The Ministry of Finance has prepared a draft bill on Real Estate Investment Trusts, which is currently being evaluated by government departments. The Ministry expects that the implementation of this legislation will make real estate investment more popular by creating an attractive environment for investors, while spurring the growth of the Polish capital market.
The purpose of this legislative proposal is to create a special status for real estate investment trusts, defined as companies operating on the commercial property market, which are to be exempted from corporate income tax. This is to eliminate double taxation of income and revenues resulting from the letting of immovable property at the level of the company as the real property owner and the level of the natural person who is a shareholder in it. As explained in the explanatory statement on the proposed legislation, “the Polish commercial property rental market is dominated by foreign entities. These entities frequently benefit from preferences under the legislation of their countries of origin, and these preferences are associated with a special tax status granted to so-called Real Estate Investment Trusts. As there are no similar arrangements in Poland, it is reasonable to expect that the introduction of an institution of similar nature in the Polish legal system will help to eliminate the deficiencies of the domestic commercial property rental market, such as the dominant position of foreign investors and the lack of engagement from retail investors.”
Article 2(1) of the draft legislation provides a definition of the real estate investment trust, whereby this is a public company within the meaning of the provisions of the Act on Public Offering and the Conditions Governing the Introduction of Financial Instruments into an Organised Trading System, and on Public Companies, having its registered office or place of management within Poland, that meets the following cumulative conditions: (1) the company’s share capital is not less than PLN 60,000,000; (2) the duration of the company is indefinite; (3) its shares have been admitted to trading on a regulated market within Poland; (4) at least 70% of the carrying amount of its assets is real estate (and also the shares in its subsidiaries meet the criteria specified in the draft) and shares of other real estate investment trusts; (5) at least 70% of net sales revenue comes from the rental of real estate or parts thereof or from the transfer for valuable consideration of real estate or parts thereof; (6) the carrying amount of its liabilities does not exceed 70% of the carrying amount of the assets; (7) at least 90% of the profit resulting from the annual financial statement comes from the rental of real estate or parts thereof, the transfer for valuable consideration of real estate or parts thereof, the transfer for valuable consideration of shares in other real estate investment trusts or the dividends paid out to the subsidiaries referred to in the draft law is distributed to shareholders in the form of a dividend in each accounting year, or where the profit resulting from the rental of real estate or parts thereof, from the transfer for valuable consideration of real estate or parts thereof, from the transfer for valuable consideration of shares in other real estate investment trusts or from any dividends paid out by the subsidiaries referred to in the draft law, has not been distributed to shareholders in the form of a dividend, and such profits are used to purchase other real estate or parts thereof or shares representing at least a 95% share in the share capital of a joint stock or limited liability company or a partnership limited by shares in the case of which at least 70% of the carrying value of its assets is real estate; and (8) the revenue from the rental of real estate or parts thereof is generated from the rental of at least three real properties or parts thereof.
This legislation is planned to enter into force on 1 January 2017. However, prior to that date its final wording may be subject to further change, given that work on its draft is still in progress.