In theory, this is one of the tools that is intended to keep entrepreneurs in Poland and prevent tax optimisation 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.
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, income-tax (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 optimise 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% and 3%. 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.
According to Polish law, exit tax applies to those who own a company abroad and transfer part of their assets to it, assets previously related to business conducted in Poland. The law also applies to entrepreneurs who are Polish tax residents, who change their tax residency to another one in relation to revenues generated in Poland. Also included are entrepreneurs whose assets transferred abroad exceed 4m złotys.
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 unrealised profit for individual assets. 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 such 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.
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 – had f such an asset been disposed of by the taxpayer for consideration. The tax value of an asset is not determined in cases where, according to separate provisions, tax deductible costs from the disposal of such asset being considered are not taken into account for income tax purposes.
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. Firstly: 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 jurisdiction 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 according to judgments made by 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 realisation of profits – and 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 1 November, 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.
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