How are the sale and purchase of a Polish company taxed?
Pursuant to the Polish Commercial Companies Code, shareholders of share-holding companies may freely dispose of their shares and sell them under the conditions determined in the provisions of law and articles of association. Shareholders of partnerships (general partnerships, limited liability partnerships, limited partnerships and limited joint-stock partnerships) are more limited in this scope as general rights and obligations may be transferred to another person only if the articles of association so provide. However, regardless of whether the change in the structure took place in a share-holding company or in a partnership – in both cases the tax liabilities should be taken into account.
Sale of shares or general rights and obligations – how is it taxed?
The effects of the sale are different depending on whether the sale concerns shares (in the case of a limited liability company, joint-stock company, simple joint-stock company) or general rights and obligations (limited partnership, limited joint-stock partnership, general partnership being the CIT payer) in companies being CIT payers, or general rights and obligations in companies not being CIT payers (general partnership).
The sale of shares (the same principle applies to shares and to general rights and obligations) in a company subject to the CIT results in the seller generating income from the sale of shares. The shareholder selling shares is obliged to independently calculate the income tax, show it in the tax return and pay it to the tax office. The tax is calculated at the rate of 19% on the income generated, i.e. the difference between the revenue from the sale and the costs of obtaining it.
If the shareholder selling shares in a company being the CIT payer is another company, in some cases it may benefit from the exemption from the tax on income from sales of shares (the so-called holding exemption). The sale may be exempt from the tax only if a number of conditions are met, e.g. the sale cannot be made to a related entity.
As a rule, the income from the sale of general rights and conditions in a partnership not being the CIT payer (general partnership) by the shareholder being a natural person is subject to taxation according to the tax scale, i.e. with the application of the rate of 12% and, on the income surplus exceeding PLN 120,000 during a year, 32%. Importantly, the shareholder selling shares is obliged to tax the sale of shares according to the tax scale even if the current income from the company’s operations was settled with the linear tax or lump-sum tax on registered revenue. More about taxation of shareholders of partnerships and share-holding companies can be found in our article Taxation of Polish companies from A to Z.
Importantly, the income generated from the sale of shares and general rights and obligations by natural persons is included in the basis for the determination of the so-called solidarity surcharge. The solidarity surcharge is calculated in the amount of 4% from the surplus above PLN 1 million of the sum of certain income generated in a given tax year.
If the entity selling general rights and obligations is the shareholder being a legal person (another company), it is obliged to settle the tax according to the flat rate of 19%. In this case, the exemption from the tax does not apply.
Regardless of the form of activities conducted, the sale is not connected with VAT.
Transactions with the participation of non-residents – what should you pay attention to?
Double taxation agreements made between Poland and the country of the seller’s residence may determine tax liabilities resulting from the sale of shares or general rights and obligations differently. Therefore, before conducting such a transaction, it is also necessary to analyse the provisions of the double taxation agreement between Poland and the country of residence.
For example, most double taxation agreements provide that the income from the sale of shares in a Polish company is subject to tax only in the country of the shareholder’s tax residence. Other double taxation agreements provide that in the case when most assets of the company in which the shares are sold constitute real properties, the income from the sale is subject to taxation in the country of the company’s registered office (i.e. in Poland).
What are the tax consequences of the purchase of shares or general rights and obligations?
Tax consequences are not distinguished in the case of the purchase of shares or general rights and obligations. Purchasers have the same obligations, regardless of whether they buy shares in companies subject to the CIT or not. In connection with the purchase of shares, no income subject to the tax occurs on the part of the purchaser; however, it is obliged to pay the tax on civil law transactions in the amount of 1% of the market value of the shares purchased.
Tax consequences of joining the company by the shareholder
Joining the company may also take place in another manner than the purchase of shares or general rights and obligations.
In the case of partnerships, it is not possible to purchase ‘part’ of general rights and obligations – if the existing shareholders are to stay in the company, a new shareholder joints it by making appropriate contributions to the capital. In the case of a general partnership not being the CIT payer, making contributions is not subject to income tax.
If the shareholder joins a company being a CIT payer and makes non-cash contribution to increase the company’s capital, such an activity may be subject to the tax on the part of the shareholder. The tax base is the value of the contribution determined in the articles of association, less the value of expenses incurred earlier by the shareholder for its purchase. In some cases, however, the fulfilment of appropriate conditions allows the exemption from the tax, if the subject of the non-cash contribution is an enterprise, its organised part or shares/general rights and obligations in another company.
If the shareholder joining a company is a resident of another country, similarly as in the case of the purchase and sale of shares, the provisions of relevant double taxation agreements made between Poland and the country of the shareholder’s tax residence should be taken into account.
Joining the company also produces tax consequences in the scope of the tax on civil law transactions. These consequences concern the company that is joined; it may be obliged to pay the tax at the rate of 0.5%. In the case of making contributions to a partnership (general partnership, partnership company, limited partnership), the tax base is the value of contributions made, while in the case of share-holding companies (limited liability company, joint-stock company, simple joint-stock company and exceptionally joint-stock partnership), the tax base is the value by which the share capital is increased. However, if the contribution to the share-holding company is an enterprise or its organised part, such a non-cash contribution is excluded from the tax on civil law transactions.
In addition, it should be remembered that in the case that the shareholder acts as a VAT payer and makes a non-cash contribution to the company, this contribution may result in the obligation to make a VAT payment. The exclusion concerns the non-cash contribution in the form of an enterprise or its organised part.