To encourage investors to invest through Polish entities (and prevent capital flight to other countries), special taxation rules for so-called holding companies have been introduced into the Polish tax system. The main incentive is the non-taxation of the sale of shares or stocks held by these holding companies. The article provides answers on how to take advantage of the provided exemptions and what to watch out for.
Let's begin with the most crucial aspect – the benefits of operating a Holding Company through a Polish entity. There are two main advantages:
- No Corporate Income Tax (CIT) (0%) on dividends received from subsidiaries.
- No CIT (0%) on proceeds from the sale of subsidiary shares!
Let's explore who is eligible for these benefits, which companies they apply to, and whether, as is often the case, there are any catches.
Becoming a holding company doesn't require reporting to authorities or making changes to the articles of association. However, meeting several requirements is necessary:
- PolishHolding company can only be a limited liability company, a simple joint-stock company, or a joint-stock company with unlimited tax liability in Poland.
- Polish Holding company must own at least 10% of the shares in the subsidiary.
- Polish Holding company cannot be part of a tax capital group.
- Polish Holding company cannot benefit from tax exemptions for operating in Special Economic Zones (SSE) or exemptions for operating under an investment support decision.
- Polish Holding Company must engage in actual business operations.
- A shareholder of a Polish Holding Company cannot be an entity from a country with harmful tax competition, non-cooperative in tax matters, or a country with which a double taxation treaty has not been ratified. The detailed list of these countries is outlined in relevant legislation (e.g., Russia, Bahamas, Fiji, Costa Rica, Saint Lucia, British Virgin Islands, Bahrain).
Importantly, the benefits (dividends or proceeds from share sales) mentioned earlier do not apply to all companies that a holding company may own. The subsidiary must qualify as a difined "subsidiary company".
A subsidiary may be:
- A company that doesn't hold titles to an investment fund, mutual investment institution, or other property rights associated with receiving benefits as a founder or beneficiary of a foundation, trust, or similar fiduciary entity or legal relationship.
- Like a Polish Holding Company, the subsidiary cannot form a tax equity group.
Furthermore, the law defines a foreign subsidiary company:
- It must have legal personality.
- It must be subject to income tax in a country other than Poland on all its income, without exemption from such taxation.
- It must not be based in a country with harmful tax competition, as listed earlier for the holding company.
To qualify for the dividend income exemption described above, a holding company and subsidiary must continuously meet these conditions for at least 2 years before receiving dividend income. This ensures eligibility for the exemption.
The exemption does not apply to dividends from a foreign subsidiary if that company meets specific conditions for recognition as a Controlled Foreign Company (CFC), governed by separate tax laws. This is unless the CFC foreign subsidiary fully taxes its income in an EU or EEA country and engages in substantial real economic activity there.
Additionally, the exemption does not apply to dividends from a foreign subsidiary to the extent that the dividend paid, in any form, is deductible from income, tax base, or taxable by the foreign subsidiary. This restriction prevents double benefit from the same operation.
Taxpayers utilizing the exemption must report the exempt income (revenue) in their CIT-8 return.
Similar to the dividend exemption, companies in question must have been a holding company and a subsidiary continuously for at least 2 years before receiving proceeds from share sales.
The CIT tax exemption does not apply to the disposal of real estate companies. Disposal of shares of a subsidiary company, where at least 50% of the value of the assets (directly or indirectly) is real estate in Poland or rights to such real estate, is not eligible for the exemption.
An additional condition is that the Tax Office must be informed of the intent to dispose of the property at least 5 days before the disposal date.
The statement of intent for the exemption should include:
- Names, addresses, and Tax Identification Numbers of the contract parties.
- Name, address, and Tax Identification Number of the subsidiary whose shares will be sold.
- Indication of the share in the subsidiary's capital subject to disposal.
- Planned date of the agreement.
It's important to note that this indirectly limits the category of entities that can be subsidiaries since the exemption applies only to share disposal – rights and obligations in partnerships are not covered.
Taxpayers using the exemption must include data on the exempt income (revenue) in their CIT-8 return.
A positive aspect is that exemption eligibility doesn't depend on notifying the authorities about being a holding company two years before a transaction or dividend receipt. The conditions are either met or not.
If there are doubts about whether a planned transaction qualifies for exemption, requesting an individual interpretation is possible to eliminate uncertainties.
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