The Polish government has announced a draft law to introduce an exit tax, which is a form of tax charged on unrealized income when a resident of Poland or a Polish asset leaves the country. The new legislation will implement one of the minimum standards under the EU Anti-Tax Avoidance Directive (ATAD, No. 2016/1164 of July 12, 2016) and is expected to enter into force from January 1, 2019.
According to the new regulations, exit taxation will apply in case of any change in tax residency, or any asset movement, from Poland to another country, provided that such actions result in the loss of Polish right to tax any potential capital gains that would have been realized if the transfer had not taken place. The rules apply to both corporate and individual residents of Poland, subject to certain conditions being met. Movements of assets between head office and permanent establishments may also trigger exit taxation.
For corporate taxpayers, the tax base under the proposed exit tax regime will be the market value of the asset upon "exit." The rate of the exit tax will be 19 percent.
A transfer of asset to another country will not be subject to exit taxation if the transfer does not last longer than 12 months and either is directly related to the liquidity management of a given taxpayer, related to the securing of a loan repayment or made in order to meet the capital requirements set out in EU law for credit institutions and investment firms.
Individual taxpayers will be liable for the 19 percent exit tax in case they transfer assets related to their business (sole proprietorship). In the case of assets unrelated to business activity, the exit tax will apply only to shares, stocks and securities as well as all the rights and obligations of partnerships, provided that the individual (ie, the owner of the assets) has been domiciled in Poland for at least five years. In this case, the tax rate will be three percent and will be calculated on the market value of the asset.
Key takeaways
The scope of the draft exit tax in Poland is wider than the scope required by ATAD, as the latter, in principle, applies only to corporate taxpayers, whereas the Polish law will also include natural persons if they move their assets with a value exceeding PLN2 million abroad or change their tax residency by moving to another country.
The draft law is likely to create new tax risks that may require specific considerations in cross border mergers and acquisitions, as well as any post-acquisition restructuring transactions where the tax residence status of Polish taxpayers or where ownership of Polish assets have been changed.
Besides Polish taxpayers intending to move their assets or their tax residency, the new law will affect foreign businesses having a Polish permanent establishment, especially those involved in construction and drilling activities that often move assets to be temporarily used by the permanent establishments. Such taxpayers need to pay particular attention so they do not trigger the proposed exit taxation unwittingly.
