A Polish holding company has been functioning under tax law since 1 January 2022. By obtaining the status of a Polish holding company, the entity is able to benefit from income tax exemptions. However, certain conditions specified in the Corporate Income Tax Act must be met.
What is a Polish holding company? What is the essence of its functioning? We present answers to these questions below.
Table of Contents
- Polish holding company in 2023 – statutory definition
- Polish holding company in 2023 – the concept of the institution
Polish holding company in 2023 – statutory definition
The legal basis for functioning of Polish holding companies is the CIT Act. Chapter 5b of the Act regulates their taxation. It also specifies the definition of a holding company.
According to the Corporate Income Tax Act, a holding company is:
- a limited liability company,
- a simple joint-stock company,
- a joint-stock company
that is subject to CIT and meets the conditions specified in the regulations. What are these conditions?
The Corporate Income Tax Act states that a holding company:
- holds directly at least 10% of shares (stocks) in the capital of a subsidiary company
- is not a company that forms a tax capital group,
- does not benefit from tax exemptions,
- conducts a real economic activity.
Shares (stocks) in a holding company cannot be held by a shareholder who has their headquarter, management, registration, or location in a territory or country that:
- is listed in the EU list of non-cooperative jurisdictions for tax purposes adopted by the Council of the European Union,
- with which Poland has not ratified an international agreement. It particularly concerns a double taxation avoidance agreement. Also, the country with which the EU hasn’t ratified an international agreement that forms the basis for obtaining tax information.
An entity can be recognized as a holding company only if it fulfils all the above conditions.
Several requirements are also established regarding the subsidiary of a Polish holding company.
The CIT Act defines a subsidiary as a company that meets the following conditions:
- the holding company directly holds at least 10% of shares (stocks) in the capital of that company based on ownership rights;
- it doesn’t have the right to participate in an investment fund or in a collective investment institution. It also doesn’t have other property rights related to receiving benefits as a founder or beneficiary of:
– a foundation,
– a trust or other entity,
– a legal relationship of a fiduciary nature, or
– other rights of a similar nature;
- it is not a company that forms a tax capital group.
Both holding companies and subsidiaries must meet the conditions described above:
- on the day preceding the receipt of dividends or the disposal of shares (stocks),
- continuously for a period of at least 2 years.
Polish holding company in 2023 – the concept of the institution
The essence of the Polish holding company institution consists of:
- Complete exemption from taxation of dividends paid by subsidiary companies to the holding company.
- Exemption from taxation of the sale of shares in subsidiary companies to unrelated entities
Dividends received by a holding company from subsidiary companies are subject to income tax exemption. This results from the CIT Act. The full exemption has been effective since 1 January 2023. The previous provision exempted dividends only up to 95% of their amount.
Income of a Polish holding company can also be exempt from income tax in the case of the sale of shares (stocks) of a subsidiary company to an unrelated entity. To benefit from the exemption, the Polish holding company makes a relevant declaration. It should be submitted to the head of a competent Tax Office. It is important to note that it must be done at least 5 days before the date of sale.
The statement of the Polish holding company on the intention to use the exemption includes:
- Names, surnames, addresses, and tax identification numbers of the parties to the agreement.
- Name, address, and tax identification number of the subsidiary company which shares will be sold.
- Indication of the share in the capital of the subsidiary company that will be subject to the sale.
- Planned date of concluding the agreement.
The exemption does not apply if at least 50% of the value of the assets of these companies consists of:
- Real estate located in Poland,
- Rights to real estate located in Poland.
A Polish holding company is an excellent alternative to a tax capital group. Its purpose is to create favourable conditions for entrepreneurs and keep capital in Poland.
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