TAX PLANNING OPPORTUNITY FOR INVESTMENT IN POLAND
As a result of recent Polish Corporate Income Tax amendments which
came into force 1 January 2011, Corporate Income Tax (CIT) exemptions
applicable to Polish closed-end investment funds have been extended to
foreign funds, namely EU fund vehicles.
These recent amendments to Polish law have created new opportunities for tax planning making the use of a Cypriot Private International Collective Investment Scheme (PICIS) the most tax and cost efficient way to invest into Poland.
The following is a summary of various tax planning opportunities
available to investors with projects in Poland, including real estate,
mining and energy related, leasing, stock exchange investors, general
trading companies and others.
A.Closed Investment Fund (CIF)
Closed Investments Funds, or CIFs (commonly referred to as a “FIZ” in
Poland), are a popular method of carrying out business activities in
real estate investment and other projects in Poland. Such Polish funds
may also be used in carrying out any unregulated business activities,
including leasing, trading activities, etc. CIFs are very effective in
terms of tax optimization, as the corporate tax rate is reduced to nil
where the CIF carries out business activities through Polish joint-stock
A CIF is a corporate body that may be
established only by an Investment Management Company (commonly referred
to as “TFI”) which acts as the management body of the CIF. The CIF
issues investment certificates to investors for consideration of cash or
assets in kind. Such investment certificates are considered securities
under Polish law.
Most importantly, CIFs are entities fully
exempt from CIT in Poland, however, their activities and transactions
are subject to other taxes like VAT and transfer taxes.
on the other hand is considered transparent for CIT purposes (i.e.
partners and shareholders are taxed on their share of the JSP’s profit).
JSPs consist of at least two partners– an active partner and
shareholder. The active partner is liable for all liabilities of the
partnership whereas a shareholder is not liable for any of the
partnership’s debts and has only limited influence on the JSP’s
Description of the structure:
Under this structure, an investor sets up a Polish limited liability
company (LTD) with a minimum share capital of PLN 5,000. The Polish LTD
is required as an active partner of the JSP and will bear all potential
liabilities and will manage the JSP on behalf of the Investor.
Simultaneously, the TFI sets-up a CIF which will issue investment
certificates to the investor. The LTD, being the active partner, and
the CIF, being passive shareholder, will then establish the JSP. The
capital of the JSP can be covered by the LTD (1%) and the CIF (99%), for
Once the JSP is capitalised, it can commence business
activities that may consist of purchasing/selling immovable property,
carrying out real estate developing activities, mining projects,
generating rental income, etc.
Taxation in Poland
As mentioned above, the JSP is a tax transparent entity. Therefore,
income generated by the JSP is subject to corporate taxation at the
level of the CIF and LTD. As the CIF is exempt from CIT, profits of the
JSP allocated to the CIF are tax free (in the example above, 99% of
income would be exempt from Polish CIT). The income allocated to the
Polish LTD is taxed at the standard corporate income tax rate of 19% (in
the example above, only 1% of income is taxable).
The result it that distribution of profits to unit holders can be optimized so that there is no tax.
The CIF is subject to the following conditions in order to qualify for the CIT exemption:
International Collective Investment Scheme- the Cyprus solution
Polish CIF and JSPs have recently become very popular vehicles used
for investment in Poland. Such a structure allows for exemption of
operational profits and capital gains from CIT. However, the main
disadvantages of this solution are the relatively high cost of
implementation and maintenance of the structure, and also the obligation
for asset differentiation.
As of 1 January 2011, amendments to
Polish CIT Law came into force resulting in the above mentioned CIT
exemptions being extended to EU funds.
Therefore, the recent amendments to Polish tax laws open a wide range
of opportunities for tax planning that involve foreign investment
funds. It is now possible to plan structures that will allow the
Investment into Poland can now be made with no or little Polish tax
exposure, with potential beneficiaries including real estate developers,
companies involved in the energy sector, leasing companies, stock
exchange investors, trading companies, and many other investors earning
recurring taxable income in Poland.
Cyprus PICIS Structure:
Under this structure, a Private International Collective Investment
Scheme (PICIS) is used to invest in a Polish JSP(s). An ICIS is an
investment fund that may be incorporated in the form of a limited
liability company. Once the ICIS forms a JSP together with a second
partner (e.g. a subsidiary being a limited liability company) the
foreign structure is in place. Pursuant to Polish commercial law,
partnerships have no legal personality and are not deemed to be
taxpayers for CIT purposes. Hence, it is each of the partners who are
liable to income tax on the partnerships’ profits, not the partnership
itself. As a result, partnership profits assigned to the PICIS are
exempt from CIT in Poland.