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Exit tax – a new tax in the plans of the Ministry of Finance

The Ministry of Finance published draft legislation that introduces, among others, the ‘exit tax’ to the Polish taxation regime. The point is to tax unrealised capital gains as company’s assets, permanent establishment or tax residence is moved to another country.

The ‘exit tax’ is not a brainchild of the Ministry of Finance. The reason behind bringing forth these solutions is the need to adjust to Community legislation, namely provisions of the Anti-Tax Avoidance Directive (hereinafter referred to as ATAD). What is more, similar solutions had been in place in a number of European Union countries even before ATAD entered into force.

However, the Polish legislator is overstepping his bounds once again. Firstly, the regulations in question are supposed to enter into force as early as on 1 January 2019 (i.e. a year earlier than required under the ATAD). What is more, the ”Polish exit tax” is going to apply both to companies and individuals, while the Community sets forth this obligation only for the former.

The main underlying assumption of the ‘exit tax’ is to tax capital gains that have not yet been realised as assets are being moved to another country (assets including both the company and its organised part) or there is a change of tax residence. Thus, what this tax is all about is that Poland is losing the right to tax income that has actually been generated in a period when a given taxpayer (an asset) was subject to the Polish tax jurisdiction.

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The ‘exit tax’ will apply to the following categories of events related to the transfer of assets “within the same taxpayer”:

  • a Polish resident transfers an asset connected with the business operating in Poland to their foreign establishment;
  • a non-resident transfers an asset connected with the business operating in Poland to the country of their tax residence or another country in which they operate their business through a foreign establishment;
  • a non-resident transfers a business that has been operated by a foreign establishment located in Poland to another country, in its entirety or in part;
  • a Polish resident changes their tax residence, as a result of which Poland loses the right to tax income from the sale of an asset owned by this taxpayer due to the transfer of their place of residence, headquarters or management to another country.

The taxable income shall be the total income from unrealised gains as determined for individual assets. The income from unrealised gains is supposed to amount to the surplus of the market value of the transferred asset (determined on the day of its transfer) over its tax value.

For CIT payers, the tax rate will be single and amount to 19% of the taxable income, whereas for PIT payers, two rates will apply: 19% (standard rate) and 3% (reduced rate, to be applied in special cases). It must be mentioned that for individuals, this tax would apply only above the threshold of PLN 2 million in asset value.

The Ministry of Finance has announced that the discussed regulations will enter into force on 1 January 2019. Given the present stage of the legislative work, the final wording of the regulation is not a foregone conclusion.

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If you have any questions or need to discuss the topic, you are strongly encouraged to contact our expert, Piotr LISS:

e-mail: ekspert@rsmpoland.pl

tel. +48 61 8515 766

fax +48 61 8515 786

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