Reconciliation of capital gains tax on disposal of a real estate rich company

Amendments to the CIT Act effective as of 2021 provide that in if:

1. the seller of shares (or interest of similar nature), is a non-resident and

2.  the transaction covers at least 5% of the voting rights/interest of a real estate rich company,

the obligation to settle the capital gains tax on such transaction (regarding the tax remitter, i.e. to be performed on behalf of the seller) may rest on the company being sold.

Please note that the discussed mechanism is related to the newly introduced definition of a real estate rich company, applicable to an entity obliged to prepare balance sheet based on provisions on accounting, in which:

1. in case of entities commencing their activity - as of the first day of a fiscal year, at least 50% of the market value of assets includes, directly or indirectly, the market value of real estate located in Poland or rights thereto;
2. in case of other entities (i.e. those with a history of operations) - as of the last day of the year preceding their current fiscal year, at least 50% of the total carrying amount of assets included, directly or indirectly, the carrying amount of real estate located in Poland or rights thereto. ^[1]

From a transactional perspective, the mechanism must be properly documented and will result with the following obligations for the participants of the transaction:

• a real estate rich company will be obliged to settle CIT resulting from the sale of its shares

a. real estate rich company would be obliged to transfer an advance payment for CIT equal to 19% of the taxable basis (the taxable revenue reduced by tax-deductible expenses, if any) to the competent tax office, by the 20^th day of the month following the one in which taxable gain has occurred;

b. if the transaction amount is unknown to the company (including tax deductible expenses to be recognized by seller/s), the tax amount is determined as 19% of the fair value of the sold company’s shares;

• seller/s obligation

a. seller/s is/are obliged to provide information regarding the sold company, the amount of the advance CIT payment regarding the transaction prior to the deadline indicated above, while the real estate rich company is obliged to inform the seller on the amount of the advance tax paid (on binding CIT-ISN form); thus

b. the taxpayer of capital gains tax would still be the seller/s, but a real estate rich company (as the tax remitter) would be liable for collection and payment of CIT to the tax office.