August 26, 2022
Poland | A review of changes in the “Polish holding company regime"
On 28 June 2022, the Polish Government announced draft legislation implementing changes to the Polish Corporate Income Tax (CIT) law. The proposed changes affect several areas of taxation, however, most of them are related to areas which were covered by the latest reform implemented as of 1 January 2022.
The potential impact of the proposed changes, including the areas where the 1 January 2022 tax reform has not yet become effective, should be assessed by businesses in order to prepare for changes and undertake the necessary actions.
One of the significant changes proposed under the draft amending act relates to modifications in the "Polish holding company regime," which include, inter alia, an increase of the exemption for dividends received from qualified subsidiaries to 100% (from 95%) and the easing of certain conditions required to benefit from the regime.
For an overview of the other proposed amendments, see EY Global Tax Alert, Poland proposes significant changes to Corporate Income Tax Law, dated 7 July 2022.
One of the major amendments introduced under the Polish Deal as of 1 January 2022, is a new form of a holding company with preferential rules of taxation, i.e.,:
Based on the proposed legislation changes, the latter preferential rule will be enhanced by increasing of the exemption for dividends received from qualified subsidiaries to 100% (from 95%), if the relevant conditions provided in the CIT Act have been met for at least two years.
Some other conditions that are required to benefit from the regime will also be eased:
The new legislation will also exempt qualified domestic subsidiaries from obligations to withhold tax on dividends paid to a Polish holding company that are subject to exemption under the holding company regime.
According to the explanation supporting the above new legislation, the proposed changes are aimed at expanding of the scope of applicability of the preferential holding company regime and at easing of the conditions for exemption to make the regime more attractive internationally and domestically. Since the use of a holding company may have a favorable impact on the cost-effectiveness of ongoing and planned investments, it is worth considering eligibility for the preferential holding company regime both before a new investment is started and for the purpose of planning the distribution of profits or the transfer of shares in a subsidiary, especially if application of the favorable treatment may require additional clearance procedures.
Future Global Tax Alerts will report on further developments in this area.
For additional information with respect to this Alert, please contact the following:
EY Doradztwo Podatkowe Krupa sp.k., Warsaw
EY Doradztwo Podatkowe Krupa sp.k., Wroclaw
Ernst & Young LLP (United States), Polish Tax Desk, New York