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EXIT TAX – NEW TAX IN POLAND

EXIT TAX – NEW TAX IN POLAND

5 November 2018 | Business in Poland

WHAT IS EXIT TAX?

On August 24, 2018 The Ministry of Finance has published a draft act changes the act on personal income tax, modification the act on income tax from legal persons and  other acts.These acts introduce Exit tax- the tax on unrealized capital gains.It takes place in the case of the transfer of assets of the enterprise by the taxpayer, a fixed establishment or a tax residence to another country. Taxation is to apply those unrealized profits that a taxpayer would achieve in Poland by running a business or from securities, shares in companies and investment funds.

 

WHO IS TAXABLE?

These categories are subject to taxation:

Legal persons (CIT taxpayers) – when they decide to transfer all or part of the business abroad or change tax residency

Natural persons (PIT taxpayers) – in the case of persons who have lived in Poland for at least 5 years. Exit Tax will cover revenues related to business activity, but also interests in companies, shares, securities, derivative instruments and investment funds.

 

WHAT IS THE TAX RATE? 

In the case of CIT taxpayers, the tax rate will be 19 percent of the tax base. The basis for taxation on income from unrealized gains is the sum of income from unrealized gains determined for individual assets. In turn, the income from unrealized gains is the surplus of the market value of the transferred asset. It includes result from a change in tax residence, resolved on the day of its transfer more than its tax value. The tax will have to be paid if the worth of the business transferred or its parts exceeds 2 million PLN.

In the case of natural persons, as in the case of companies, the tax office will deduct receivables from unrealized revenues over 2 million PLN. Two tax rates apply: 3% and increased tax rate, 19% when it is only possible to estimate the value of the property.

 

WHAT IS THE EXPECTED EXIT TAX ENTRY DRY? 

The introduction of the Exit tax results from the necessity to implement the EU ATAD directive of 12 July 2016 r.  2016 / 1164. Though the EU regulations require a new tax from the end of 2019, the Polish Ministry of Finance announces the early date of exit tax – the beginning of next year.

 

IS IT POSSIBLE TO SPREAD THE TAX INTO INSTALLMENTS? 

The draft law changes the act on personal income tax, amending the act on income tax from legal persons and certain other acts , it follows that the tax on “moving out” can be spread over installments for up to 5 years under certain conditions with the consent of the tax office. The project stresses that spreading into installments may refer to cases of moving to an EU country, the European Economic Area and countries with which Poland or the EU has concluded a mutual assistance agreement for the recovery of tax debts. In addition, the regulation assumes that Exit Tax will not cover assets that will return to their home country within 12 months.

 

WHAT IS THE PURPOSE OF EXIT TAX? 

First of all, Exit Tax is to limit the possibility of using tax optimization by moving the company’s headquarters, part or all business to other tax jurisdictions. In other words, it is to discourage entrepreneurs from moving headquarters or assets to countries where they could benefit from additional tax preferences. This results from the need to implement the EU ATAD directive, which regulations are created for resist to tax avoidance practices.

According to the ATAD Directive, Exit Tax is supposed to relate to income tax from legal persons. However, also PIT taxpayers may be charged with a new tax (for example, if a family residing in Poland and having a tax residence in Poland moves abroad, they lose tax residence in Poland, becoming at the same time tax resident in another country. In this case, if you sell interests in companies, shares, securities purchased a few years ago in Poland, you may be required to pay Exit Tax.)

In conclusion, it is worth to say that the draft law is currently being negotiated also by public consultations related to its content. On the one hand, the new regulations are to discourage taxpayers from migrating and to fight with tax frauds related to this. This can have a contribution to maintaining the source of tax revenues. On the other hand, the draft largely goes beyond the requirements under the directive.

According to the opinion of the tax advisors, the proposed draft is related to the high level of oppressiveness of the proposed solutions and of complexity of regulations. In addition, the implementation of the EU directive may lead to breaking of the law, for example, principles of free movement of persons and capital.

Source of Information:
1) https://www.mf.gov.pl/ministerstwo-finansow;
2) https://www.blog.ey.pl/taxweb/;
3) https://www.rp.pl/Podatek-dochodowy/308259985-Exit-tax-Ministerstwo-Finansow-ujawnilo-projekt-ustawy-wprowadzajacej-tzw-podatek-od-wyjscia.html;
4) http://legislacja.rcl.gov.pl/projekt/12315309.

Author: Hanna Rakitskaya, Trainee Attorney-at-Law
Supervision: Paweł Tokarski, Attorney-at-Law

 

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