February 5, 2023

Volume XIII, Number 36

Error message

  • Warning: Undefined variable $settings in include_once() (line 135 of /var/www/html/docroot/sites/default/settings.php).
  • Warning: Trying to access array offset on value of type null in include_once() (line 135 of /var/www/html/docroot/sites/default/settings.php).

February 03, 2023

Subscribe to Latest Legal News and Analysis

February 02, 2023

Subscribe to Latest Legal News and Analysis

Poland Capital Markets: New Draft REIT Act was Submitted (Real Estate Investment Trusts)

On May 26, 2017, Poland's Ministry of Finance submitted a new draft act on Real Estate Investment Trusts dated May 19, 2017 (“Draft”).

Pursuant to art. 1 section 1 of the Draft, REIT shall include joint stock companies:

  • having their registered office or management in the Republic of Poland, whose shares have been admitted to public listing in the Republic of Poland and 

  • whose main objective is to regularly pay dividends from profit, the source of which is income  from real estate lease. 

Additionally, pursuant to art. 3 section 1 of the Draft, a company meeting the following criteria (which must be specified in its statute) shall be regarded as a REIT:

  • the scope of activity of the company is real estate lease, sale and financial activity related to management of shares in subsidiaries,

  • the company was established for an indefinite period,

  • the company’s share capital amounts to 50 million zloty,

  • all shares in the company are bearer’s shares,

  • at least 70% of the company’s assets comprise real estate, subsidiaries’ shares and the shares of other REITs,

  • at least 70% of the company’s net income is from real property lease, sale, from shares in subsidiaries or from sale of shares in subsidiaries,

  • the company’s income obtained from lease of at least three pieces of real estate or their parts (this condition must be deemed fulfilled also at the group level),

  • the balance sheet value of credit and loan liabilities of the company does not exceed 70% of the balance sheet value of its assets,

  • not less than 90% of its profit is paid to the investors in the form of a dividend or is designated for re-investment.

In order to obtain REIT status, a joint stock company must meet the aforementioned conditions and specify them in its statute. An additional condition for the conduct of activity shall be the Financial Supervision Authority’s (“FSA”) registration of this company in the REITs register. Such registration shall be made at the request of the company, which shall also be obligated to apply for an approval of an issuing prospectus. FSA shall in fact only make a decision regarding approval of this prospectus, whilst technical registration of the company will occur after its shares are admitted to official listing market in the Republic of Poland (art. 5 of the Draft).

Organizational structure of REITs

Pursuant to art. 9 of the Draft, the management board of a REIT shall comprise at least three members, out of whom at least one must possess full capacity to take legal actions, cannot be punished for a fiscal crime or misdemeanor, and cannot be entered in the insolvent debtors register  (pursuant to art. 10 of the Draft the same requirements will have to be met by the supervisory board members). Additionally, at least two management board members must have higher education and at least 5-year experience in real estate management in the Republic of Poland, as well as at least one member must be a real estate valuation expert. 

Tax preferences for REIT structures

As noted in the justification of the Draft, the main purpose of introduction of the special status of REITs is to ensure fiscally advantageous conditions for re-investment of income from the activity of these companies and their subsidiaries, in the form of a lack of double taxation of income obtained on the real estate market, to apply preferential tax rates to REITs and to exempt income obtained by REITs investors from taxation. Pursuant to the Draft, subsidiaries shall mean Polish joint stock companies, limited joint stock partnerships and limited liability companies in which a REIT has at least a 95% share in the share capital and which meet additional conditions (partially equal to the requirements towards REITs). Pursuant to the Draft, the following shall be exempt from income tax in Poland:

  1. Income (revenues) of natural and legal persons from dividends and other revenues on account of participation in the REITs’ profits.

  2. Income (revenues) of REITs obtained: 

  1. from lease of real estate or parts thereof, 

  2. from sale of real estate or parts thereof, 

  3. from sale of shares in REIT’s subsidiaries, referred to above, 

  4. from dividends and other revenues from participation in subsidiaries
    – by the time they are used for payment of a dividend to shareholders on account of participation in the profits of this company or designation for and payment of remuneration of persons being members of the management and supervisory  authorities of such company and persons representing this company or these authorities on account of the performed functions. Upon disbursement of these revenues (income) for the aforementioned purposes, they will be subject to taxation with corporate income tax on general rules, provided in respect of income used for payment of dividends and other amounts due on account of share in the profits of legal persons, the tax rate shall amount to 8.5% (establishment of such rate was aimed at equalization of effective taxation of revenues (income) from the real estate market with a structure using REITs with tax burdens of natural persons not conducting economic activity in this respect, who chose lump-sum taxation of revenues from lease). 

  1. Income of subsidiaries obtained in a fiscal year: 

  1. from lease of real estate or a part thereof, 

  2. from sale of real estate or a part thereof,
    – in a part corresponding to the value in which, not later than by the lapse of 9 months after the end of a fiscal year, this income is used for payment of a dividend to a REIT, or not later than by the lapse of 24 months after the end of a fiscal year it is spent on the purchase or creation of real estate or a part thereof.

In order to apply the preferences referred to in item 2 and 3, it is necessary to adjust accounting and tax records in respect of, among other things, relevant separation of income (revenues) covered by the preferences. An important issue is also exclusion of depreciation updates on the real estate from tax deductible costs during the period of benefiting from the aforementioned preferences.

Consequences of the introduction of the REIT Act

Introduction of REITs to the Polish legal system should have a positive influence on the Polish commercial real estate market. It is stipulated that owing to REITs the share of the domestic capital on the Polish real estate market will considerably increase. This market is currently dominated by foreign investors (approx. 90% of commercial real estate in Poland is controlled by foreign capital and Polish capital is practically not involved in the development of the domestic real estate market at all).

Introduction of REITs into the Polish legal order is to be also beneficial for the Polish capital market, mainly due to connecting tax preferences with a requirement to admit REIT’s shares to trading on the regulated market in the Republic of Poland.

The draft act is at the initial stage of the legislative process and it is likely to be modified. The act is expected to become operational as of January 1, 2018.

Copyright 2023 K & L GatesNational Law Review, Volume VII, Number 158

About this Author

Jakub Pitera, KL Gates, Poland, Capital Markets Lawyer, international holdings attorney
Senior Associate

Jakub Pitera is a senior associate in the Warsaw office of K&L Gates. He practices in areas related to corporate issues, mergers and acquisitions (including financial institutions) and capital markets (preparing IPOs, trade in financial instruments and investment funds). He has significant experience in corporate restructuring of the largest Polish and international holdings. His professional experience also includes representing clients in administrative proceedings before the Polish Competition Authority as well as Financial Supervision Authority, including...

Katarzyna J. Stec, KL Gates, tax planning attorney, restructuring projects lawyer

Ms. Stec is a senior associate in the firm’s Warsaw office. She focuses her practice on national and international tax law, particularly corporate income tax, personal income tax, VAT and transfer tax (capital duty). Her practice focuses on on-going and transactional tax advisory, tax planning and restructuring projects, tax litigation in front of tax authorities and administrative courts, administrative enforcement proceedings with respect to tax arrears as well as tax review and due diligence projects.

Prior to joining K&L Gates, Ms. Stec...