Income earned „on the territory of the Republic of Poland” –  a list of cases

In this Tax Alert, we will discuss the issue of extension or, as others might want to phrase it, clarification of the definition of income (revenue) earned in Poland by non-residents. The Act on Amending the Personal Income Tax Act and the Corporate Income Tax Act (hereinafter: the amending act) adopted by the Sejm on 22 July 2016 determined the list of cases in which non-resident's income (revenue) will be considered to have been obtained on the territory of the Republic of Poland. Although the legislative process has not yet been completed – the Act is currently pending the consideration of the Senate amendments by the Sejm – the discussed regulations will most likely come into force on 1 January 2017. The draft act has already been described in one of our previous publications (Tax Alert 7/2016).

The amending act has clarified – in the Personal Income Tax Act (hereinafter: the PIT Act) – and has introduced – in the Corporate Income Tax (hereinafter: the CIT Act) – the list of cases where a taxpayer's income covered by limited tax liability is deemed to be acquired „on the territory of the Republic of Poland”. The CIT Act Art. 3 has been supplemented by Section 3, which says that income (revenue) achieved by taxpayers without their seat or management board within the territory of the Republic of Poland is, in particular, income (revenues) from:

• all kinds of activities on the territory of the Republic of Poland, including through a foreign establishment;
• property situated on the territory of the Republic of Poland or rights to such property, including its sale in whole or in part or sale of any rights to such property;
• securities and derivative financial instruments that are not securities which are admitted to public trading on the territory of the Republic of Poland on the regulated exchange market, including income (revenue) generated from the disposal of such securities or instruments, and the exercise of the rights arising from any of the above;
• the transfer of the ownership of shares in a company, all rights and obligations in a company that is not a legal person, shares in investment funds or mutual fund institutions where property located on the territory of the Republic of Poland or rights to such property, directly or indirectly, constitute at least 50% of their assets;
• receivables settled, including put at the disposal of, paid or deducted by natural persons, legal persons or entities without legal personality, having a place of residence, registered office or management board on the territory of the Republic of Poland, irrespective of the place of the contract conclusion and service delivery.

In the CIT Act, the provisions of Art. 3 Section 2b concerning the above-mentioned sources of income (revenue) have been supplemented.

Another important change in the CIT Act is the introduction of an additional condition for an exemption from taxation of income from royalties. In Art. 21 Section 3 item 4 of the CIT Act, it has been further specified that entities receiving revenue from receivables referred to in Section 1 item 1 above must be also their beneficial owners. As a result of the above changes, a company or its foreign establishment that is not a Polish tax resident, but acquires its revenues from royalties will be required to demonstrate that they are the beneficial owner of the indicated receivables to benefit from the exemption from taxation on the above-mentioned revenues on the territory of the Republic of Poland.

At this stage, the Senate has decided to adopt the resolution containing amendments to the act. On 5 August 2016, it was referred to the Committee on Public Finance. After consideration of the Senate's amendments, the act will be forwarded to the President for signing. The amendments are to come into force on 1 January 2017.

To conclude, we would like to remind you that the amending act also introduces a 15% tax rate of corporate income tax for small taxpayers and for taxpayers commencing their businesses (in the first year of operation). We encourage those interested in the details to read the aforementioned Tax Alert or contact our specialists to discuss the impact of planned amendments on your business activity.

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

e-mail: ekspert@rsmpoland.pl

tel. +48 61 8515 766

fax +48 61 8515 786