Starting this year, exit tax applies in Poland under the obligations imposed on Poland by the EU directive to those who move their business together with their assets outside the country. In theory, this is one of the tools that is intended to keep entrepreneurs in Poland and prevent tax optimization and moving business activity to another country due to a more favourable law or a friendly tax system. In practice, the exit tax in its Polish version is called a legal dud by the economic media and it is fairly easy to avoid it.
The idea of introducing exit tax was very simple and was initiated by an EU directive, although the Polish authorities had considerable freedom in shaping the rules of collecting the tax and were not required to impose it on ordinary citizens, i.e. PIT payers. Exit taxation is intended to stop entrepreneurs from moving their companies to other countries and compensate for lost tax profits in the country where the business is actually conducted. The actions of the Polish government are supposed to force business owners to stay in the country and refrain from attempting to optimize mostly in terms of income tax. It is worth remembering, however, that exit tax does not apply in every case and de facto is not an obstacle for entrepreneurs who decide to develop their company in the UK. This is because the principle of the European single market and the freedom to conduct business activity still apply.
Who is subject to the tax?
The Act sets out two exit tax rates - 19 percent and 3 percent. The first rate applies to those assets whose value has been determined. The second one applies to those assets whose value is not determined in the case of flat-rate taxation.
Pursuant to Polish law, exit tax applies to those who own a company abroad and transfer part of their assets thereto which was previously related to business conducted in the territory of the Republic of Poland, as well as entrepreneurs not being Polish tax residents who change their tax residency to a domestic or another one in relation to revenues generated in the territory of Poland and entrepreneurs whose assets transferred abroad exceed the amount of PLN 4 mil.
The above list is open, so it can be expected that the officials will indicate additional circumstances under which they can impose exit tax, although in theory it is fairly easy to identify entities eligible for taxation. Simply put, exit tax is intended to deal with entrepreneurs who not only change their tax residence, but also decide to transfer their assets.
Exit tax base
The tax base is the sum of income from unrealized profit for individual assets, whereas the income is the excess of the market value of the asset determined as of the date of its transfer or the date preceding the date of changing the tax residency above its tax value. The new regulations introduce both the definition of market value and tax value.
The market value of items or property rights is determined on the basis of market prices used in the trading of items or rights of the same type and grade, taking into account in particular their condition and degree of consumption as well as time and place of disposal for consideration.
On the other hand, the tax value of an asset is the value not previously included in tax deductible costs in any form that would be assumed by the taxpayer as tax deductible if such asset had been disposed of by the taxpayer for consideration. The tax value of an asset is not determined in the case when, pursuant to separate provisions, tax deductible costs from the disposal of such asset for consideration are not taken into account for the purposes of income tax.
How to avoid exit tax?
Exit tax may make it difficult to move the business to large corporations with numerous relationships, but not to small and medium-sized enterprises, which by nature react more dynamically to adverse trends.
There are several options for moving a company to the UK without being subject to exit tax. First of all: total closure of the business in Poland and opening of the company in the UK. A parallel company dedicated to a market other than the Polish market is a neutral solution. It is also possible to purchase a company operating in the UK. The purchase of a company with history is a practice also used on the Polish market. Another solution is to establish an offshore company, i.e. a tax structure consisting of a new or existing British limited company and a civil law partnership in a tax-friendly country outside of the UK.
In practice, at Admiral Tax, in the case of service companies operating in the B2B sector, we hardly ever come across any doubts regarding exit tax. It is also worth noting that pursuant to the judgments of the Court of Justice of the European Union and the following representation of the Polish Ministry of Finance, with respect to PIT, the tax will be deferred until the disposal of assets or the realization of profits, not their transfer abroad.
Obligatory bank account in Poland for a British company
When it comes to exit tax, there are also questions about the obligatory Polish bank accounts for foreign companies in Poland. Starting from November 1, all companies that are registered outside of Poland and have been registered for VAT in Poland are required to have accounts with Polish banks. This is the result of the entry into force of the amendment on the so-called split payment. It is worth noting, however, that the obligation to register for VAT in Poland applies only to those entities which conduct sales to consumers. Companies operating in the enterprise sector are still exempt from these obligations, and it is companies from the B2B sector that most often move their business from Poland to the UK.
Agnieszka Moryc, CEO Admiral Tax