Taxation of holding companies

A new tax regime for holding companies is to be introduced as part of the Polish Deal. According to the justification for the bill, the main purpose for this proposal is to provide Polish businesses favourable conditions for establishing and controlling holding groups (accumulation of domestic capital), and to create a competitive tax environment encouraging Polish businesses to repatriate from foreign jurisdictions. The bill is entering into force on 1 January 2022.
Author:
Katarzyna Adamowicz
Head of TAX Department
Ewa Janas
Junior TAX Consultant

Proposed amendments

The bill introduces definitions of “holding company” and “subsidiary.”

  • Holding company

According to the bill, a holding company is a limited-liability company or joint-stock company that is a taxpayer referred to in Art. 3(1) of the Corporate Income Tax Act, meeting all the following conditions:

a)   It has held, continuously for a period of at least one year, directly on the basis of ownership, at least 10% of the shares in the capital of a subsidiary.

b)  It is not part of a tax capital group.

c)   It does not benefit from tax exemptions connected with operating in a special economic zone, or statutory exemptions for interest or dividends.

d)  It carries out actual business activity.

e)  Shares in the company are not held, directly or indirectly, by a shareholder with its registered office, management board, registration or location in a jurisdiction which:

  • Applies harmful tax competition (in accordance with the regulation of the Minister of Finance)
  • Is included in the EU’s list of non-cooperative jurisdictions for tax purposes, adopted by the Council of the European Union, or
  • Has not concluded an international agreement with Poland, in particular an agreement on avoidance of double taxation, or the European Union has not ratified an international agreement containing the right to obtain tax information from the tax authorities of that country.
  • Subsidiary

A subsidiary is defined in the bill as a company that meets all the following conditions:

a)   At least 10% of the company’s shares have been held directly by the holding company on the basis of ownership continuously for a period of at least one year.

b)  It does not own more than 5% of the shares of another company.

c)   It does not hold shares in an investment fund or collective investment institution, or all the rights and obligations in a partnership that is not a legal person, or rights of the founder or beneficiary to benefit from a foundation, trust or other entity or legal relationship of a fiduciary nature, or similar rights.

d)  It is not part of a tax capital group.

e)  It does not benefit from tax exemptions connected with operating in a special economic zone.

The bill includes two solutions profitable for taxpayers:

  • Exemption from taxation of 95% of dividends received by a holding company from a subsidiary indicated in Art. 7b(1)(1)(a) of the CIT Act
  •  Exemption from CIT on the income obtained by a holding company from the sale of shares in a subsidiary.

Exemption for dividends

The new dividend exemption would exempt from income tax 95% of dividends obtained by the holding company from a domestic or foreign subsidiary.

The remaining portion of the dividend, not covered by the proposed exemption (5% of the dividend amount), would be subject to CIT under the general rules for taxation of dividends, at the 19% tax rate.

A positive aspect of the proposed new dividend exemption is the possibility to apply the new exemption to dividends received by a holding company from a subsidiary registered outside the European Union and the European Economic Area (the current dividend exemption applies only to entities from the EU or EEA).

Exemption for capital gains

The bill includes the right to completely exempt from CIT the income obtained by a holding company from the sale of shares in a subsidiary. This exemption would only apply if all the following conditions are met:

  •  The holding company submits a declaration of intent to claim the exemption to the head of the tax office at least 30 days before the sale of shares in a subsidiary.
  •  The buyer of the shares is not related to the seller.
  • The subsidiary is not a real estate company.
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