TAX SIMPLIFICATION 2021 IN POLAND – A MAGNET FOR FOREIGN INVESTORS
Poland has always attracted a multitude of foreign investments. Poland ranked among the world’s top foreign investment-friendly countries, in terms of jobs created in this manner in 2020. Hence why it can afford to look with great optimism at what 2021 has in store. Thanks to its unique attributes, the Polish market proved very resilient to crisis. Our biggest strength is definitely human capital, i.e. the availability of qualified and multilingual staff, at relatively low labour costs. On top of that, there are a number of other positive factors, such as the supply of office space, the overall level of infrastructure development and the added incentives offered to investors. These include, but are not limited to, government grants and EU funds, real estate tax relief, special economic zones. You can read more about it in the following articles ‘THE WORLD IS CHANGING, AND YOU ARE STILL LOOKING FOR A UNICORN?’ and ‘10 REASONS WHY POLAND IS BECOMING THE NEW EUROPEAN SILICON VALLEY’. The influx of new foreign investment to Poland will be further encouraged by the simplification of tax rules and regulations which are due to be introduced in 2021.
The “Poland as the economic centre of Europe” strategy is the Government’s invitation for foreign investors
The Government is simplifying tax rules and regulations through a project known under its working title “Poland as the economic centre of Europe”. The strategy is a set of ideas that are currently being worked on by various ministerial departments. The Ministry of Finance is at the forefront of this project, but it is supported by the Ministry of Development. Overall, more than 20 regulatory changes are planned in 2021. Some of those rules will be developed specifically for foreign investors and will be aimed at creating better conditions for them to carry out business activities and to encourage new projects based in Poland.
How do I become a strategic investor and get a VIP passport?
A key element of the strategy is to introduce the status of ‘strategic investor’ into Polish law. A strategic investor will be able to obtain a so-called ‘VIP passport.’ According to the Government’s proposed definition, a strategic investor will be an entity that will spend at least PLN 1 million or complete investments that will create at least one thousand jobs. If said entrepreneur carries out a project worth less than PLN 1 million, but employs (on a full-time basis equivalent) more than 3,000 people in Poland, they can also count on a VIP passport and special status.
‘Interpretations 590’ and Investor Tax Assistance Centre as solutions to the tax hesitancy of foreign investors
As a consequence of the introduction of the strategic investor status, the government has decided to offer the so-called ‘Interpretations 590’ to foreign investors. The ‘Interpretations 590’ is a mechanism according to which an investor receives information from the National Revenue Administration on the tax consequences of planned activities or operations, based on their business plan. The information received by the foreign investor is to be binding for the tax administration bodies, whilst also providing the investor information on their tax liabilities in the first year. An Investor Tax Assistance Centre is to be created alongside ‘Interpretations 590’. Its task will be to provide information to foreign entities planning to make significant investments in Poland. Key tax legislation and guidance will also be made available in English. Investors will also be able to use a tax law guide to estimate the costs of planned projects among others.
Joint VAT settlement for entities linked by capital, financially or through individuals
Currently in Poland, the rules on joint tax reporting by tax capital groups are governed under CIT. However, as a result of the planned changes, they are also to be extended to VAT. Most developed EU economies already use this method and as a result, their tax systems are friendlier than the Polish one. In Poland, entities that are linked by capital, financially or through individuals account for VAT separately.
VAT on financial services
VAT is to be the impetus for financial institutions to enter Poland post-Brexit for example. Several EU countries, including Germany, France, Belgium or Hungary, have the option of applying tax on financial services. The Government hopes that the introduction of such a solution will attract capital. Currently, tax on financial services is generally exempt from VAT. This may be unfavourable for a foreign investor, due to VAT not being reclaimed.
Legislation for holding companies, or how to attract international capital groups
The introduction of legislation for holding companies is aimed at improving how international investors operate through complex corporate structures. This is why the proposed legislation ‘for holding companies has found its way into the strategy – it is based on regulation already in place in other EU countries. This solution has been combined with the so-called ‘participation exemption’ regarding, among others, a conditional exemption from tax on dividend income and the sale of shares in foreign companies.
At this point it is worth noting that separately of the solutions contained in the strategy, a draft amendment to the Commercial Companies Code, containing details of legislation for holding companies, has been published on the Government Legislative Centre website. The proposed regulations define a holding company as a group of companies and govern the relationship between the parent company and its subsidiaries.
According to the Code of Commercial Companies (KSH) a holding company is a group of companies consisting of a parent company and a subsidiary or subsidiaries guided by a common commercial strategy. The common commercial strategy enables the parent company to uniformly manage its subsidiary or subsidiaries.
Importantly, a group of companies means that their interest should be supported by the contracts or statutes of each subsidiary within the structure. To this end, it is necessary to amend the contracts or statutes of subsidiaries accordingly. importantly, it is also compulsory to disclose participation in a group of companies in the National Court Register (KRS).
The introduction of legislation for holding companies is intended to improve the competitiveness and performance of Polish companies and the investment attractiveness of the country as a whole.
Foreign investment in innovative projects can expect highest relief
A foreign investor who invests more in research and development or in innovative projects and decides to hire for example, programmers, robotics engineers or biotechnologists, can expect a reduction in their labour costs. On the other hand, a company that invests heavily in R&D will be able to account for it in the personal income tax charged on the salaries of their ‘innovative employees’. Furthermore, in order to support the innovative activities of investors, robotics and prototype relief packages are also to be introduced. The products to which those will apply are products hitherto unknown to the market and exhibit features such as for example, above-average efficiency compared to those already available. The relief for robotics is to be similar in its design to the R&D relief already used by entrepreneurs. It is intended to allow tax relief of up to 50% on eligible costs, those are:
- robots, collaborative robots (cobots) (including leasing costs),
- software used for the design, production or processing, integration of production equipment/facilities,
- purchase of equipment/hardware (e.g. running tracks, swivels, controllers, motion sensors, end effectors),
- purchase of occupational health and safety (OHS) equipment,
- training of employees for to the commissioning of the system.
The Ministry of Finance, where tax solutions are developed, also allows for the use of relief for research and development, as well as tax relief for the so-called ‘IP Box’ in the same income category. Currently, the inclusion of a cost in R&D relief calculation disallows it from the IP Box relief. Once the changes have been implemented, those tax benefits will apply to the entire innovation chain – from production to commercial revenues.
Poland’s economy is waiting for you
The “Poland as the economic centre of Europe” strategy is intended to provide a fast-track service for foreign investors starting at a certain minimum level of investment. The proposed solutions will support Poland in recovering from the pandemic while attracting interesting investments. All the more so because many of the proposed solutions are already available in other EU countries or are recommended by institutions such as the International Monetary Fund.
On top of developing strategies, works are also underway to create a friendlier environment for high-risk funds such as VCs and PE. Such entities provide companies with not only funding, but also give access to knowledge and experience from other projects.
Blog edited by dr Anna Maria Panasiuk
Founder and Managing Partner of Panasiuk & Partners, with many years of expertise in wealth management.
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