The beginning of 2021 welcomed us with a new definition of a real estate company within the Corporate Income Tax (CIT) Act. Along with the new business type, the legislator introduced additional obligations for such a company and its partners. What do you need to know about real estate companies according to new regulations?
Real estate company definition
Previously, CIT legislation didn’t include a real estate company concept, although a similar notion appeared in the list of income sources located in Poland. A real estate company is defined as an entity other than a natural person, which prepares a balance sheet based on accounting regulations, in which:
1. Entities starting their business activity – On the first day of the tax year, at least 50% of the market value of all assets, directly or indirectly, was the market value of real estate located in Poland or rights to such real estate exceeding PLN 10 million;
2. Other entities – On the last day of the previous year, at least 50% of the balance sheet value of assets, directly or indirectly, was the balance sheet value of real estate located in Poland or rights to such real estate and the balance sheet value of this real estate exceeded PLN 10 million, when revenue from a lease, sublease, and other contracts of a similar nature or the transfer of ownership of real estate (or rights to them) and shares in other real estate companies, constituted at least 60% of total tax revenues or included in the net financial result.
Real estate company as a taxpayer after a share sale by a non-resident
Notably, the new regulations on real estate companies do not extend the tax obligation’s scope in Poland. However, the method of tax collection has changed. Until now, a foreign entity generating income from the sale of a real estate company located in Poland was required to register for income tax purposes in Poland and submit an appropriate declaration.
The new regulations impose additional obligations on real estate companies whose shares are being sold. The company currently acts as a payer, obliged to pay an advance tax on the seller’s income, if the transferring entity is a non-resident (and a natural person) and the subject of the transaction are shares equal to at least a 5% share in the real estate company (this threshold includes transactions from the last 12 months). Therefore, the real estate company will be required to calculate the tax (at a 19% rate) and pay it to the tax office by the 20th of the month following the month in which the transaction was made.
Additional information obligations for a real estate company
Real estate companies and their shareholders (who are taxpayers) holding at least 5% share (directly or indirectly) from this year will be required to provide the Head of The National Revenue Administration within 3 months from the end of the tax year, with information about the shareholders (information submitted by the real estate company) and information on the number of shares (information submitted by shareholders). That information is to be provided electronically as of the last day of the real estate company’s tax year, within 3 months from the end of the tax year.
Obligation to appoint a tax representative
A new obligation will apply to real estate companies that are not registered or do not have their Board in Poland (e.g. foreign entities that own real estate in Poland). Those companies will be required to install a so-called tax representative. However, this requirement doesn’t apply to real estate companies that are subject to income tax in one of the European Union or EEA countries in the entirety of their income, regardless of where it is earned.