The lower chamber of the Polish parliament – Sejm – has just adopted a new law on the taxation of Polish and foreign investment funds. Although it should also be adopted by the higher Parliament chamber – Senat – signed by the President and officially published by 30 November 2016, all of these are really only a formality, and it is very likely that the law will come into force on 1 January 2017.

With this in mind, please find below some details of the new regulations.

Polish Funds

Polish open-end funds and special open-end funds (not applying the policies of closed-end funds) may benefit from full tax exemption without any limitations.

Polish closed-end funds and special open-end funds applying policies of closed-end funds may benefit from the tax exemption, but with certain limitations. The following will be subject to the standard income tax of 19%: profits of these funds derived from participation in Polish or foreign tax transparent partnerships; from interest on loans granted to such entities; from interest on equity contributions to such entities; from donations and fully or partially free-of-charge provisions received from such entities; from securities issued by these entities; and from the sale of participation in such entities.

These exclusions from the tax exemption aim at the elimination of tax optimization schemes involving Polish closed-end investment funds (so called Polish FIZ or FIZAN) being part of the chain of tax transparent vehicles, including Luxembourgian special limited partnerships – SCSp.

Foreign Funds

Funds from the European Union or European Economic Area may benefit from full exemption without any limitations, provided they meet certain criteria, i.e. they may receive a tax residency certificate in their country of seat; their investment units are publicly offered; their activity covers only collective investments in securities or money market instruments; they operate under a permit of and are subject to supervision of the competent financial authorities; a depositary keeps their assets safe; and they are managed by external entities licensed by the competent financial authorities.

Some funds that do not meet the above criteria may also benefit from the exemption in a limited scope provided that may receive and provide a tax residency certificate in their country of seat; their activity covers only collective investments in securities, money market instruments or other property rights; they operate under permit or notification to the competent financial authorities; they are subject to supervision of the competent financial authorities; a depositary keeps their assets safe; and they are managed by external entities licensed by the competent financial authorities. The tax exemption applicable to these funds does not cover profits derived from participation in Polish or foreign tax transparent partnerships; from interest on loans granted to such entities; from interest on equity contributions to such entities; from donations and fully or partially free-of-charge provisions received from such entities; from securities issued by these entities; and from the sale of participation in such entities. These types of profits are subject to 19% income tax in the hands of the fund.

Foreign funds may benefit from the exemption if they operate in a country with which Poland has concluded a double tax treaty, which provides for an exchange of information clause, and provided they represent that they are the beneficial owners of the received profits, and that they meet the above-mentioned conditions.

Tax rulings

The new law introduced the clause regarding the protecting power of tax rulings issued in the past, which is not related to the investment funds. The new clause states that tax rulings issued in the past will not offer any protection with respect to tax benefits achieved after 1 January 2017, if these tax benefits result from artificial transaction successfully challenged based on the general tax anti avoidance clause.