding regime
- Pay & refund system will be applicable only towards dividends, interest, and royalties payments made to related parties – and not to service transactions (e.g. management charges).
- The taxpayer will be entitled to ask for DTT-covered payments (and not only EU Directive covered) in the application for the WHT opinion of the tax authorities.
New regime for holding companies
- Applicable only for limited liability company or joint-stock company which does not belong to CIT tax group (PGK) and holds 10% shares in the subsidiary at least for 1 year;
- The subsidiary may not hold more than 5% of the shareholding in other companies, may not hold any interest or rights in any investment fund or tax transparent partnership, any rights from trust and similar agreements, and may not belong to the CIT tax group (PGK).
- The new tax regime provides for:
- exemption from CIT on 95% of the amount of dividends received by the holding company from subsidiaries,
- full CIT exemption of profits from the sale of shares in subsidiaries (local participation exemption), to exclude a sale of shares in companies with assets consisting in at least 50% of real estate located in Poland.
Optional VAT taxation of financial services
- The possibility to opt for taxation of financial services (loan, guarantee, etc.) provided by a taxpayer only for other taxpayers.
- A taxpayer resigning from VAT exemption and choosing to tax the above financial services will be obliged to tax all provided financial services – it will not be possible to resign from the exemption only for selected types of services or contractors.
- Choice of VAT taxation of financial services – including granted loans – may help taxpayers eliminate the risk of questioning by the tax authorities whether such transactions should be subject to VAT or PCC.
In case you have questions, please contact our tax experts:
Head of Tax, Board Member
Tax Manager, Tax Adviser
Tax Manager, Tax Adviser, Attorney-at-law
Tax Manager – Attorney-at-law