Netherlands Route to Polish Real Estate Investment
By using a Dutch holding company, foreign investors are able to invest in Polish real estate and enjoy no, or a minimal, tax leakage. Taxand Poland and Taxand Netherlands below provide a high-level overview of the tax advantages for an investor that would like to invest in Polish real estate.
The structure in which a foreign investor ("ForeignCo") invests in Polish real estate through a Dutch entity ("DutchCo") can be visualized as follows:
Benefits in Poland
Income from Polish real estate investments fully exempt from Polish corporate tax Investment funds that operate pursuant to the provisions of the Polish Act on Investment Funds ("PAIF") are exempt from tax under the Polish Corporate Tax Act ("PCTA"). An example of an investment fund qualifying under the PAIF is the closed-end investment fund - Fundusz inwestycyjny zamknięty ("FIZ"). The FIZ may therefore be tax exempt from Polish corporate taxation.
It can be particularly favourable to use the FIZ in conjunction with the Polish partnership limited by shares: the Spółka komandytowo-akcyjna ("SKA"). This entity -that is commonly used in Polish real estate structures- is transparent for Polish corporate income tax purposes. If properly structured, the combination of utilizing a FIZ and a SKA can create a situation in which income derived from the Polish real estate (i.e. rental and services income, capital gains as well as income from the sale of developments) is effectively tax-exempt in Poland.
Existing structures could also be restructured into a FIZ-SKA structure as a result of which it may be possible to mitigate future Polish corporate tax claims relating to existing operations.
Distributions from Poland
If properly structured, it is possible to repatriate profits to the Netherlands without suffering any tax leakage in Poland either through financing stream or payment of profits from SKA to FIZ and from FIZ to DutchCo. Depending on the chosen method of transfer of profits, its tax classification may differ, still it should be possible to achieve tax-free distribution in Poland.
Taxpayers can receive additional comfort by filing an advance tax ruling request with the Polish Tax Authority. Upon filing such a ruling request, the Polish Tax Authority can confirm that a certain tax treatment will apply (e.g. that the FIZ-SKA structure will create a situation in which effectively no Polish corporate tax will be due upon distribution of profits from FIZ to DutchCo).
Benefits of using a Dutch holding company
No Dutch corporate tax on dividends or capital gains derived from the FIZ
Dividends and capital gains derived by DutchCo from its participation in the Polish FIZ are exempt from Dutch corporate tax if it benefits from the participation exemption. The participation exemption conditions are often met in real estate structures. As opposed to the regimes in many other jurisdictions, the Dutch participation exemption does not have a holding period requirement and provides for a full exemption.
The Netherlands has an extensive treaty network often reducing Dutch tax on dividends and capital gains. Further, no interest and royalties withholding tax are levied in the Netherlands. If ForeignCo is a resident of the EU or a jurisdiction that has concluded a tax treaty with the Netherlands, capital gains realized on the exit of its shareholding in DutchCo are generally not subject to Dutch tax. Furthermore, under tax treaties and the EU Parent Subsidiary directive dividend distributions by DutchCo may be exempt from or subject to reduced withholding tax rates.
Taxpayers can receive additional comfort in advance by filing a tax ruling request with the Dutch Tax Authority. Such tax rulings can for instance be obtained with respect to the application of the participation exemption and other relevant tax matters.
Although no official publications are issued by Poland or the Netherlands, a (re)negotiation of the existing tax treaty between Poland and the Netherlands may take place in the (near) future which may affect the tax efficiency of the structure. We will monitor the developments on a potential re-negotiation of the tax treaty, which process generally runs quite slow.
Poland is not only commercially an attractive country for making real estate investments, but such investments are also facilitated by the Polish tax legislation. Through proper structuring, taxpayers can create a situation in which effectively no Polish corporate tax is due. By using a Dutch holding company, foreign investors can invest in Polish real estate and enjoying no or a minimal tax leakage.