Exit tax as of January 2019: What do we need to know?

We would like to draw attention to the exit tax rules, which are very likely to come into force in Poland as of 1 January 2019 (as part of amendments to the Polish Corporate Income Tax and Personal Income Tax regime) and which might affect i.e. the tax position of the foreign entities conducting business activity in Poland.

Please be aware that exit tax applies to all companies, which choose to migrate with its assets (including enterprise or its organized parts) from Poland to another country, thereby leaving Polish tax authority without any tax (for example from sale of such assets - so called tax on unrealized gains). The tax basis will be the company's hypothetical gain calculated as the difference between the market value of their assets and the tax value thereof, i.e. the non-amortized cost of the acquisition of such assets. The tax rate by the Legal Persons amounts 19%.

Please note that the exit tax is not strictly the initiative of Poland's government, it having been effectively pushed into force by the EU's 2016 Anti-Tax Avoidance Directive (ATAD). ATAD should be implemented in the EU's countries till the end of 2019.

The events with which it will be necessary to apply the exit tax are generally included in the ATAD and reflected in the Polish Corporate and Personal Income Tax Acts:

1) the transfer of assets so far related to the activity carried out in Poland by a Polish resident to his / her / its foreign permanent establishment;

2) the transfer of assets so far related to the activity carried out in Poland by a Polish non-resident to the country of the Polish non-resident residency or his / her / its foreign permanent establishment;

3) the transfer of the business activity conducted in Poland in the form of permanent establishment by a Polish non-resident to another country;

4) the change of the tax residence by a Polish resident as a result of which Polish tax authority loses the right to tax income from the sale of an asset owned by the taxpayer in connection with the transfer of his place of residence, registered office or management to another country.

Bearing above in mind it looks like that the tax on unrealized gains basically concerns cases of cross-border transfer of assets "within the same taxpayer".

Although it is hard to predict how the new provisions concerning exit tax will be applied by Polish tax authority, but at the first sight it is hard to imagine how the tax on unrealized gains might concern the typical borrowers in the loan agreements in real estate sector.

In case of any further questions do not hesitate to contact us at patrycja.zdanowicz-pastuszak@bsjp.pl or rafal.lewandowski@bsjp.pl