“Polish Deal” – detailed solutions – Interpretation 590, VAT groups, VAT taxation of financing services

On 14 June Ministry of Finance presented details about some of the solutions included in, so-called, Polish Deal. We described the general assumptions of the program in the article – “Polish Deal” – the announcement of major changes in taxes.

Service Center at the Ministry of Finance (Investor’s Desk)

The Ministry of Finance is going to directly deal with key investors. For strategic clients, both foreign and Polish, the Investor Service Center will be open at the Ministry of Finance. The Investor’s Desk will provide comprehensive service at both stages – first at the stage of issuing interpretation 590 and later at the stage of the investment project.

Interpretation 590 – one decision for one investment

Currently, information about the consequences of investments is a long and complicated process. The tax consequences of large investments may be related to PIT, CIT, VAT, excise duty, real estate tax, and customs duty. Tax security for such an investment requires obtaining several types of documents in several separate procedures. The solution to this problem may be issuing one ruling concerning all tax consequences regarding investing in Poland. Interpretation 590 will be prepared directly by the Ministry of Finance.

The investor is guaranteed top tax security by this new instrument. According to the plans, interpretation 590 will be available to investors whose investment exceeds PLN 100 million. The initial fee for receiving of the interpretation will be PLN 50,000 and the individual main fee will be set between PLN 100,000 and PLN 500,000.

Interpretation 590 will include elements of individual tax ruling, binding rate information, binding excise information, advance (protective) tax ruling,s and advance pricing arrangement. After concluding the agreement with the investor, Interpretation 590 will be in force for 5 years from the date of issue. It will be possible to negotiate its content including prolonging this period.

Facilitations in CIT for the Tax Capital Group (TCG)

Conducting a business activity in the form of a tax capital group enables joint settlement of income and losses by the companies of the group. Currently, TCG may establish capital companies with an average share capital of PLN 500,000. The Ministry of Finance proposes to reduce this requirement to PLN 250,000. The Ministry also plans to introduce the possibility of merging, transforming, and dividing the companies that comprise the TCG. The condition for the tax capital group to achieve 2% profitability is to be abolished. The Ministry of Finance plans to introduce the possibility of settling losses by a subsidiary of the group. The requirement to conclude a tax agreement of the capital group in the form of a notarial deed is also to be abolished.

VAT tax groups

Currently, in Poland, the tax groups are only possible for the purposes of CIT. According to the Ministry of Finance, the VAT group will be introduced from 1 January 2022. Unlike tax groups in CIT, there will be no minimum share capital limit in VAT groups. In VAT groups, the participation criterion will be set at 50% (in tax groups based on CIT it is 75%).

The institution of VAT groups is known in many European Union countries. The Ministry of Finance assumes that the introduction of VAT groups in Polish will encourage entrepreneurs to invest in Poland. We wrote about the idea of VAT Groups here.

Polish Holding Company (PHC)

Polish holding companies are capital companies – limited liability companies and joint-stock companies. The Ministry of Finance proposed to exempt 95% of dividends received by PHC from its subsidiary. Investors from outside the European Union are to be the beneficiaries of this solution. According to the plans, the tax will be charged on 5% of the value of the dividend paid. Companies from the EEA and Switzerland are already tax-exempt when paid out after two years of share ownership. However, the possibility of choosing and applying a 95% tax exemption will be introduced in the case of payment after one year.

Another solution presented is the CIT exemption for Polish holding companies for profits from the sale of shares and stocks in subsidiaries. Currently, such profits are taxed at a rate of 19%. According to the draft, they are going to be tax-free.

Option of VAT taxation of financial services

Currently, financial services are exempt from VAT. Thus, financial institutions are not able to deduct VAT on the purchase of goods and services that have been acquired for the purpose of providing such services. Therefore – these institutions bear the economic burden of this tax. According to the proposed solution, financial institutions will be able to choose the option of taxing the services they provide, and therefore – they will gain the possibility to deduct input VAT related to purchases for the purposes of these services.

This change is to encourage financial institutions to move their European headquarters to Poland. The possibility of choosing VAT taxation by financial institutions is to ease them starting investing in Poland.

We will inform you about the further solutions proposed by the Ministry of Finance as part of the Polish Deal.

Łukasz Bączyk
Head of TaxBoard Member

Jarosław Szajkowski
Tax Manager – Tax Adviser

Agata Bienia
Tax Consultant

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