Executive summary

The Polish government, on 6 May 2025, introduced a draft amendment to the Corporate Income Tax (CIT) Act that seeks to align the law with recent rulings from the Court of Justice of the European Union (CJEU). This amendment, expected to come into effect on 1 January 2026, aims to clarify the conditions for tax exemptions for foreign investment funds, expanding eligibility to include funds from non-European Union/European Economic Area (EU/EEA) countries and those managed internally.

Key developments

Expanded eligibility

The requirement for investment funds to be based in an EU/EEA country has been removed. Funds from non-EU/EEA countries will now also be eligible for tax exemptions under the same conditions as EU/EEA funds. In a 2014 decision, the CJEU found Polish regulations to be inconsistent with EU law already (case C-190/12), but the relevant rules are only now being amended. The CJEU highlighted that national regulations differentiating the treatment of dividends based on the location of an investment fund's seat may act as a deterrent for third-country investment funds considering investments in Polish companies. The proposed amendment aims to simplify the process through which foreign investment funds may seek refunds of overpaid withholding tax (WHT).

Internal management

The changes will allow internally managed funds to qualify for tax exemptions, provided they meet specific regulatory requirements, including entry in an appropriate register maintained by supervisory authorities. This change stems from a recent judgment by the CJEU (case C-18/23), in which the court determined that a specialized Luxembourg investment fund (société anonyme, S.A.) self-managed by its board of directors is eligible for the same tax exemption as funds managed externally. As a result of the amendments, it will be now clear that foreign investment funds are entitled to WHT exemptions on investments in Poland.

Clarified residency requirements

To qualify for the investment fund tax exemption in Poland, a fund must be subject to unlimited tax liability in its country of residence. The recent amendments specify that this residency criterion may be met based on either the fund's place of incorporation or its place of management. Accordingly, if a fund is incorporated in one jurisdiction but is considered a CIT taxpayer in another jurisdiction because effective management takes place there (as defined under the relevant Double Tax Treaty), the fund can fulfill the unlimited tax liability requirement by referring to the jurisdiction where it is actually subject to unlimited tax liability and operates as a CIT taxpayer. Additionally, the amendment clarifies that tax residency pertains directly to the fund itself, rather than to the company managing the fund. This distinction may affect WHT refund proceedings, particularly if the fund lacks legal standing. Consequently, this change directly affects investment funds without legal personality that, before the amendments took effect, had relied on the management company's certificate of residency to recover WHT.

Enhanced information exchange

Tax exemptions will be available to funds originating from countries with which Poland has established automatic tax information exchange agreements, such as those governed by Common Reporting Standards (CRS) or the Foreign Account Tax Compliance Act (FATCA). The CRS standard, created by the Organisation for Economic Co-operation and Development (OECD), has been already adopted by approximately 120 countries worldwide and is also implemented across EU member states via the DAC2 Directive. FATCA serves as the US equivalent of the CRS for exchanging tax information. Consequently, the majority of funds applying for WHT refunds in Poland are likely to fulfill this requirement.

Anti-abuse provisions

The amendments introduce anti-abuse provisions designed to prevent misuse of tax exemptions. An exemption will not apply if it is determined that (1) use of the exemption contravenes the purpose of the regulations, (2) the transaction or activity was primarily intended to exploit the exemption or (3) the transaction/activity was conducted in an artificial manner. It should be noted that a general anti-abuse clause already exists within Polish tax law. It is not anticipated that this amendment will result in significant changes to the practices of the Polish tax authorities.

Impact

The proposed amendment to the CIT Act represents a significant positive development for non-EU investment funds and self-managed funds investing in Poland, as it explicitly designates them as eligible for tax exemptions on investments within Poland.

Next steps

EY will continue to monitor these developments. Foreign investment funds with investments in Poland should become familiar with the proposed amendment, stay informed and contact a knowledgeable tax advisor if they have questions.