Poland

Monika Dziedzic, Marta Szafarowska and Pawel Szymanski
MDDP
Poland

Monika Dziedzic, Marta Szafarowska and Pawel Szymanski of MDDP comment on Polish plans to reform the tax system, including changes to VAT and the taxation of partnerships

The Polish Ministry of Finance plans changes in income tax regulations which are expected to come into force from 2011. The main amendment concerns the extension of tax exemptions to non-Polish investment and pension funds. This aims at removing discriminatory incompatibilities with EU law and equalising the tax status of foreign funds with their Polish counterparts which are tax exempt now. The exemption will require, for example, that the fund should be subject to tax on its entire income in the country of its residency within the EU or EEA.

The exchange-of-shares exemption is expected to include not only corporations but also shareholders subject to personal income tax. This would allow for more flexible restructuring of companies owned by individuals.

Significant changes may include the limitation of tax-free step-ups based on partnerships. The new regulations would unequivocally state that contributions-in kind to partnerships are not subject to taxation. Even so, the rule of depreciation continuation would be introduced for the valuation of assets contributed in-kind to a partnership or acquired through transformation of a partnership.

Rates of VAT would be increased as of January 2011. The standard rate would go up to 23% (from 22%) and the reduced 7% rate would be replaced by two preferential rates – 5% for non-processed foodstuffs and books and 8% for other goods and services that can be subject to reduced VAT rates in line with VAT Directive 2006/112. Moreover, VAT rates for the supply of apartments would differ depending on their living space (that is, 8% VAT would apply to apartments of up to 150 square metres).

Significant changes are introduced from January 2011 in the taxation of VAT exempt services. Today, services subject to VAT exemption are defined through their statistical classification. The scope of the exempt activities does not reflect properly the scope envisaged in the VAT Directive 2006/112. From 2011 the statistical classification codes will no longer apply and the scope of VAT exempt services envisaged in the VAT Directive will be copied to the VAT Act directly. This change will affect mainly the education, financial and insurance industries.

Poland still awaits European Council consent to introduce temporary, for three years, derogation from the provisions of the VAT Directive concerning:

The deduction of 60% (no more than PLN6,000 ($1,900) per car) of input VAT due on the purchase and leasing of truck cars (cars equipped with the metal bar at the back).
The restriction to deduct input VAT due on the purchase of fuel for such cars.

Monika Dziedzic (monika.dziedzic@mddp.pl), is a partner, and
Marta Szafarowska (marta.szafarowska@mddp.pl), and
Pawel Szymanski (pawel.szymanski@mddp.pl) are tax advisers at MDDP