BSJP Brockhuis Jurczak Prusak Sroka Nilsson Sp. k. | View firm profile
We would like to draw your attention to the revolutionary changes in taxation of business entities, which are included in the government’s bill amending the Act on Personal Income Tax, the Act on Corporate Income Tax, the Act on Lump Sum Income Tax on Certain Incomes Earned by Natural Persons and certain other acts (print no 642). Please find below the ones that, in our view, would have a significant impact on the real estate sector.
CIT taxation of limited partnerships (and certain general partnerships)
A limited partnership will become a CIT taxpayer which will translate into two levels of taxation, similarly as in the case of a limited liability company.
At the same time, the legislator of the bill anticipated that, as a rule, 50% of the limited partner’s income from participation in profit of a limited partnership will be exempt, but not more than up to PLN 60 000 per 1 limited partnership. Within the remaining scope, the amount of income will be subject to taxation for the second time.
The above-mentioned exemption from taxation on the limited partner’s income, not exceeding PLN 60 000, shall apply to those limited partners who (drafted provision of Article 21 section 40 on Personal Income Tax):
1) do not hold, directly or indirectly, at least 5% of the shares (stocks) in a company having legal personality or in an organisation which is a general partner in that limited partnership,
2) are not members of the management board: a) of a company having legal personality or in an organisation which is a general partner in that limited partnership, or b) of a company holding directly or indirectly at least 5% of the shares (stocks) in a company having legal personality or in an organisation which is a general partner in that limited partnership,
3) are not entities affiliated with a member of the management board or a shareholder of a company holding directly or indirectly at least 5% of the shares (stocks) in a company having legal personality or in an organisation which is a general partner in that limited partnership.
Unfortunately, under the bill, not every profit of a limited partner will be exempt from PIT up to the amount of PLN 60 000. Only a limited partner meeting the above conditions of the new section 40 will be entitled to take advantage of this exemption.
The general partners will be entitled to deduct the amount of tax paid by the limited partnership from their income from participation in the profits of a limited partnership, proportionately charging the general partner’s profit from holding a share in such a partnership.
A general partnership shall remain outside the scope of income tax acts, provided that it is composed exclusively of natural persons.
(i) among the shareholders of the general partnership are entities other than just natural persons, and
(ii) the identity of the shareholders and taxpayers of income tax is not reported to the tax authorities within a relevant period of time, then such a general partnership will not be tax-neutral.
Definition of a real estate company
The legislator of the bill introduces a definition of a real estate company. Such a company shall be regarded as an entity required to draw up a balance sheet in which:
- for entities starting their business activity – on the first day of the tax year, at least 50% of the market value of the assets constituted a market value of properties located on the territory of Poland or rights to such properties,
- for other entities – on the last day of the year preceding the tax year, at least 50% of the balance value of the assets constituted a balanced value of properties located on the territory of Poland or rights to such properties.
In practice, the real estate entities, but also other entities with significant real estate assets, will need to pay attention to the balance sheet method of valuation of these assets.
In addition to introducing a definition of a real estate company, the legislator transferred the obligation to tax settlement on the disposal of shares in the so-called real estate companies from the seller to the real estate company, if at least one of the parties of the transaction regarding the disposal of shares is a non-resident. Real estate company, as a payer, will be obliged to pay 19% income tax on the disposal of shares within 7 days of the month following the month in which the income was generated.
Furthermore, a real estate company and taxpayers holding shares in the real estate company will be required to report the shareholders composition of such a company.
Moreover, a real estate company not having its registered office or management board on the territory of Poland will be obliged to appoint a tax representative. In the event of failure to meet this obligation, the real estate company will be subject to financial penalty up to the amount of PLN 1 000 000.
Flat-rate tax on registered income without deductible costs
The legislator of the bill also plans changes in the area of flat-rate tax on registered income without deductible costs. Justification for the draft changes indicates that “their aim is to make taxation in this form more attractive and to broaden the group of taxpayers who will be able to take advantage of it”. More importantly, for instance, as a result of these changes, the income limit for choosing the lump sum tax on registered revenue (i.e. from EUR 250 000 to EUR 2 000 000) and the income limit for quarterly lump sum payments (i.e. from EUR 25 000 to EUR 200 000) will be increased.
In conclusion, it is worth to mention that we are dealing with a bill on income taxes, which is currently being proceeded in the Public Finance Committee so that it may still undergo some fundamental changes.