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Acquiring Polish Real Estate

DIRECT PURCHASE OF REAL ESTATE

This section discusses the most important tax implications of the direct purchase of real estate. First is discussed the impact for resident individuals and non-resident individuals. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident Individuals

Transfer tax
Purchase of real estate located in Poland is subject to the LCTG (Polish: PCC). The tax is paid by the purchaser and amounts to 2% of real estate's market value. If a transaction is subject to the VAT, the PCC is not due.

Value added tax
The purchase of real estate located in Poland is in principle subject to the VAT. Although, if a seller has been in possession of real estate for at least two years or did not incur expenditures exceeding 30% of its value in order to improve it - from which they would deduct the VAT, the tax is not due. Purchase of real estate is also not subject to the VAT, if by purchase the right to deduct VAT did not appertain.

The VAT on purchased real estate is deductible when the resident individuals purchase real estate in the course of its business.

Deductibility of costs
If rental income is settled within the scope of personal income tax, the tax-deductible costs of rental income are the costs incurred in order to achieve rental income.

The tax-deductible expenses include interest on loans actually paid (costs of accrued but unpaid or remitted interest on liabilities are not considered as tax-deductible costs) incurred for the purchase of rented real estate and after its delivery. Interest accrued until the delivery of real estate increases its initial value and are included in tax-deductible costs by depreciation allowances, whereas interest accrued and paid after the day of delivery are included directly as tax-deductible costs.

The period of used real estate's depreciation is determined by deducting from forty years the number of years from the day of delivery of the real estate for the first time for use. However, the period cannot be shorter than ten years, i.e. the depreciation rate amounts to a maximum of 10%. Non-residential real estates are subject to depreciation at a base rate of 2.5% and residential real estates are subject to depreciation at a base rate of 1,5%. When it comes to real estates used for more than five years, the annual rate amounts to 10%. All periods are computed as the date of acquiring the real estate.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals.

Resident companies

The same rules apply as for individuals.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is subject to corporate income tax in Poland.

Real estate in Poland generates a fixed establishment (FE) for VAT purposes for Polish non-residential companies. There is a low risk that the Polish tax authorities will state that non-resident companies have a permanent establishment in Poland.

INDIRECT PURCHASE OF REAL ESTATE

This section discusses the most important tax implications of the indirect (shares) purchase of real estate. First it discusses the impact for resident individuals and non-resident individuals. Thereafter it discusses the impact for resident companies and non-resident companies.

Resident individuals

Transfer tax
Purchase of shares in companies is subject to PCC. The tax base is represented by the value of shares and the tax rate amounts to 1% of the mentioned value. Payment obligation lies upon the purchaser.

Personal income tax
Income derived from participation in profits of legal persons (dividends) are taxed against a flat tax. As a general rule, the tax is charged by the taxpayer (here: company paying the dividend). The flat-rate income tax is levied on incomes (revenues) derived in Poland. In this case, the taxpayer (company paying the dividend) charges a flat-rate income tax on dividends at a rate of 19%.

Non-resident individuals

Personal income tax
Income derived from participation in profits of companies (dividends), are taxed against a flat tax. As a general rule, the tax is charged by the taxpayer (here: company paying the dividend). The flat-rate income tax is levied on income (revenues) derived in Poland. In this case, the taxpayer (company paying the dividend) charges a flat-rate income tax (dividend withholding tax) at a rate of 19%.

Dividend withholding tax
A flat-rate income tax (dividend withholding tax) is charged at a rate of 19% at the time of sale / purchase of a capital share. The tax is deductible from an income derived from an equal source of revenue. The rules of Double Taxation Treaty (DTT) applies upon providing the certificate of tax residency by the taxpayer.

Deductibility of costs
Does not apply.

Resident companies

Transfer taxes
Purchase of shares in companies is subject to PCC. The tax base is represented by the value of shares and the tax rate amounts to 1% of the mentioned value. Payment obligation lies upon the purchaser.

Corporate income tax
Dividends paid by resident capital companies are subject to tax at a flat rate of 19% (tax is charged by a company paying the dividend). Dividends transferred between Polish companies are not subject to taxation at a shareholder's level.

Losses
A taxpayer who suffered a loss in a given tax year e.g. if interest and depreciation costs exceed rental revenue, can deduct the loss from income derived in five consecutive tax years - provided that the loss from previous years reduces the income derived from the same source of revenues. A maximum of PLN 5 000 000 or 50% (depending on which of these values is higher) of the loss from each of the previous five consecutive tax years is deductible.

The taxable person’s losses are not taken into account if the taxable person acquired another entity or acquired an enterprise or an organised part of an enterprise, or received a cash contribution for which it acquired an enterprise or an organised part of an enterprise, as a result of which:

  • the subject of the taxable person's actual core business activity after such acquisition or purchase, in whole or in part, was different from the object of the taxable person's actual core business activity before such acquisition or purchase, or
  • at least 25% of the shares of the taxable person are owned by an entity or entities that did not have such rights at the end of the tax year in which the taxable person suffered such loss.

Fiscal unity
As provided for by law, it is possible to form a tax capital group (in Poland: podatkowa grupa kapitałowa - PGK) as a result of signing a contract between at least two private limited companies (i.e. limited liability companies or public corporations) that have Polish tax residence and remain in capital relationships. The holding company is required to have a direct shareholding of 75% of the capital of other companies from the group. PGK applies only to corporate income tax. In such a case the group is taxed on the surplus of profits and losses of all entities in the group. In case the group suffers a loss, it dissolves as of the next fiscal year.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies. However, a non-resident company cannot form or be included in a fiscal unity (PGK).

Key contact person:

piotr_liss_tax_partner_piotr.lissrsmpoland.pl_.png

Piotr LISS

Tax Partner
Tax Advisor (10240)

T: +48 61 8515 766
E: ekspert@rsmpoland.pl