Polish holding company

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The proposed new tax regulations assume the introduction into the Polish system a new form of a holding company, benefiting from a special tax regime. Tax preferences for holding company are to be an alternative for tax capital groups (PGK) and preferences resulting from the implementation of EU directives.

What entities will benefit?

The holding company under the preferential regime will be a limited liability company or a joint-stock company with a Polish tax residency. Direct or indirect shareholders (stockholders) of the holding company cannot be entities having the seat or management board or place of registration or location in jurisdictions (i) applying harmful tax competition or (ii) indicated in the EU list of non-cooperative jurisdictions for tax purposes, or (iii) in those with which there is no legal basis for exchange of information in tax matters.

A subsidiary can be either a Polish limited liability company or joint stock company, or a foreign company which is a taxpayer of foreign corporate income tax, except for unincorporated companies and companies from limited jurisdictions.

Conditions to apply preferences

First and foremost, the holding company will have to be engaged in actual business activity (substance requirement, personal and property substrate), which will undoubtedly raise interpretive questions.

In addition, the holding company will have to hold directly by title not less than 10% of the shares in the capital of the subsidiary continuously for at least one year.

According to the legislator’s intention, the proposed preferences are to apply to the so-called one-level holding companies, in which the dividend is transferred from the operating companies directly to the holding company. Consequently, a subsidiary company may not hold:

(i) shares in other companies (both Polish and foreign) in an amount exceeding 5%, nor

(ii) participation titles in an investment fund or common investment institution, or

(iii) all rights and obligations in a company which is not a legal person, nor

(iv) other property rights connected with the right to receive a benefit as a founder or beneficiary of a foundation, trust or other entity or a legal relationship of trust or rights of a similar nature.

Neither holding companies nor subsidiaries may be part of tax capital groups.

Proposed preferences

Exemption for dividends

The proposed exemption from taxation of the dividend received by the holding company from the subsidiary concerns the part corresponding to 95% of the dividend amount. The remaining part of the dividend, not covered by the proposed exemption (i.e. 5% of the dividend amount), will be subject to CIT in Poland according to the general rules at the rate of 19%. This part of the dividend will not be covered by exemptions resulting from the interpretation of the Directive. In order to avoid accumulation of preferences, the so-called indirect credit/assessment does not apply to the entirety of the dividend, 95% of which is covered by the exemption.

Exemption from capital gains taxation

The draft provides for the introduction of a preference in the form of an exemption from CIT of income derived by a holding company from the disposal of shares in its subsidiary (the so-called participation exemption), but only for transactions with unrelated parties, within the meaning of the transfer pricing regulations.

The formal condition for using the exemption will be submitting by the holding company a statement on the intention to use the exemption to the appropriate head of the tax office at least 5 days before the day of disposal of shares in the subsidiary.

The exemption will not apply to the sale of shares in the so-called real estate company. The exclusion of the exemption in this respect results from the fiscal policy assuming taxation in Poland of the disposal of real estate located in Poland and companies that own such real estate – regardless of whether the vendor is a Polish tax resident or non-resident.

Alternative regimes

In order to avoid accumulation of tax preferences, the catalog of holding and subsidiary companies excludes companies taking advantage of exemptions within the special economic zone or the so-called Polish Investment Zone, as well as companies constituting tax capital groups.

What is more, the new regime is an alternative to the currently functioning withholding tax exemptions implemented under the EU Directives. Thus, the taxpayer being a holding company, will have a possibility to take advantage either of the EU exemptions or of the exemptions under the proposed holding regime (from taxation of dividends, income from sale of shares or stocks of the subsidiary). The entities which before the entry into force of the projected changes enjoy exemptions from the currently valid act will be able to choose the transition to the new regime.

Special transitional provisions are provided for taxpayers whose tax year does not coincide with the calendar year. However, the exemption for dividends received by a holding company will apply to dividends paid after 31 December 2021.