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The real state of real estateThe Polish Real Estate GuideEdition 2017
PolandThe real state of real estate
Cont
ents Preface 1
1. Polish Real Estate Market 31.1. Officemarket 31.2. Retailmarket 111.3. Warehousemarket 181.4. Residentialmarket 231.5. Hotelmarket 281.6. Investmentmarket 331.7. KeycitiesinPoland 44
2. Legal and tax aspects of investing in real estate 59
2.1. Legalbackground 602.2. Investmentvehiclesandstructures 672.3. Realestatefinancing 782.4. Acquisitionofrealestate–assetdealandsharedeal 902.5. Developmentandconstruction 1052.6. Operationandexploitation 1172.7. Exitingtheinvestment 1252.8. Saleandleaseback 1262.9. Duediligenceaspartoftheacquisitionprocess 128
3. Accounting and auditing 1393.1. IntroductiontotheaccountingframeworkinPoland 1393.2. Accountingrecords 1413.3. Majorprinciplesinregardtorecognitionandmeasurement
ofassetsandliabilities 1433.4. Financialstatements 1483.5. Financialreporting,publicationandauditrequirements 1503.6. Consolidation 1533.7. PrincipaldifferencesbetweenPolishAccountingRegulations
andInternationalFinancialReportingStandards 1553.8. SelectedAspectsofAccountingforRealEstateunder
InternationalFinancialReportingStandards 1613.9. Exemptionsandsimplificationsapplicableforsmallandmicro
entities 165
4. Contact 169
Appendix 181
Preface
EY,agloballeaderinassurance,tax,transaction,advisoryandlegalservicespreparedthisguidetothePolishrealestatemarket.Thisguideaimstoprovideitsreaderswithabroadviewofthemarketandthecurrentinvestmentclimate,aswellaslegalandtaxinformation,inapracticalformattohelpyoumakeinformedinvestmentdecisions.OurcombinedexpertiseinthismarkethasenabledustoproducewhatwehopewillbecomeanindispensablereferencetoolonthestateofthePolishrealestatemarket.
Inconjunctionwiththeviewscontainedinthisguide,itisimportanttoseekcurrentanddetailedinformationonthecommercialclimateatthetimeofconsideringyourinvestment,asthiscanchangeatanytime.Thisguidereflectsinformationcurrentasof1January2017unlessstatedotherwise.
Poland.Therealstateofrealestate|1
12|Poland.Therealstateofrealestate
Polish Real Estate Market1.1.Officemarket
Poland – generalFollowingmajorreformsin1992,Polandexperiencedaboomineconomicactivitythroughoutthe1990s.AswithothermarketswithintheemergingPolisheconomy,themodernofficemarketbeganwithaninitialwaveofnewofficeconstructionprimarilyinthefinancialandpoliticalcapital–Warsaw.
Until1996,annualsupplyremainedbelow50,000m2,whichwassubstantiallylessthantherapidlyincreasingdemand.Becauseofthedifficultlocaldevelopmentandfinancingconditions,supplywasinitiallyslowtorespond.Thesecondhalfofthedecadeshowedarapidincreaseinsupply,asPolanddemonstrateditspoliticalstabilityandsoundeconomicfundamentals.Therapidincreasescontinuedintothefirstpartofthisdecade,initiallyaddressingpent-updemandfromdecadesoflowsupply,butlaterresultinginanofficeoversupplyinmanymajorcitiesandtownsinPoland.Generally,rentswereinsteadydeclinefromthe1990suntil2005.Therunupto2009showedareversalofthistrend,withindicationsofamaturingofficemarketwherenewbuildingscometomarketinamoretimelyresponsetodemand,thusstabilizingrentsandvacancies.Althoughthefinancialcrisistemporarilyinterruptedmanyoftheplannedprojects,WarsawremainsbyfarthelargestofficemarketinPolandandstillattractsmajordevelopmentactivity.Ontheotherhand,otherregionalbusinesscenters
haveenteredthepathofstrongeconomicgrowth,increasinginterestinmodernofficeaccommodationeveninsmallercitiesandtowns.ForthemajorityofPolishofficemarkets,2011wasoneoftheweakestyearsintermsofnewsupply.Strictlendingcriteriaimplementedbybanksafter2008initiallyhinderedtheinvestmentprocess,butthemarkethassinceadjustedtothenewlendingconditionsandconstructionactivityhasfullyrecovered.Theannuallevelofnewsupplyin2013wasnearly670,000m2,whichrepresentsasignificantincreasefrompreviousyearsandthehighestyearlylevelinPolandsince2000.DeliveryofnewofficespaceinPolandcontinuestobestrongandgrowing,withsupplynumbersfor2014,2015and2016at600,000,643,000,and900,000m2 respectively.ThisresultsinthetotalcurrentstockofofficespaceinPolandinexcessof9.0millionm2.WhileWarsawremainsthedominantlocation,athemajorityofdevelopmentoutsideofthecapitalwillbeinthemajorsecondarycitiesofKraków,Tri–City,ŁódźandWrocław.Overall,2017willbeanothersuccessfulandproductiveyearforthePolishofficesector,providedthatdomesticandforeigndevelopersproceedwiththeirplansandbarringanymajoreconomicupheaval.Insummary,regionalcitiescontinuetoattracttheirfairshareofnewofficedevelopment,alongwithayoungandeducatedworkforcetooccupythegrowingstockofmodernofficeaccomodation.Atthesametime,Warsawofficedevelopmenthasrecovered
Poland.Therealstateofrealestate|3
Source: EY
Office market in Poland
fromtheupsetofthefinancialcrisisandisevenlikelytogetanaddedboostfromBrexitasinternationalcompaniesreconsiderthebenefitsoflocatinginPoland.
Focus on WarsawThemodernofficemarketinWarsawstartedtodeveloprapidlyatthebeginningofthe1990sinresponsetothePolishpoliticaltransitionandeconomicreforms,followedbyagrowthperiodduringrecentyears,inwhichtheWarsawareaplayedamajorrole.
Becauseofitscentralfunctionsandconvenientlocation,thePolishcapitalcityhasreceivedasignificantshareoftheinflowofforeigncapital.Largeforeigncompanies,includingvariousfinancialinstitutions,consultingcompanies,aswellasinternationalfirms,usuallychooseWarsawasalocationoftheirheadquartersinPoland.Inaddition,Warsawhastraditionallybeenthemostimportantadministrativeandbusinesscenterfordomesticcompanies.
Thisledtorapidgrowthofdemandformodernofficespaceinthecity,whichintheperiodfrom1990untilthefirsthalfof1998resultedin98%to100%occupancyratesaswellasoneofthehighestrentallevelsforofficespaceamongEuropeancities.
SupplyTheyear1998markedthefirstdramaticperiodformodernofficespace,whenoverthecourseofoneyearthesupplydoubledfromthe300,000m2completedbetween1989and1997to680,000m2. Twoyearslater,stockrosetoapproximately1,360.0m2andalthough54%ofthiswasinthecitycenter,2001alsomarkedtheendoftheperiodinwhichcitycenterlocationsdominatednewannualsupply.Withtheexceptionof2003,annualdeliveryofmodernofficespaceinnon-centrallocationsexceededcentral,andthetrendcontinuedthrough2013.Bytheendoffirsthalfof2013,thetotalmodernofficespacein
Polish Real Estate Market
4|Poland.Therealstateofrealestate
Source: EY
Annual delivery of modern office space (m2) in Warsaw
Warsawhadexceeded4millionm2,withnon-centrallocationsaccountingforaround70%.WarsawremainsthemostmatureofficemarketinPolandwithatotalofficestockofover5.05millionm2 as of the end of 2016.
Asthesupplyofnewspacereachedandsurpasseddemand,themarketsawvacancyratesrisetoveryhighlevels.Startingfrombetween4and6%in1998,thebuildingboomfrom2000to2002helpedvacancyratesriseasfaras20%inthecitycenterand16%intheoutskirts.Asthemarketstabilized,andnon-centrallocationsbecamethenormratherthantheexception,vacancyratesincentralandnon-centrallocationsfluctuatedbetween15and19%,withnon-centrallocationsfallingbelowthe10%mark(7%onaverage)in2004.
Regardlessoftheproportionofcentraltonon–centrallocations,theoverallvacancylevelinWarsawsystematicallydecreasedfrom2002until2007,whencentralandnon-centralvacancyratesstoodatthe3.4%
and2.9%respectively.Withthecrisescameareversalofthistrend,in2008and2009vacanciesdoubledtoover7%.In2010,vacancyrateremainedstableatthelevelof8%.Duetothegrowingdemandforofficeaccommodationandlimitedcompletionsin2011,thevacancyrateinWarsawfellandreached6.7%.Howeverattheendof2012,approximately8.8%wasunoccupied.Duetothesignificantvolumeofnewprojectscompletedin2014,thevacancyrateexceeded13%.Intheendof2015thevacancyratedecreased,reachingthelevelof12.3%butin2016theupwardtrendrecoveredandtheaveragevacancyratestoodslightlybelow14.4%asoftheendoftheyear.Reasonsfortheincreaseshouldbeassociatedwithrecord-breakingannualsupplydeliveredtothemarketandstillinsufficientdemand.Inparticular,thenon-centrallocationsweresufferingassignificantpartofthecentralannualtake-upwastheconsequenceofrelocationsfromnon-centralofficedistricts.Theaveragevacancyrate,as
Polish Real Estate Market
Poland.Therealstateofrealestate|5
Major office developments completed in 2016Name Location Area (m2) Developer
WarsawSpireA Central EuropeanSq. 60,000 Ghelamco
ProximoI Non-centralPrzyokopowaSt. 26,500 Hines
GdańskiBusinessCenterII Non-central InflanckaSt. 46,500 HBReavis
Q22 Central GrzybowskaSt. 48,000 ECHOInvestment
PrimeCorporateCenter Central GrzybowskaSt. 20,500 Golub GetHouse
oftheendof2016,stoodat13.0%innon-centraland17.1%incentrallocations.
Itisexpectedthatthevacancylevelwillrisesteadilywithinthenextfewyearsandolderbuildingswillfacedifficultiesincompetingwithnewprojects.
Onthebasisoflocation,themodernofficestockinWarsawistypicallydividedintotwogroups:centralandnon–central.ThecitycenterisboundedbyTowarowaSt.,GrójeckaSt.,WawelskaSt.,ArmiiLudowejAve.,theWisłaRiverandSolidarnościAve.
Themostsignificantofficebuildingslocatedwithinthisareainclude:Rondo1,Q22,WarsawFinancialCenter,Lumen,Skylight,Metropolitan,FocusFiltrowa,AtriumCity,GrzybowskaPark,WarsawTradeTowerandAtriumcomplex.Non–centralofficelocationsincludeMokotów,Ochota,Wola,WłochyandPragadistricts.IntheselocationsEurocentrum,Equatorbuildings,AdgarParkWest,JerozolimskieBusinessPark,WiśniowyBusinessPark,LipowyOfficePark,numerousofficebuildingsalongPuławskastreet,IndustrialSłużewiecaswellasrapidlydevelopingbusinessdistrictlocatedinthecloseneighbourhoodofRondoDaszyńskiego(CBD/Westzone)andDworzecGdański(GdańskiRailway&MetroStation)playkey
roleandareresponsibleforthevastmajorityofofficesupplyinWarsaw.
Yearlynewadditionstotheofficestockfluctuatedduringlastyears.
Theyear2010sawthecompletionofover200,000m2ofnewstock,thoughthiswasplannedwellbeforethecrisisandtheseprojectshadsecuredfinancinginadvanceofnowstricterlendingcriteria.In2011approximately120,000m2weredeliveredtothemarket.In2012themarketwitnessedahighergrowthinnewofficesupply,whichamountedto270,000m2. In2013arecordamountofnewofficespacedeliveredtothemarketwasobservedexceeding300,000m2.Year2014broughtslightslowdowninnewsupplywithnearly280,000m2ofnewspace,whilein2015theamountofnewofficespaceremainedatthesimilarlevelasin2014.Year2016withalmost415,000m2 of total annual supplywasabsolutelyrecord-breaking.Oncontrarytothepreviousyears,thebalancebetweencentralandnon-centralsupplywasobservable.ItisexpectedthatWarsawwillcontinuestrengtheningitspositionintheregionoverthenextyearsthankstonumerous,plannedandcurrentlybeingconstructed,skyscraperdevelopments.
Polish Real Estate Market
6|Poland.Therealstateofrealestate
Major office developments under constructionName Location Area (m2) DeveloperGenerationPark(buildingX)
Central Wronia 20,000 Skanska
WestStationII Non-central JerozolimskieAve. 34,000 HBReavis/Xcity
Investment
BusinessGarden Non-central ZwirkiiWigurySt. 55,000 Vastint
Neopark Non-central WynalazekSt. 11,000 YarealPoland
D48 Non-central DomaniewskaSt. 25,000 Penta
Investments
Graffit Non-central DomaniewskaSt. 30,000 Prochem
ProximoII Non-central PrzyokopowaSt. 20,200 Hines
EquatorIV Non-central JerozolimskieAve. 25,000 Karimpol
MennicaLegacyTower
Central WołoskaSt. 64,000 MennicaPolska/
Golub GetHouse
SiennaTowers Non-central TowarowaSt. 77,000 Ghelamco
Cedet Central JerozolimskieAve. 15,000 ImmobelPoland
CentrumMarszałkowska
Central MarszałkowskaSt. 13,000 BBIDevelopment
NowogrodzkaSquare
Central JerozolimskieAve. 11,000 YarealPoland
Wronia31 Central WroniaSt. 15,000 Ghelamco
Source: EY
Polish Real Estate Market
Name Location Area (m2) Developer
AtriumII Central PerecaSt. 20,000 Skanska
KróLEWska Central GrzybowskaSt. 6,000 S+BPlanBau
Warschau
AstoriaPremiumOffices Central PrzeskokSt. 19,000 Strabag
Source: EY
Poland.Therealstateofrealestate|7
Accordingtoprojectannouncements,morethan400,000m2ofmodernofficespacewillentertheWarsawmarketin2017.However,predictionsfornextyearsaresubjecttoanumberofvariables,asdevelopersandtheirlenderstakeamorecautiousapproachtospeculativeprojects.Itisexpectedthatsomeofprojectswillbedelayeduntilsuchtimewhenareasonablelevelofpre-leasinghasbeenachieved.
DemandThedemandformodernofficespacecomesmainlyfrom:
• PolishandforeigncompanieswhoarebasedinPolandandhaveparticipatedintherapideconomicgrowth;
• newentrantsintothePolishmarket;• thenew“ServicesandInformation
Economy”acceleratingtheneedforup–to–dateofficespace.PolandinparticularhasbenefitedfromBusinessProcessOffshoring(BPO);
• stateentitieswhicharemoreandmoreinterestedinleasingofficespacerather
thanoccupyingself-owned,oldandlowqualitybuildings;
• renewalsandrelocations.
Currently,demandisdrivenmostlybybusinessexpansionandtenantsseekingforofficespaceofhigherquality.Grosstake-upinyear2016waslower.AsoftheendofDecember2016annualtake-upexceeded760,000m2whichwasabitlowerthanin2015butstillisexceptionallypositivenumberandisthebestproofofthehighleveloftenants’activity.
Rents
Alongtheclassicsupplyanddemandmodel,rentsinthelate1980sandearly1990sescalatedasPolandopeneditsborderstoforeigninvestment,andthesupplyofmodernofficespacewasextremelylimited.Demandforofficespacepushed,rentstotheirpeakin1991ofUSD50/m2/monthforofficespace.
Withsuchlimitedsupplyavailable,therewaslittlesegmentationintheWarsawoffice
Prime office rents & cumulative office supply
Source: EY
Polish Real Estate Market
8|Poland.Therealstateofrealestate
market,resultinginbothcentralandnon-centrallocationshavingsimilarrentalrates.
Thefirstbuildingboomofthelate1990spushedoverallrentsdown,butitwastheintroductionofout-of-townofficeparksaround1996,thathelpeddifferentiatepricesbetweencentralandnon-centrallocations.Duringthelate1990srentsformoderncitycenterofficestypicallywere25%to30%higherthanrentsfornewofficesinout-of-townlocations.However,notallofthedifferencecanbeaccountedforbylocationaloneasnon-centrallocationsweretypicallybuiltformoreprice-conscioustenantsreadytoacceptalowerstandard.
Thesecondpartoftheboomintheearly21stcenturybroughtadditionalincreasesinsupplyandafurtherdropinoverallrents’level.Thistemporarilypushedthegapbetweenlocationscloser,butmoredemandingclientshelpedraisethestandardofcentrallocationsandtwoaltogetherseparatemarketsemerged.
Currencieshavealsoplayedaroleintheleasingmarket.IntheearlyyearslowstandardpropertieswerepricedinPLN,withhigherstandardpropertiesgearedforinternationalclientelebeingdenominatedinDMorUSD.SinceaccessionintotheEU,theEurohasbecomePoland’sstandardreferencecurrencyforleases.Today,rentsforcentrallylocated,highqualityofficebuildingsarebetweenEUR18and23/m2/month.
CurrentrentsforprimeofficespacelocatedoutsideofthecitycenterrangefromEUR11to15/m2/month.Asexpectedinatoughmarket,newrentalcontractsarebeingsignedwellbelowaskingrates.Oursourcessuggesttypicaleffectiverentsareroughly15-30%lowerthanaskingrents.Askingrentsdependmainlyonlocation,buildingstandard,sizeandlengthofleaseterm.
Duetothesolidandstillgrowingdevelopmentactivityandnumberofnewprojectsscheduledforcompletionin2017,itisexpectedthatrentalratesmaystillslightlydecrease,notonlyincentrallocationsbutalsonon-centrallocations.Asaresultofintensecompetitionamonglandlords,thedifferencebetweenaskingandeffectiverentsmayincrease.
Standard lease termsThefollowingtermsformodernofficebuildingsareregardedascommonfeatureswithinatypicalleaseagreement:• sincetheintroductionoftheEUR,most
newleaseshavebeendenominatedinEUR,butpaidinPLNasregulatedbyPolishlawuntil2009;
• rentsaresubjecttoannualindexationonthebasisoftheconsumerpriceindexintheEurozone(MUICP,HICP);
• servicechargesareaddedtonetrentsandcalculatedaccordingtothearealeased.TheseratesgenerallyvaryfromEUR3.5to5.5/m2/month;
• achargeforcommonspaceisusuallyaddedtothenetofficespace.Thischargeisbasedontheproratashareofcommonspaceused(lift,lobby,reception).Such“add–onfactors”generallyvaryfrom3%to10%oftheleasedarea;
• inadditiontorentandservicecharges,tenantsareobligedtopay23%ValueAddedTax(VAT);
• landlordsusuallyrequiretenantstoprovidearentaldepositorbankguaranteeequalto3monthrent;
• leasesrangefrom3to10years;typicalcontractsare5years,withatrendtowardlongerleasesforlargertenantsandnewdevelopments;
Polish Real Estate Market
Poland.Therealstateofrealestate|9
• Incentivesfortenantsarecurrentlyacommonpracticeandtheirrangeissubjecttoindividualnegotiations,whichdependmostlyonthesizeoftheoccupiedpremisesandthetermoftheleaseagreement.Typicalleaseincentivesinclude:
• rent–freeperiodofapprox.1monthper1yearofleaseormore;
• fit-outallowanceofapprox.EUR150–250perm2ofnetofficespace.
Key pointsThefollowingbulletslistsomeimportantfactorswhichimpactedthePolishofficein2016.
• TotalmodernofficespacestockinWarsawexceeded5.05millionm2whichplacesthepolishcapitalatthe20thplaceamongEuropeancitiesintermsofoverallofficespacesupply
• Allregionalcities,exceptforLublinandSzczecin,recordedannualgrowthintotalmodernofficespacestock.
PerformanceinKatowiceandKrakówwasexceptionallystrong,withadouble-digitannualchangeinoverallsupply
• During2016,twoabsolutelyprimeofficebuildingswerecompletedinWarsaw-Q22andWarsawSpire
• 2016wasanotherdifficultyearforWarsaw’snon-centrallocationsduetoanexceptionallyhighlevelofofficespacedeliveryinthecentraldistricts.Theresulthasbeenanincreaseinvacancyandfallingprimerents
• Thelastyearwasalsothefirstonrecordwhentheamountofofficespacedeliveredinthecentrallocationswasashighasthatdeliveredinnon-centrallocations
• 2016wasasuccessfulyearnotonlyintermsofnewdeliveriestothemarketbutalsokicked-off,previouslyplannedprojectsthatconfirmeconomy’sstabilityandPoland’sinvestmentattractiveness
Polish Real Estate Market
10|Poland.Therealstateofrealestate
1.2.Retailmarket
Poland – General
Overthelastfewyears,thePolishretailmarkethasundergonesubstantialchanges,growingfromalimitednumberofstate–ownedandsmallprivateenterprisesatthebeginningofthe1990s,toamajorsectorthatencompassanincreasingnumberofinternationalretailchainsandqualitylocaloutlets.
AsPolandopeneditseconomyitbecameeasierforforeignshoppingcenteroperators,investorsanddeveloperstomoveacrossnationalbordersandaccessneworlesscompetitivemarketsortoexploitmarketniches.Inthiscontexttheownershipofshoppingcenters,aswellasthemixofretailtenants,becameincreasinglyinternational.However,occupiersfocuschangedfromanchorsandmassmarketbrandsthatdrivedemandinmediumandlarge-sizedretailschemes,tosmallershoppingcenters,retailparksorconveniencecenterslocatedinsmallerurbanareas.
TheearlydevelopmentoftheretailmarketinPolandbeganin1990swhensupplygrewtosatisfythedemandforfood.Thisledtothearrivalofinternationalbrand
Poland.Therealstateofrealestate|11
supermarketsincludingBilla,Hit,Rema1000andGlobi.From1996on,PolandhasseenarapidexpansionofmajorhypermarketchainssuchasTesco,Hypernova,Carrefour,Auchan,Géant,E.LeclercandReal.Simultaneously,somesupermarketchainsretreated(e.g.Billa),someweresold(e.g.Hit,Géant,LeaderPrice,Hypernova,Real)andafewnewstrongbrandsappeared(Aldi,Alma,PiotriPaweł,Simply,MILA,Bi1replacingeightRealandtwoAuchanhypermarkets).Moreover,anexpansionofdiscountstoresrepresentedbyLidl,PlusDiscount,Netto,KauflandandBiedronkahasbeenobserved.InformationconcerningtheretreatofTescochainfromPolandandthreeotherCentralEuropeancountriesremainedunconfirmed.
Themajorhyperandsupermarketchainsintermsofsalesrevenuesinclude:MetroAG(MakroCash&Carry,MediaMarkt,Saturn),JeronimoMartins(Biedronka,Hebe),Tesco,Carrefour,AuchanGroup(Auchan,Simply),SchwarzGroup(Lidl,Kaufland),EmperiaHolding(Stokrotka,Milea),ITM(Intermarche,Bricomarche),E.Leclerc.
Moreover,someofthelargesthypermarketoperatorslikeTescoorCarrefourhavebeenintroducingnewformatssuchasmini-hypermarketsandsupermarkets(e.g.CarrefourExpressandCarrefourMarket).
InJuly2016,PolishgovernmentpassedanewtaxonretailsaleswitheffectfromSeptember1,2016.Thesalestaxhastworates,oneforsalesbetweenPLN17mandPLN170mandoneforsalesabovePLN170mpermonth,respectively0.8%and1.4%.Accordingtothelatestevents,connectedwithopeninvestigationofthe
EuropeanCommission,thetaxonretailsalesissuspendeduntilJanuary1,2018.
Currently,thetotalmodernretailsupplyaccountsfornearly13.5millionm2.Morethan70%ofthetotalmodernspaceisprovidedbyshoppingcenters,whileretailparksandoutletcentersaccountfor27%and2%respectively.AlthoughthelargestshareintheretailmarketisheldbyWarsawfollowedbyothermaincitiessuchasSilesia,Tri-City,Wrocław,Poznań,Łódź,Tri–City,Poznań,Wrocław,Kraków,ŁódźandKatowice,investorshavebeenseekingopportunitiesinsmallercities,asmoreandmoreprojectsarebeingopenedandbuiltintownswithlessthan50,000inhabitants.RetailmarketcontinuestogrowinsmallercitieslikeTomaszowMazowiecki(GaleriaTomaszów),Mysłowice(QuickPark),NowyDworMazowiecki(GaleriaHIT),Zambrow(GaleriaZambrow),Legionowo(GaleriaGondola),Sandomierz(GaleriaKrólewska),GrodziskMazowiecki(GaleriaGrodova).
Modernretailspacecompletedin2016amountedtoaround460,000m2,butthemostimportantcompletionstookplaceinthelastquarteroftheyear.Majornewopeningsincluded:Posnania(Poznań),GaleriaMetropolia(Gdańsk),GaleriaNavigator(Mielec),GaleriaWolomin(Wołomin).ThisyearthefirstclosureofshoppingcentreinPolandtookplaceinSosnowiec(CHSosonowiec).
TheretailmarketinPolandislikelytocontinuetobenefitfromstrongerdomesticandinvestorinterest.Currently,morethan360,000m2ofmodernretailspaceisunderconstruction,over60%inthebiggestagglomerations.Afewofthemajor
Polish Real Estate Market
12|Poland.Therealstateofrealestate
projectsinthepipelinefor2017areatadvancedstagesofdevelopment,suchas:GaleriaPółnocna(Warsaw),Wroclavia(Wrocław),ForumGdańsk(Gdańsk)andSerenada(Kraków).Theremainingprojectsinthepipelinewithopeningsplannedinyears2017-2018are:IkeaLublin(Lublin),Libero(Katowice),CentrumSkalka(Tychy),GeminiParkTychy(Tychy),Karuzela(BiałaPodlaska)andNowaStacjaPruszków(Pruszków).
Developer’sactivityinsmallandmediumcitieshasbeenobservedforthelastyears.Theactualamountofspacethatwillbedeliveredtothemarketin2017willdependuponavailabilityoffinancingandtenantdemandforretailspace.Apartfromthemedium-sizeretailprojectsandplannedextensionandremodelingoftheexistingretailstock,themarketistendingtowardstheopeningof“stripmalls”(conveniencecenters)-smallretailparkswithanareanotexceeding5,000m2,oftenlocatedintheregionalcitiesandconstitutingcompetitionforregularshoppingcenters.
Asinpreviousyears,in2016trendconsistingmodernizationand/orextensionofexistingshoppingmallshasbeenobservedonthemarket.AlmosthalfoftheshoppingmallsinPolandwasconstructedbefore2004whichforcestheownerstointroducesomechanges:refreshtheinteriors,refurbishfacades,includenewamenities,rearrangeexistingandencouragenewtenants.
Themainextensionscompletedin2016wereincaseofAtriumPromenada(Warsaw),GaleriaMorena(Gdańsk),ETC(Gdańsk),Auchan(Gdańsk)andGaleriaSudecka(JeleniaGóra).
ThemostimportantworksplannedforthenextthreeyearsaretheextensionsofJankishoppingcenter(20,000m2),CK61(Warsaw,20,000m2),GaleriaBałtycka(Gdańsk,16,000m2),FortWola(Warsaw,upto55,000m2tobedeliveredin2019),AtriumTargówek(Warsaw,5,000m2),Arkadia(Warsaw,renovationand2,000m2 gastronomicalextension),AuchanHetmańska(Białystok,5,800m2)andGalaxy(Szczecin,upto58,000m2inQ42017).
Supermarketsorhypermarketsarestillimportantanchortenants,althoughanincreasingnumberofprojectsarelookingtowardsentertainmentfunctionstodecreasegroceryretailingasthebasicdemanddriver.Standardcomplementaryfunctionsstillincludegalleryshops,servicepointsandafoodcourt.Customersnowlookforquickerandmoreconvenientshopping,andwiththischangeofexpectations,retailoffershouldadjustaswell.
Themarketforretailoutletcentershasbeendevelopingrapidlyoverthelastfewyears.Outletcentersthatarecurrentlyinoperationinthesurroundingareasoflargercities,arerunbythreechains-FactoryOutlet,FashionHouseOutletCentreandOutletCenter.In2016OutletAtmosfera(6,000m2)wasdeliveredtothemarket.Themainfutureoutletopeningsare:MetropolitanOutletinBydgoszcz(2017),extensionofOutletCenterinBiałystok(2017),SilesiaOutlet(2018)andoutletcenterinRzeszów.
Polish Real Estate Market
Poland.Therealstateofrealestate|13
Focus on WarsawTotalmodernretailsupplyinWarsawagglomerationexceeds2.2millionm2,butonlyapproximately1.7millionm2 of itcouldbeconsideredas“modern”retailspace.Thisequatestoaround0.9m2 of totalretailspaceperperson.AmongallofthePolishlargecities,Warsaw’sretailspacemarketremainsoneoftheleastsaturated,despitethehighestpurchasingpower.Theremainingretailersoccupymostlyretailunitssituatedonthegroundfloorsofresidentialbuildings/officebuildingsordepartmentstoresbuiltbeforethe1990s.
FirstshoppingcentersinWarsawopenedinearly90s:ParkHandlowyJanki(exIKEAJanki),Tesco(exHIT)andKENCenter(exE.Leclerc).ThatdecadebroughtalsoopeningsofAtriumPromenada,Klif,M1Marki,AtriumRedutaandAtriumTargówek.Between2000and2007fourmajoropeningstookplace:Arkadia(oneofthebiggestshoppingcentersinPoland),ZłoteTarasy,GaleriaMokotówandBlueCity.Currentlythereare7majorshoppingcentersinWarsawonly,offeringover3,500retailunits.
InOctober2016HalaKoszykiwasopened,adding7,500m2ofmodernretailspaceinWarsaw.Thetwo-phaseextensionofPromenadaadded7,700m2 and the extentionofTargowekParkHandlowy(AgataMeble)added25,000m2 to thesupplyofretailspace.InWarsawagglomerationtwonewlyconstructeddevelopmentswasopened:FabrykaWołomin(30,000m2)andGondolaLegionowo(10,500m2).
AmongshoppingcentersunderconstructionandintheplanningphaseinWarsawagglomerationthereareGaleriaPółnocna(64,000m2),GaleriaWilanów(61,000m2),NowaStacjaPruszków(27,000m2),ArtNorblin(21,000m2),Koneser(21,000m2)andGaleriaRondoWiatraczna(11,000m2).
Warsawagglomerationstillhasthepowertoattractnewinvestorsandbrands.Someareasmaybeconsideredforlocationofnewretaildevelopments.Fromtheotherhand,thehighestpotentialhavehighstreets,duetorisingdemand.
Polish Real Estate Market
Major shopping centers in Warsaw
Name Location Area (m2) Owner Completion
Arkadia Śródmieście JanaPawłaIIAve. 110,000 Unibail-Rodamco 2004
BlueCity OchotaJerozolimskieAve. 65,000 Singspiel PhaseI–2004
PhaseII-2014
WolaPark Wola GórczewskaSt. 77,000 InterIkeaCenter
PolandPhaseI–2002PhaseII-2015
14|Poland.Therealstateofrealestate
Name Location Area (m2) Owner Completion
AtriumPromenada
PragaPołudnieOstrobramskaSt. 55,000 AtriumEuropean
Real Estate
PhaseI–1996PhaseII–1999PhaseIII–2005PhaseIV-2016
Złote Tarasy
Śródmieście ZłotaSt. 65,000
AXAREIMJVCBREGlobalInvestors
2007
GaleriaMokotów
Mokotów WołoskaSt. 62,500 Unibail-Rodamco
PhaseI–1999PhaseII–2002PhaseIII-2013
SadybaBestMall
Sadyba PowsińskaSt. 27,000 KlepierreGroup 2000
Source: EY
Polish Real Estate Market
IntherecentyearsWarsawhighstreetretailhasrecoveredandgainedimportance.
Highstreetsarelocatedacrossthecentralquadrantofthecity.TheretailcategorieswhichdominatethehighstreetsinWarsawarecafésrestaurant,barsandservicesproviders.Alsowellrepresentedarefashionandfinancialservicesandluxuryretailers.NowyŚwiatStreetisthehistoricalhighstreetlinkbetweenTrzechKrzyżySquaretotheOldTownandoffersanimportanttouristdestination.Therearenumerousrestaurantsandcafeslocatedonthestreet.PlacTrzechKrzyży,ontheotherhand,isdominatedbyprimeandluxurybrands,stylishrestaurantsandcafes,extendedtowardstoMokotowskaStreet.AnotherimportanthighstreetinWarsawisMarszałkowska.ChmielnaStreetisapedestrianzoneconnectingNowyŚwiatandMarszałkowskawhichoverflowswithcafesandrestaurants.
TheopeningofthesecondmetrolinehasenhancedtheattractivenessofNowyŚwiatStreetandŚwiętokrzyskaStreet.Primehighstreetrentsforunitsofca.100m2rangebetweenEUR70-95EUR/m2/month.UnitsincentralWarsawvarysignificantlyintermsofstandardandaccessibility.ForeignanddomesticretailershavealsoestablishedastrongpresenceonthegroundfloorofbuildingsfacingJerozolimskieAvenueandMarszałkowskaStreet.ThesectionofJanaPawłaIIAvenuetothenorthoftheAtriumBusinessCenterhastraditionallybeenknownasashoppingdestinationandtodaystillfeaturesamixofmoderatelypricedstores.Smallclustersofexpensiveshopsarealsofoundinhotelarcadesandonthegroundfloorsofthemajorofficebuildings.
TheWarsawhighstreetretailsectorisenjoyinglowvacancylevels(1.6%)andalowlevelofsaturationgiventhegenerallackofretailspaceinshoppingcentersas
Poland.Therealstateofrealestate|15
comparedwithdemand.Thedevelopmentpotentialofthehighstreetshasdrawntheinterestofmanydeveloperswhoarenowseekingnewlocationsfortheirprojectsorexpendingexistinglocations.
NewdevelopmentsthataddedorwilladdnewretailspaceinthehighstreetcenterofWarsawincludereconstructionandmodernizationofobjectssuchasCEDET(JerozolimskieAvenue),Ethosofficebuilding(TrzechKrzyżySquare)andHalaKoszyki(KoszykowaStreet)andtheconstructionofofficebuildingswithretailcomponent(SiennaTowers,CentrumMarszałkowskaandAstoria).
Retailrentratesvarywidelyanddependmainlyonthetypeoffacility,locationandquality.Over2016rentalrateshaveremainedstablewithnochangesexpectedinthenearfuture.TheratesforretailunitsinprimelocationsmayexceedEUR130/m2/month.
AveragerentsforsmallunitsinmodernshoppingcentersinWarsawvaryfromEUR40to50/m2/monthdependingonlocation,unit–sizeandtypeofmerchandise.Primeunitsof100–150m2areletatEUR60to100/m2/month(includingrentsinZłoteTarasyandArkadia,whichrepresentthehighestretailrentsinPoland).LargerunitsleaseforapproximatelyEUR15to 30/m2/month.Usuallyanchorstoreoperatorsoccupyingunitsofmorethan1,000m2paymuchlessthanothers,withaveragerentsfromEUR9to12/m2/monthandevenlower,aroundEUR5to8/m2/monthforhypermarkets.ServicechargesforsmallerspacevaryfromEUR5to9/m2/month.MajortenantsarechargedEUR2to3.5/m2/month.
BrandsthatrecentlyopenedtheirstoresinPolandinclude:Dunkin’Dounuts,Dior(beautyproducts),&OtherStories,Marc&Co,L’Erbolario,MaxiBazar,Uterque,Forever21orSteveMadden.Simultaneously,weobservesamemarketexits,suchas:AmericanEagle,Celio,Brice,Burberry,Devered1902,DairyQueenorKari.Also,Marks&Spencer,Kappahl,TopShop,MothercareandGAPdecidedtoclosealloftheirstoresinPoland.
Standard lease termsStandardleasetermsforretailspacearesimilartothoseintheofficemarket.However,thetypicalleaselengthforretailspaceinmodernshoppingcentersrangesfrom5to10years.Anchortenantsusuallyprefer10-yearleaseagreementswithextensionoptions,typicallyforanadditional10-yearperiod.
Withtheincreasingsupplyofretailspace,tenantshavebecomemoredemandinganddevelopersseekingattractivetenantsfrequentlyoffernotonlylowerrentalratesbutalsoincentivessuchas:
• rentfreeperiodrangingfrom1–2monthsforsmallershopsandupto6monthsforlargerunits;
• fit-outallowanceatthelevelof EUR50–200/m2forlargeunitsanduptoEUR600/m2foranchortenants(i.e.withminimum10-yearleaseagreements).
Withincreasingsupplynowbecomingavailable,thebroaderPolishmarket,isbecomingmoretenant-ledascomparedtopreviousyears.
Onthematureretailmarkets,withhigh
Polish Real Estate Market
16|Poland.Therealstateofrealestate
Polish Real Estate Market
saturationrate,anchortenantsstartedtodemandlargefit-outcontributions,extendedrentfreeperiodsorpartiallyturnover-basedrents.
Key points:• Legalchanges,suchastaxonretail
sales(suspendeduntilJanuary1,2018)orprohibitionforretailoperationonSundays(actcurrentlyunderdevelopment)couldinthefutureaffect
financialperformanceofretailchainsinPoland.
• DuetoweakfinancialconditionAlmaclosesstoresalloverPoland.
• ThefirstclosureofshoppingcenterinPolandtookplaceinSosnowiec(CHSosonowiec).
• Newsupplyin2016amounted460,000m2andcumulatedinlastquarter.Itisexpectedthatnewsupplyin2017exceedthisyear’slevel.
Poland.Therealstateofrealestate|17
1.3. Warehouse market
Poland – GeneralThemodernwarehousemarketinPolandbeganitsdevelopmentintheearly1990s,andcurrentlyincludesover11.2millionm2 ofwarehousespace.AlthoughinitiallycentralizedwithintheWarsawmetropolitanarea,themodernmarketisnowsubdividedintosevenregions,eachofwhichhasawelldevelopedwarehousespaceoffering.Theseinclude:Warsaw,Poznań,UpperandLowerSilesia,CentralPoland(Łódź,PiotrkówTrybunalski),Tri-City,andKraków.Logisticscentersaretypicallylocatedoutsideofcitylimitswithgoodaccesstomajorexistingandplannedhighways.
Oneactivitythathascontinuedeventhroughthecrisishasbeenroadandinfrastructureconstruction.Thiscontinuestoboostinvestorinterestinalternativeregions,especiallySzczecinwheredemandin2016exceededthelevelofsomeofthemoreestablishedlocations,butalsoZielonaGóra,Lublin,Toruń,BydgoszczandRzeszówareexhibitinggrowth.
ItscentrallocationonthemapofEuropeandrelativelystrongeconomymakesPolandaperfectlogistichubforcentralandeasternEuropebranchesofinternationalcompanies.Thewarehousemarkethasalsobeenboostedbytheincreaseine-commerce.AmazonalonehasalreadycompletedthreelogisticcentersinPolandtotalingalmost300,000m2 GLA
18|Poland.Therealstateofrealestate
anda4thwith67,000m2isnowunderconstruction.
Currentlyunderconstructionisca.1.5millionm2ofmodernwarehousespace,ofwhich75%isalreadyleased.Althoughthestrongrentalmarketreducestheriskassociatedwithspeculativedevelopment,shortconstructiontimesandevenmorecomplexrequirementsofthetenantshaspushedmostdevelopersandinvestorstosticktothebuilt-to-suitformula.
Intensivemarketgrowthcontinueswiththeyear2016.Newsupplyin2016exceeded1.25millionm2–settinganewrecordandbeatingthepreviousyearbyalmost30%.Despitethehighamountofnewsupplycomingonthemarket,vacancyrates
increasewasnotsignificant–fromc.a.4.6%in2015to5.4%in2016.Rentsremainonstable level.
PositivetrendsshouldcontinueinthefollowingyearsandwillprobablyaffectregionalmarketssuchasSzczecin,Rzeszów,Lublin,Bydgoszcz,ToruńandOpole.
ApartfromstablegrowthinregularwarehouseswepredictanincreaseindemandforSmallBusinessUnits(SBU)drivenbygrowinge-commercemarket.Therearealsonewformatswhichhavebegunenteringthepolishmarketsuchasself-storegeunitsorinvestmentslikeAdgarDataCenter-4storey,150,000m2 warehousefordataservers.
The most active warehouse developers in Poland
Company Country of origin
Major locations (existing and proposed)
Panattoni USA
Bielsko-Biała,Błonie,Bydgoszcz,Czeladź,Garwolin,Gdańsk,Gliwice,Gorzów,Grodzisk,Kraków,Kutno,Legnica,Łódź,Lublin,MińskMazowiecki,Mysłowice,Opole,OżarówMazowiecki,Poznań,Pruszków,Radomsko,Robakowo,Rzeszów,Sosnowiec,Stryków,Szczecin,Święcice,Teresin,Toruń,Warsaw,Wrocław
ProLogis USA
Bedzin,Błonie,Chorzów,DąbrowaGórnicza,Gdańsk,Goleniów,KątyWrocławskie,Kobierzyce,Młochów,PiotrkówTrybunalski,Poznań,RudaŚląska,Sochaczew,Stryków,TarnowoPodgórne,Teresin,Ujazd,Warsaw,Wrocław
SEGRO UK Gdańsk,Gliwice,Łódź,Poznań,Stryków,Tychy,Warsaw,Wrocław
Goodman Australia Gdańsk,Gliwice,Kraków,Łódź,Poznań,Toruń,Sosnowiec,Warsaw,Wrocław,Lublin
Polish Real Estate Market
Poland.Therealstateofrealestate|19
Company Country of origin
Major locations (existing and proposed)
P3 UK Błonie,Mszczonów,PiotrkówTrybunalski,Poznań
MLPGroup Israel Bieruń,Lublin,Łódź,Poznań,Pruszków,GliwiceTeresin,Wrocław
WhiteStar(formerlyAIG/Lincoln)
USA Gliwice,Łódź,Stryków,Warsaw
BiuroInwestycjiKapitałowych Poland Kraków,OżarówMazowiecki,PruszczGdański,
Sosnowiec
MenardDoswell&Company USA Czeladź
MetropolGroup Poland Błonie,Warsaw
Source: EY
Focus on WarsawTheWarsawmodernwarehousestockisdefinedaspropertieswithinapproximately50kmofthecitycenterandissplitintotwozones:
• zoneI:approximately680,000m2 in propertieslocatedwithina15kmradius(Okęcie,Służewiec,Targówek,Żerań),warehousefacilitiesinthiszonehostmostlypharmaceuticals,cosmeticsandelectronics;
• zoneII:approximately2.42millionm2 inpropertieslocated15to50kmfromthecitycenter(e.g.Piaseczno,OżarówMazowiecki,Błonie,Teresin,Nadarzyn,Pruszków).
AlthoughtheWarsawmetropolitanareacontinuestoaccountforthelargestsingleshareinthePolishmarket(c.a.28%oftotalspaceinPoland),thisdominancehasbeen
steadilyerodingasdeveloperspushforapresencealongtheemergingmotorwaysoutsidethemajorcities.
ThetotalmodernwarehousespaceintheWarsawMetropolitanArea(ZonesIandII)isestimatedatover3.1millionm2ofmodernspace.
AstheWarsawwarehousemarketwasalwaysthemostsaturatedoneinPoland,theboomof2014didnotaffectitatfirst.Whilesupplygrowthinregionalcitieswasaccelerating,Warsawhadatemporarydownturn.Only38.000m2 ofnewsupplywascompletedin2014inWarsaw.Situationchangedin2015,whendevelopersdeliveredaround150,000m2 -almost4timesmorethanin2014.Year2016broughtanotherhugeincreasewithmorethan240,000m2newsupplyandexpectationsfor2017areevenhigher.
Polish Real Estate Market
20|Poland.Therealstateofrealestate
Currentlyabout350,000m2ofwarehousespaceisunderconstructioninWarsawarea,mostprojectslocatedinzoneII.Predictingfuturesupplybecomesmoredifficulttoestimateasdevelopersmovetoclientfocusedbuilt-to-suitprojects.
Themajorityofspaceleasedinmoderndistributioncentersislettologisticscompanies,whichsub–letspaceandprovidetheirtenantswithfullservice,includingpackaging,loading,customsclearanceandtransportation.
Examples of class A modern warehouse developments in Warsaw area
Project LocationArea (m2) [existing / proposed]
Developer / Owner Completion
DiamondBusinessPark Piaseczno 57,000
WHITESTAR(formerlyAIGLincoln)
2001-2007
EuropolisPark Błonie 178,000 MenardDoswell/CAImmo 2006–2012
MilleniumLogisticParkPruszkówII Pruszków 81,000
/182,000 MLPGroup 2007-2014
PanattoniParkOżarów Ożarów 67,800 Panattoni 2009
PanattoniParkPruszków Pruszków 85,300 Panattoni 2007-2009
PanattoniParkKonotopa Konotopa 46,700 Panattoni 2016
PlatanPark Warsaw,Ursynów 53,000 PlatanGroup 1998–2001
ProLogisParkBłonie Błonie 153,000 ProLogis 1999–2008
ProLogisParkTeresin Teresin 159,000 ProLogis 2000–2005
ProLogisParkWarsawI
Warsaw,Okęcie 39,000 MenardDoswell/
ProLogis 1995–1997
ProLogisParkWarsawII
Warsaw,Targówek 38,300 ProLogis 2006
ŻerańPark Warsaw,Żerań 52,000 ApolloRida/
Prologis 1999–2000
Polish Real Estate Market
Poland.Therealstateofrealestate|21
Polish Real Estate Market
Project LocationArea (m2) [existing / proposed]
Developer / Owner Completion
SEGROBusinessParkWarsawŻerań
Warsaw,Żerań 49,900 ApolloRida/
SEGRO 2005–2011
DistributionParkAnnopol
Warsaw,Annopol 31,239 Hines 2007-2014
Source: EY
Despitetheriseoftheregionallocations,Warsawremainsthemostattractivedestinationforwarehousetenants.DemandforleasablewarehousespaceinWarsawin2016reached900,000m2,breakingthepreviousrecordof2014(860,000m2).
Comparedto2015,thedemandin2016increasedbyc.a.34%andwasc.a.60%higherthaninthesecondlargestregion–Silesian.Almost85%oftheareawasleasedin Zone II.
Themostsoughtafterunitsizesare1,000–3,000m2,usuallyleasedinoffice/warehousefacilitiesofabove10,000m2,locatedinlogisticsparks.Areaslargerthan10,000m2areusuallyleasedbylogisticsoperatorsorretailcompanies.
VacancyratesinWarsawhaveslightlydecreasedtothelevelof6.5%comparingtothe6.7%in2016.
Warsawbigboxrentshaveremainedstablewithaslightdownturnandfor2016arecurrentlyquotedatthefollowinglevels:
• zoneI:EUR3.5to4.8/m2/month;
• zoneII:EUR1.9to3.0/m2/month.
Incentiveshavealsomoderated,withonemonthforeachyearofleasetermbeingageneralbenchmark.Inadditiontorent,tenantsareobligedtopayservicechargesforpropertymanagement,maintenance,propertytaxandsecurity.AfixedamountpaidinadvanceandadjustedannuallyonthebasisofactualcostsvariesfromEUR0.7to1.2/m2/month.
OneofthecharacteristicsfortheWarsawindustrialmarketisalargepresenceofclassBbuildings.FirstmodernwarehouseandproductionfacilitieswerebuiltinPolandintheearly90s,thus,overtheseyearstheyagedandnowarebeingslowlyreplacedbynewerdesignsbetteradaptedtochangingtenantsneeds.
22|Poland.Therealstateofrealestate
1.4. Residential market
Poland – current overviewIn2016developerswerebreakingrecordsintermsofnewresidentialspacedeliveredonthemarket.Theyalsolaunchedahugenumberofprojects,encouragedbycontinuingstrongdemandandpositivemarkettrends.AccordingtotheCentralStatisticalOfficein2016developersdelivered78,462unitswhichwas25.7%morethaninpreviousyearandobtained106,643buildingpermits,whichwas9.7%morecomparedto2015.Newconstructionstarts,althoughveryhighat85,497unitsfor2016wasstillslightlybelow(1.2%)newstartsin2015.
Afterrecordbreakingyearsin2014and2015,thetrendhascontinuedfor2016historicalhighsbothforunitssoldandlaunchedtothemarket.
DevelopersonthetopPolishmarkets(Warsaw,Kraków,Wrocław,Poznań,Tri-CityandŁódź)soldover61,800newunits,nearly20%morethaninthepreviousyear.Thenumberofnewflatslaunchedtothemarketin2016wasevenhigherthanduringthe2007boomwhendeliverieshitnearly65,000units.Demandfornewresidentialsitesremainshigh,suggestingthatthetrendisexpectedtocontinuethefollowingyear.
Poland.Therealstateofrealestate|23
Themarkethasbeeninfluencedbyanumberoffactors,withacumulativeimpactovertheyear.Interestrateshaveremainedlowmakingmortgageloansmoreaccessiblewhileatthesametimeencouraginginvestmentbuyers.Alsoastrongfactorhasbeenagovernmentco-financingprogram‘HousingfortheYoung”(“Mieszkanie dla Młodych”,MdM)whichremainsapopularprogramamongbuyers.
Theprogramwasintroducedatthebeginningof2014butduetochangeshadmajorimpactinthelastquarterof2015.SinceSeptember2015theprogramwasalteredtocoveralsothesecondarymarketandbecamemoreavailableforlargerfamilies.Thisincreasedthenumberofapplicationsformortgagesubsidiesandpurchasetransactions.Itwillcontinuetohaveanimpactalsoin2017and2018.AlthoughmorespecifictypeofapartmentsfulfillingMdMprogramparametersareavailableonthemarket,therearesignificantdisproportionsregardingsetpricelimitswithinthecities.
SinceJanuary2016themaximumavailableLTVlevelformortgageswas85%.Thismeansthatbuyersarerequiredtopayatleast15%ofequity.However,alargenumberofbanksallowa90%LTV.AccordingtoregulationsofthePolishFinancialSupervisionAuthority(KNF)theowncontributionamountsto20%in2017.
Stableprices,widerangeofnewflats,securityofmatureddevelopers’marketaswellasgoodeconomicindicatorswerethemainfactorsinfluencingdemandthroughout2016.
Poland-fundamentalsDuringthelasttwodecadesthePolishresidentialmarketgrowthhasbeendrivenbytheoverallgrowthofthecountry’seconomy,mortgagefinancingdevelopmentaswellaspositivedemographictrendsobservedinbigcities.
Oneoftheturningpointsinthemarketwastheboomperiodof2004-2007,triggeredbyEUaccessioninlowinterestrates,inflowofinvestorsincreasedavailabilityofmortgagefinancing.Theboomreshapedthestateoftheresidentialmarket,pumpingupthepricesofhousingandresidentialland.
Despitethecontinuingneedforadequatehousing,demandstillreliesonaffordability,andtocapoffafewgoodyearsofstrongpricegrowth,2007markedanotherturningpoint.Moderationinlate2007ledtostagnation2008,whichultimatelygavewaytopricesdecreasesin2009.Since2010pricesremainstablewithaslightupwardtrend.
InPolandover75%ofthehousingstockisowneroccupied,whileintheEUthemajorityofpeoplerenttheirflats.Theprivaterentalsectorremainsdifficulttoestimatebecauseinordertoavoidtaxation,manyoftherentalagreementsarenotofficiallyregistered.AccordingtoofficialstatisticsinPolandlessthan5outof100peoplerenttheirflat.Therentalmarketisdominatedbyprivateinvestors-andisdeveloping-mainlyinlargestcities,universitycitiesandresorttowns.Aninstitutionallevelrentalmarketisalmostnon-existentinPoland.
Polish Real Estate Market
24|Poland.Therealstateofrealestate
In2014anewinitiativecalledApartmentsfortheRentFundappearedonthePolishresidentialmarket.ThiscommercialprojectofinstitutionalrentalpropertiespreparedbyBGK(BankGospodarstwaKrajowego)aimstoincreasethemarketshareofapartmentsforrentavailableatattractiveprice.Thefundwasbuyingstandingassetsanddevelopmentprojectsforrent.Currently,flatsareavailablein:Warsaw,Kraków,Wrocław,Gdańsk,Poznań,Piaseczno.AmongplannedlocationsareKatowiceandŁódź.thefundplanstorentfullyequippedflatsatrentalrates20%-30%lowerthancomparableunitscurrentlyavailableonthemarket.PlannedinvestmentscaleisPLN5billionandaimstobuildca20,000flatstolet.
In2016newprogrammecalled“Mieszkanie+”wasintroducedasthepartofplannednewhousingpolicy.Theaimof Mieszkanie+istoprovide6,000flatsavailableforrentatlowerprice.Newhousingdevelopmentsareplannedtobebuiltincitiessuchas:Poznań,Katowice,StalowaWolaorWałbrzych.
ThemajorityofprojectsdeliveredonthePolishmarketarethoseconsistingofmultifamilybuildings.AccordingtotheCentralStatisticalOffice,in2016over162,727unitsweredelivered,whichwasa10.2%increasefromthepreviousyear.48.2%werebuiltbydevelopersand48%byindividuals(mainlysinglefamilyhouses).Theremainingsupplywasdeliveredbyhousingcooperativesandmunicipalities,whoseshareremainsmarginal.
Therewasa12%increaseinbuildingpermitsissuedin2016thatamountedto211,565.Alsothenumberof
constructionsstartedincreasedbyapprox.3.3%reaching173,932units.
Currently,thePolishresidentialmarketisthelargestinCentralandEasternEurope,however,itstilllagsbehindwesternEUmembersintermsofquality,ageofstockandmarketlevelofsaturation.
Moreover,statisticalindicators,suchasnumberofresidentialunitsper1,000inhabitants,usablefloorareaperoneinhabitantandperaverageresidentialunit,arebelowtheEuropeanaverage.
AmajorobstacleconstraininghousingsupplyinPolandisadministration-drivenandconsistsofthelimitednumberofzoningplans,whichcoverlessthan30%ofcountry’sarea.Ineachcase,lackofzoningresultsinatime-consumingadministrativeprocedure,whichusuallytakesseveralmonths.Incaseswherealocalspatialdevelopmentplanhasnotbeenimplementeditisnecessarytoobtainazoningdecision(WarunkiZabudowy)priortoapplyingforabuildingpermit.Currentlyobservedtrendsinmajorityconcernrentalmarket,alsostudentandseniorhousingdevelopment.
Focus on WarsawWarsaw’sresidentialmarketremainsthemostdevelopedinPoland.Thedemandisdrivenmainlybyin-migration,thehighestincomelevelinPolandandthelowestunemploymentrate.Warsawisalsoapopularlocationforsharedservicecentresandofficeinvestments.Bothofthemresultinincreaseddemandonresidentialdevelopments.Employmentperspectivesandmajoruniversitieslocated
Polish Real Estate Market
Poland.Therealstateofrealestate|25
inWarsawareamagnetforyoungpeoplefromotherregionsofPoland.Therefore,themarketreactsforincreaseddemandresultingthemultifamilydevelopmentsbeingfocalpointfordevelopers.
Morethan10%ofPolishresidentialsupplyisdeliveredtotheWarsawmarket.Theshareofnewhousingunitsinsingle-familydevelopmentsbuiltinWarsawremainsunder1%.Stilllowinterestratesin2016causedtheincreaseoftransactionvolumeresultinginwithdrawalofpersonalsavings,whichisbeingappliedtothepurchaseofrealestate.
Aftertherecord2001year,numberofcompletedunitsinWarsawfluctuatedbetween10,000and15,000p.a.forseveralyears.Followingtheboomperiod,unitcompletionsincreasedto19,049and19,482for2008and2009respectively.However,in2009constructions’startswerestarklycurtailed,resultinginthedeliveryofonly12,462dwellingsin2010and9,408in2011.Inthebeginningof2012thesituationontheresidentialmarketwasinfluencedbyhighsupplyofdwellingsreleasedinQ1.Thiswasmainlydrivenbyintroductionofthe“DevelopersAct”attheendofApril.AccordingtotheCentralStatisticalOfficein2013nearly13,200apartmentswerecompleted.Thefollowingyearsoccurredevenbetteramountingupto14,964and13,320unitsfor2014and2015respectively,whilein2016thenumberofunitsdeliveredincreasedto19,505.
Warsawremainedthemostexpensiveresidentialmarketwithanaverageapartments’transactionpriceofapprox.7,600PLN/m2.
Buyerspayonaverage5-7%lessthantheofferprice.Thetendencyismainlyreflectedinthesecondarymarketandisalsoduetobetteralignmentofdemandandsupply,aswellaslargenumberofcompletednewresidentialinvestments.AccordingtotheNationalBankofPolandtheaverageaskingpriceofapartmentsontheprimarymarketinWarsawiscurrentlyatthelevelof7,800PLN/m2. ThehighestaveragepriceswereobservedinŚródmieście(PLN11,700/m2)andthelowestinBiałołękadistrict(belowPLN5,600/m2).ApartfromŚródmieście,themostexpensivedistrictsinWarsawremainMokotów,Ochota,UrsynówandŻoliborz.
Aswiththerestofthecountry,demandinWarsawisontheupturnduetolowinterestratesandgovernmentsupport.However,thereisathreatofslowdownasmortgagefinancingregulationsthathavebeentightenedgraduallyinrecentyears.NeverthelessstronginternaldemandanddemographicfactorsshouldsupportgoodintheWarsawresidentialmarket.
Key points
• Polishresidentialmarketischaracterizedbyconstantgrowthofbothsupplyandthedemandespeciallyontheprimarymarket.
• 2016wasarecordbreakingfordevelopersintermsofsalesaswellasnewunitslaunchedonthemarket.
• Pricesofresidentialpropertiesareremainingstablewitharisingtendencyobserved(Warsaw,Tri-City-forprimelocations).
Polish Real Estate Market
26|Poland.Therealstateofrealestate
Polish Real Estate Market
• Thereisahugeinterestofbothindividualandinstitutionalinvestorsduetolowinterestratesandhighdemandonrentalmarket.
• ApartmentsforRentFundisdevelopinginnewlocationsinbiggestPolishcities.
• HousingforYoungnotedrecordhighresultsinthe2016and2017andissupposedtobringanotherrecordsonthemarket.
• Thereisrisinginterestofinvestorsinnewmarketsegments–studentandseniorhousing.
Poland.Therealstateofrealestate|27
1.5.Hotelmarket
HotelmarketinPolandisinastageofrapidgrowthwhichisreflectedbytheincreasingnumberofnewhotels,growingnumberoftourists,aswellasthegrowinginterestinthePolishmarketfromtheinternationalhotelbrands.
ThekeydriversforthedevelopmentofhospitalitybusinessinPolandare:economicgrowth,risingpopularityofPolandasaholidaydestinationaswellasthedevelopmentofmedicaltourisminPoland.AnotherimportantfactorinfluencingpositivelythedevelopmentofthehotelmarketinPolandisthedynamicgrowthofBPO/SSCsector.
AccordingtodatapublishedbyCentralStatisticalOffice,thenumberofcategorizedhotelsinPolandexceeds2,450andisgrowingyear-to-year.However,only14%ofthecategorizedhotelsinPolandarechainhotelscomparedtotheaveragelevelof30%inEurope.Thehigherthecategoryofahotel,thelargestpercentageofchainhotelsinthecategory.Currently,theshareofchainhotelsexceeds50%infive-starcategoryandiswellbelow10%inthecaseofone-starhotels.
Chainhotelsarealsoonaveragelargerthanindependentoneswhichisconnectedwiththeminimumrequirementsofhotel
28|Poland.Therealstateofrealestate
chainsregardingthebusinessprofitability.Inthecaseoflargerhotelsthefixedcostsaredistributedacrossgreaternumberofrooms.
ThenumberoftouristsstayingathotelsinPolandin2015reachednearly17.5million,whichisanincreaseof8.4%comparedtotheprecedingyear.TheshareofPolishguestsusinghotelinfrastructureisrising.Foreigntouristsaccountedfor25.1%oftotalnumberoftouristsstayingathotels,whichis1.1p.p.lessthanin2014.
TheaveragehotelroomoccupancyinPolandin2015equaled48.3%andwas5.6p.p.higherthanin2014(CentralStatisticalOfficedata).
ThetablebelowpresentsthenumberofhotelsandhotelroomsinmainPolishcities.Asshown,Krakówisthecitywiththehighestnumberofhotels.However,whenlookingatthenumberofhotelrooms,Warsawtakestheleadwith27%morehotelroomsthanKraków.
Polish Real Estate Market
Number of hotels and hotel rooms in main cities in Poland
Source: EY based on GUS
Asfarasoperatingmodelsareconcerned,internationalhotelchainsthatareexpandingtheiroperationsonthePolishmarketaremainlyinterestedinmanagementorfranchiseagreements.PureleaseagreementsareacceptedonlyinthecaseofprimelocationsinmajorcitiesandusuallybyhotelchainsthatareenteringthePolishmarket.Hotelchainsthatarethemostactiveintermsofnew
openingsinPolandare:Accor/Orbis,HiltonHotels&Resorts,MarriottInternationalandRezidor.
Thetablebelowpresentsplannedinvestments,whichareaccountedformainlybyMarriotInternational,Accor/OrbisandHiltonHotels&Resorts,whileresortsaremainlytargetedbyRezidorwhichistoopenhotelsinSzklarskaPoręba,ŚwinoujścieandZakopane.
Poland.Therealstateofrealestate|29
Polish Real Estate Market
Selected hotels in pipeline and planned (2017 – 2020)
Chain Brand Standard City
Accor/OrbisIbisStyles(5) 3* Warsaw,Kraków,Szczecin,
Grudziądz
IbisBudget 1* Gdańsk
HiltonHotels&Resorts
HamptonbyHilton(5) 3* Warsaw,Gdańsk,Łódź,Lublin
HiltonGardenInn 4* Szczecin
MarriottInternational
FourPointsbySheraton(2) 4* Warsaw,Zakopane
Moxy(2) 3* Warsaw,Katowice
Moxy+CourtyardbyMarriott 3* Szczecin
Moxy+ResidenceInn 3* Warsaw
RenaissancebyMarriott 5* Warsaw
RezidorRadissonBlu 4/5* SzklarskaPoręba,Świnoujście,
Zakopane
ParkInnbyRadisson 4* Poznań
InterContinentalHotelsGroup Holiday Inn 4* Warsaw,Gdańsk
Likus Prudential 5* Warsaw
RafflesHotels&Resorts HotelEuropejski 5* Warsaw
Gołębiewski Gołębiewski 4* Łeba
Source: EY
Focus on WarsawWarsawisthelargesthotelmarketinPolandintermsofanumberofhotelrooms.ItisalsousuallythefirstchoiceoftheinternationalbrandsenteringthePolishmarket.
AccordingtodatapublishedbyCentralStatisticalOffice,in2016therewere85categorizedhotelsinWarsawofferingapproximately13,000rooms.Three-starhotelsconstituted40%ofallhotelsinWarsawandaccountedforca.33%ofhotelroomssupply.
30|Poland.Therealstateofrealestate
Polish Real Estate Market
Therewere12five-starand16four-starhotels,accountingforapproximately24%and27%oftotalnumberofhotelroomsinWarsaw,respectively.
In2015inWarsawthereweremorethan4.2milliontouristswhichwasanincreaseof5.5%comparedtothepreviousyear.DuetothefactthatWarsawisperceivedprimarilyasabusinesscity,themajorityofguestsusingthehotelinfrastructureinWarsawarebusinesstravelclients(75%).
Theaverageoccupancyinfive-starhotelsinWarsawin2015reachedalmost77%,incaseoffour-starhotelstheoccupancywasslightlyhigherandequaled79%.AnaverageoccupancyacrossallthehotelcategoriesinWarsawin2015stoodataround71%.
ThetablebelowpresentsmainhotelprojectsinWarsawthatareeitherinpipelineorintheplanningphase.
Hotel projects in Warsaw
Chain/Brand Standard Location Number of rooms Opening date
MarriottInternational/Renaissance
5* ChopinAirport,ŻwirkiiWigurySt. 225 3/4Q2017
MarriottInternational/Moxy 3* ZąbkowskaSt. 141 4Q 2017
Likus/Prudential 5* ŚwiętokrzyskaSt. 150 2017/2018
RafflesHotels&Resorts/HotelEuropejski
5* KrakowskiePrzedmieścieSt. 103 4Q 2017
WolaInvest/AparthotelWola n/a
CornerofKasprzakaSt.andPrymasaTysiącleciaAve.
416 4Q 2017
Arche/KrakowskaResidence 4*
CornerofKrakowskaAve.andŁopuszańskaSt.
356 2Q2018
MotelOne 2/3* TamkaSt. 330 2Q2018
InterContinentalHotelsGroup/Holiday Inn
4*CornerofTwarda,ŻelaznaandSiennaSt.
254 2Q2018
Accor/Orbis/IbisStylesWłochy 3* ŚwierszczaSt. 214 2018
Poland.Therealstateofrealestate|31
Chain/Brand Standard Location Number of rooms Opening date
MarriottInternational/FourPointbySheraton
4*CornerofKonstruktorskaandSuwakSt.
192 2Q2018
Puro 4* WidokSt. 180 2018
Accor/Orbis/IbisStylesWarszawaExpo
3* PrądzyńskiegoSt. 120 2/3Q2018
Hilton Hotels&Resorts/HamptonbyHiltonSłużewiec
3*CornerofCybernetykiandPostępuSt.
163 4Q2018
MarriottInternational/Moxy+ResidenceInn
3* WilanowskaAve.
200rooms(Moxy) 100 stay apartments(ResidenceInn)
2019/2020
Source: EY
Accordingtothetableabove,thenexttwoyearswillseetheopeningoffourupscalehotelprojects–RenaissanceMarriot,HotelRafflesEuropejski,PrudentialandAparthotelWolaInvest.Together,thesehotelsshouldaddalmost900newroomsandapartmentstotheWarsawmarketandwillincreasethetotalsupplyofhotelroomsinWarsawby7%.Inadditionin2017isplannedopeningofhotelundernewMarriottbrand–Moxywith141roomsexcept,abovementionedprojects,inyears2018-2019.Inyears2018-2019additional2,100roomsaretobedeliveredonthemarket.
Key points:• ThePolishhotelmarketisconstantly
growingbothintermsofnumberofhotelsandvisitors-growthby6.3%and8.4%respectively.
• In2016thenumberofhotelsinPolandexceeded2,400whichintotaloffermorethan126,000rooms.
• Thereareagrowingnumberofchainhotels-currentlytheirshareinthemarketisapproximately14%.
• ThenumberoftouristsstayingathotelsinPolandin2015reachednearly17.5mln.
• Theprojectsinpipelineandplannedarefocusedonmajorcitiesandresorts.
Polish Real Estate Market
32|Poland.Therealstateofrealestate
1.6.Investmentmarket
DevelopmentofPolishcommercialinvestmentmarkethastrailedbehindtherestoftherealestatemarket.Initiallytherewerefewinvestorsandyieldswereinthedoubledigits.Itwasnotuntil2004andtheadventofanEUmembershipthatthesituationimproved.ThatyearmarkedthebeginningofanintensivefouryearperiodofforeigninvestmentinthePolishmarket.OverthisperiodthevolumeoftransactionsaveragedjustunderEUR4billionayear,witharecord-breakingvolumeofoverEUR4.7billionin2006;afarcryfrom2001whenforeigninvestmentsweremoreorlesslimitedtotheWarsawofficemarket.Furthermore,theearlyyearssawthecommercialinvestmentmarketplaguedwithalackofavailableinvestmentschemes,ormismanagedandoverrentedpropertieswithhighvacancyrates.Theincreasingnumberoftransactionshasnotonlystabilizedinvestmentsbutcompletelychangedthestructureofyields(downward)andprices(upward).
Year2009markedahistoriclowwithlessthanEUR500milionintransactionvolume.However,from2010onwardsthemarkethassubstantiallyimprovedandin2011-2014totalinvestors’activitybouncedbacktoanaverageofEUR3billionperyear.Thankstolowinterestratesandstablemacroeconomicsituationin2015
Poland.Therealstateofrealestate|33
thetotalvolumeofinvestmenttransactionsinPolandwentuptoEUR4billion–a31%increasecomparedto2014.
Intheyear2016thetotaltransactionvolumeinPolandamountedtoEUR4.55billion.ThisisthesecondhighestresultinthehistoryofthePolishinvestmentmarketfollowingtherecordvalueofEUR4.7billionin2006.Majorinvestmentactivitywasrecordedinretailsector(43%),howeverofficeandwarehousemarketincreasedtheirsharescomparedto2015to39%and17%respectively.
AcquisitionoftheEchoPrimePropertyPortfoliobySouthAfricaninvestorRedefineProperty,valuingtheportfolioatEUR1,248billionwasdefinitelytheheadlinedealof2016.Theportfolioconsistedof10retailand8officeassets.ThiswasthelargestsingletransactioneveronthePolishinvestmentmarket.
WarsawremainsaveryimportanttransactionmarketinPolandandisperceivedbymanyinvestorsascore,however,in2016thisdominantpositionwasovertakenbyregionalcities.Kraków,Wrocław,PoznańandTricityhavebeentargetedmoreandmorefrequentlybyinternationalanddomesticinvestors.
Major investorsThemajorityofplayersonthePolishinvestmentmarketareforeignentitiesmostlyfromUSA,UK,Germany,theNetherlandsandSouthAfrica.
Duetothescaleofonemajortransactionnearly40%oftheinvestmentvolumein2016camefromaSouthAfricanfund,following20%fromtheUSA,15%from
Germany,and10%fromtheUK.TheinvestmentdriversweregoodqualityassetsandstillattractiveyieldsinPoland.
Lessthan5%ofinvestmentvolumein2016inPolandcamefromPolishcapital,representedbydynamicallydevelopinginvestmentfundReinoPartnersandPolishassetmanagerPHN.
TheinsurancecompanyPZUTFI,althoughnotactiveinacquisitionsthisyear,stillholdsthepositionofamajorplayerinPoland,withalargeprimeproperties’portfolio.
TheminorityshareofPolishentitiescomesfromthelegalregulationsasPolishlawdoesnotallowlocalpensionfundswithsubstantialaccumulatedcapitaltoinvestdirectlyintherealestate.Instead,theirportfoliosarebasedonstocksandcorporatebonds.
Theplansconcerningintroduction of Real EstateInvestmentTrusts(REITs)structuresinPolandmightinfluencethestructureofinvestedcapitalinthefuturewithmoredomesticindividualsbenefitingfromreturnsonlarge-scalecommercialrealestate assets.
ThemostactiverealestatefundsinPolandin2016were:RedefineProperties,RockcastleGlobalRE,InvescoRE,EchoPolskaProperties,CBREGlobalInvestors,UnionInvestment,EPF,SavillsInvestmentMgmt,Hines.
Newcomersin2016includedRedefineProperties,MVPLogistics,Invesco,BouwfondsEuropeanResidentialFund,PrimeKapital.In2016PolishindustrialmarketattractedalsoaSingaporesovereignwealthfundGIC.
Polish Real Estate Market
34|Poland.Therealstateofrealestate
Major real estate funds investing in Poland
Fund Sector Major Assets in Poland
AllianzRE Retail,Office
SilesiaCityCenter,WarsawFinancialCenter(JVwithTristanCapitalPartners),PlatiniumBusinessPark
AtriumEuropeanRE Retail
AtriumPromenada,AtriumReduta,AtriumTargówek,GaleriaDominikańska,FocusParkinBydgoszcz,AtriumFelicityinLublin
Azora Office AquariusBusinessHouse(Wrocław),HarmonyOfficeCenter,MokotówPlaza,GreenParkandAvatarinKraków
BergoldGroupOffice,Retail,Logistics
JutrzenkiBusinessPark,Okopowa56(Warsaw),TeofilówBusinessPark(Łódź),GaleriaŁomża,Dukat(Olsztyn)
Blackstone/Logicor
Retail,Logistics
Shoppingmalls:TwierdzaKłodzko,GaleriaLeszno,MagnoliaPark(Wrocław),TwierdzaZamość(Zamość),WzorcowniaWłocławek,GaleriaPestka(Poznań),GaleriaTęcza(Kalisz),Warehouseproperties:Łódź,Łazy,Błonie,Czeladź,Gliwice,Kraków,Piaseczno
Total investment volume in all sectors (office, retail, warehouse) 2004–2016
Polish Real Estate Market
Source: EY
Poland.Therealstateofrealestate|35
Fund Sector Major Assets in Poland
CAImmo Office SaskiPoint,SaskiCrescent,SiennaCenter,WarsawTowers,BitwyWarszawskiej
CBREGlobalInvestors
Retail,Industrial,Office
IdealIdeaI-III,WarsawDistributionCentre,ManhattanBusiness&DistributionCentre,ZłoteTarasy-partialinterest,GaleriaMazovia,WarsSawaJunior,KingCrossPraga,Jantarshoppingcenter
DekaOffice,Logistics,Hotel
InternationalBusinessCenter(Warsaw),IntercontinentalWarsaw(50%),MokotowskaSquare,NorthGate,Atrium1,BemaPlaza(Wrocław),ForumGliwice,AndersiaTower(Poznań),Andel’sHotel(Kraków)
GLL Real Estate OfficeKazimierzBusinessCenter(Kraków),GreenDay(Wrocław),Renaissance,MarynarskaPoint,DompodGryfami,LibertyCorner(Warsaw),ZaułekPiękna
GriffinRE Office,Retail
EchoInvestmentPorftolio,KoszykiHall,NowaEmiliaplannedoffice,MicrosoftHouse,RaiffeisenBusinessCenter(Warsaw),Renomashoppingcenter(Wrocław),LubiczOfficeCenter(Kraków),Supersam(Katowice),GreenHorizon(Łódź)
Heitman Office,Retail
MarynarskaBusinessPark,GaleriaTarnovia,GaleriaMalta
Hines Office,Logistics
Ambassador,NestleHouse,SkyOffice,Proximo(Warsaw),PrologisParkWarsaw&Będzin,RabenGądki&GrodziskMazowiecki
Immofinanz Office,Retail
STOP.SHOPandVivo!retailparks(accrossPoland),BramaZachodnia,Nimbus,EquatorI,BokserskaOfficeCenter,ParkPostępu,EmparkMokotów(Warsaw),TarasyZamkowe(Lublin)
Invesco Office,Retail
PlacUnii,CrownSquare(Warsaw),GaleriaKazimierz(Kraków),Q22
IVG(Triuva) OfficeLePalais,Feniks,Chmielna25,RoyalTraktOffices,NorwayHouse,VictoriaBuliding,Nowogrodzka21,MłodziejowskiPalace
KulczykSilversteinProperties
Office,Retail
Ethos(HollandPark),Stratos,Mazowiecka2/4,UfficioPrimo,WartaTower,KruczaHouse
LoneStar(GTC) Office WiśniowyBusinessPark,MilleniumPlaza,Irydion,Europlex(Warsaw)
Polish Real Estate Market
36|Poland.Therealstateofrealestate
Fund Sector Major Assets in Poland
OctavaS.A. OfficeBalticBusinessCenter,AlfaPlaza(Gdynia),OrangeLabs,LighthouseII(Warsaw),QuattroForum(Wrocław),RedTower(Łódź)
PolskiHoldingNieruchomości(PHN)
Office,Logistics
DomaniewskaOfficeHub,SenatorskambankHQ,FoksalCity,Intraco(Warsaw),AndersiaBusinessCenter(Poznań),Alchemiaphase2(Gdańsk)
PZUTFILogistics,Retail,Office
PanattoniWarehousesŁódź,Gdańsk&Wrocław,ArkońskaBusinessPark(Gdańsk),AthinaPark(Warsaw),GaleriaJeziorak,GaleriaEchoPabianice,AlmaNowyTarg
ReinoPartners Office Kapelanka(Kraków),MaltaHouse(Poznań),Alchemiaphase1(Gdańsk)-lasttwoinaJVwithBluehouseCapital
RockcastleGlobalInvestors Retail
Karolinka,SolarisCentre(Opole),Pogoria(DąbrowaGórnicza),Platan(Zabrze),FabrykaWołomin,BonarkaCityCenter,FocusMall(ZielonaGóraandPiotrkówTrybunalski)
RREEF(DeutscheAsset&WealthManagement)
Office,Retail
StaryBrowar(Poznań),Rondo1,Metropolitan,FocusFiltrowa,Nefryt,Topaz,GreenCorner,NordeaHouse(Warsaw)
SEB Office
TrinityParkIII,MarynarskaPoint2,UniversityBusinessCenter,RiversidePark,SalzburgCenter(Warsaw),PhilipsBuilding(Łódź),ArkonskaBusinessPark(Gdańsk)-partlysold
StarwoodCapitalGroup Office T-MobileOfficePark,ŁopuszańskaBusinessPark(Warsaw),
KatowiceBusinessPoint,QuattroBusinessPark(Kraków)
TPGCapitalOffice,Retail,Logistics
Bonarka4Business,EuropolisParkBłonie,EuropolisParkPolandCentral
TristanCapitalPartners
Office,Retail
WarsawFinancialCenter(JV),MokotówNova(Warsaw),EnterprisePark(Kraków),Arena(Gliwice),CHBorek,CHDąbrówka,GaleriaTurzyn,ECPowiśle(JV)
UnibailRodamco Retail,Office
GaleriaMokotów,ZłoteTarasy(77%interest),Lumen&Skylight,Arkadia,WarszawaWileńska(Warsaw),Wroclaviaunderconstruction(Wrocław)
Union Investment
Retail,Hotel,Office
RivieraMall(Gdynia),Manufaktura(Łódź),FocusPark(Rybnik),SarniStok(Bielsko-Biała),DominikańskiOffice,Senator,ZebraTower,HorizonPlaza,HolidayInn,HamptonbyHilton(Warsaw),RadissonBlu(Wrocław)
Polish Real Estate Market
Poland.Therealstateofrealestate|37
Fund Sector Major Assets in Poland
Valad Retail,Logistics
CHJanki,CHKingCross,CityPoint,CHSter,CHRondo,CHTulipan,CHKometa,TechnicznaIndustrialPark,RaszynBusinessPark,PiasecznoBusinessPark,BłonieBusinessPark,GazowaIndustrialPark,WarsawCorporateCentre,WiśniowyBusinessPark
WPCarey Office,Logistics
PolkomtelHQ,LipowyOfficePark(Warsaw),FMLogistics(Mszczonów&TomaszówMazowiecki),H&Mdistributioncenter
RedefineProperties(REIT)
OfficeRetail
A4BusinessParkI&II,AstraPark,MaltaOfficeParkOxygen,ParkRozwojuI&II,WestGate,Amber,Galaxy,GaleriaEchoinKielce,CHEchoinBełchatówandPrzemyśl,GaleriaOlimpiainBełchatów,OutletParkSzczecinPasażGrunwaldzki,GaleriaSudecka,GaleriaVeneda
Source: EY
Forthepastseveralyearseconomicdevelopmentandpoliticalstabilityhaveplayedakeyroleintheincreaseoftransactions.Otherimportantfactorswere:
• EUmembership;
• fallingPLNinterestrates.
Investorswereseekingtobuyathighyieldsandsellatloweryields,expectingconvergencewiththeEUlevels(i.e.capratecompression).
Whilerisingpricesfromthecapratecompressionhaveexceededeventhemostaggressiveexpectations,bythethirdquarterof2007theeconomyhadlostsomeofitsmomentum.
By2008financialcrisisaroundtheglobehadplacedmanyinvestorsinthe“waitandsee”mode.Thelastfewyearsshowthatinvestmentmarketisontheriseagain.However,itismorestableandlessaggressivethanbefore2007.
Office propertiesOfficeinvestmentinregionalcitieshasgrowninimportancein2016.ThetrendshowsthattheshareofofficeinvestmentsoutsideWarsawisincreasingyearbyyear.Warsawstillattractsmanyforeigninvestorsandin2016anewprimeyieldwasestablishedforthecapitalofPolandamountingto5.25%.
OfficetransactionalvolumeinWarsawin2016totaledapprox.EUR1.15billion,withsuchmajortransactionsaspurchaseofQ22byInvescoREfromEchoInvestment,acquisitionofGdańskiBusinessCentre (A-B)bySavillsInvestmentMgmtandEPFandsaleofWiśniowyBusinessParkbyPeaksidePoloniaManagementtoValadEurope.
OntheotherhandcombinedvolumeinothercitiesisestimatedatEUR650million,representedbytheacquisitionofIntelAllconParkinGdańskbyIntelCorpforoverEUR60million,purchaseofDominikański
Polish Real Estate Market
38|Poland.Therealstateofrealestate
SquareinWrocławbyUnionInvestmentforapproximatelyEUR117millionorsaleofAlejaPokoju5inKrakówbyBUMAS.A.toWarburg-HIHInvest.
CapitalizationrateshadseenasteadydeclineinWarsawfromthedoubledigitdaysfrom1995to2002.Theybrokethe10%markforthefirsttimein2003andwentontoshedroughlyapercentagepointperyearuntil2007whendealsaslowas
5.5%werestruckforthebestperformingproperties,andprimeofficeyieldshoveredbetween6and6.5%.
Capitalizationratesin2016generallyhoveredat5.5%-7.5%forprimepropertiesor9-10%forvalue-addedoneswhichhavebeengainingmoreandmoreattentionamonginvestors,duetoasmallernumberofprimeassetsavailableforsale.
Major office building transactions in Poland, 2016
Building Location Seller Buyer
OfficeportfolioofEchoInvestment(A4BusinessParkI&II,AstraPark,MaltaOfficePark,Oxygen,ParkRozwojuI&IIWestGate)
Katowice,Kielce,Poznań,Szczecin,Warszawa,Wrocław
EchoInvestment RedefineProperties
Q22 Warsaw EchoInvestment InvescoRE
GdańskiBusinessCentre(A-B) Warsaw HBReavis
SavillsInvestmentMgmt,EPF
WiśniowyBusinessPark Warsaw PeaksidePoloniaManagement ValadEurope
KonstruktorskaBusinessCentre Warsaw HBReavis GoldenStar
Group
DominikańskiSquare Wrocław SkanskaAB Union Investment
PrimeCorporateCentre Warsaw Golub&Co Warburg-HIHInvest
PlacMalachowskiego WarsawSilversteinPropertiesKulczykInvestment
WhiteStarRE,EuropaCapital
IntelAllconPark Gdańsk AllconInvestment IntelCorp
ZaułekPiękna Warsaw InvescoRE GLL RE Partners
Source: EY
Polish Real Estate Market
Poland.Therealstateofrealestate|39
Retail propertiesSignificantinvestmentsintheretailmarketdidnotstartuntil2001.ThefirstmajortransactionswereinvestmentsbyRodamcoinGaleriaMokotówandinZłoteTarasyandtookplacein2003,withcapitalizationratesatthelevelof9–10.5%.
SincethattimenearlyeverysignificantpropertyinWarsawandotherPolishcitieshasbeenthesubjectofatransaction.By2005capitalizationrateswerepusheddownwardtoroughly8%andcontinuedthisdownwardtrendthroughQ3’2008whentheyrangedbetween5.7%and6.5%.Duetothecrisisthecapitalizationrateshaveincreasedbyapproximately1–1.5percentagepointtofallagainin2015becauseoftheincreaseddemandontheretailmarket.
Theheadlineretaildealin2016wastheacquisitionoftheEchoInvestmentRetailPortfoliobyRedefineProperty,valuingatapprox.EUR920m.ThesecondsignificantdealwasacquisitionoffourshoppingcentresbyRockcastle,including:BonarkaCityCenterinKrakówforEUR361millionat5.4%yield,GaleriaWarmińskainOlsztynforEUR150millionat6.0%yieldandFocusMallsinZielonaGóraandPiotrkówTrybunalskiforEUR161million.
Approx.40%oftotalretailvolumewasrecordedinWarsawandregionalcities,whereastheremainingpartinsmallercities,withfollowingexamples:JantarShoppingCenter(Słupsk),FerioShoppingCentre(Konin),AtriumBiała(Białystok),NovaPark(GorzówWielkopolski),GaleriaCorso(Świnoujście).
Polish Real Estate Market
Major modern retail transactions, 2016
Building Location Seller Buyer
10retailschemesfromtheEchoInvestmentRetailPortfolio(Amber,OutletParkSzczecin,PasażGrunwaldzki,GaleriaEchoinKielce,BełchatówandPrzemyśl,GaleriaSudecka,GaleriaOlimpia,Galaxy,Veneda)
Kalisz,SzczecinWrocław,Kielce,Bełchatów,Przemyśl,JeleniaGóra,Łomża
EchoInvestment
RedefineProperties
BonarkaCityCenter Kraków TPGCapital RockcastleGlobal RE
RetailPortfolioofAvivaInvestor(FocusMalls)
ZielonaGóra,PiotrkówTrybunalski
AvivaInvestor RockcastleGlobal RE
GaleriaWarmińska Olsztyn LibraProject RockcastleGlobal RE
Source: EY
40|Poland.Therealstateofrealestate
Warehouse propertiesThewarehousemarkethashistoricallybeenperceivedastheleastmatureoftherealestatesectors,withonlyafewsignificanttransactionsclosed.
However,overthelastseveralyearsthewarehousesectorhasbecomeoneofthemostdynamicandrapidlyexpanding.Mainreasonsofthisphenomenonwere:substantialinfrastructuraldevelopment,growthofe-commerce,friendlybusinessenvironment,aswellashighlyqualifiedandrelativelycheaplaborforceencouragingalargenumberofmanufacturerstorelocateproductionfacilitiestoPoland.
ThenumberofindustrialtransactionsincreasedtoarecordhighvolumeofoverEUR700millionin2014followedbyacorrectionin2015atapprox.EUR500million.In2016EURthetotaltransactionvolumeamountedtoapprox.EUR760million.
Thelargesttransactionsin2016includedacquisitionoftheP3LogistcsPortfoliobyGIC,purchaseoftheHillwoodIndustrialPortfoliobyCBREGlobalInvestors,saleofNBGIindustrialportfoliotoHinesandacquisitionofAmazoninPoznańbyGLLREPartners.
Capitalizationratesforthemodern,propertiesarearound7.0-8.0%,exceptionalassetstradingbelow6.5%.
Polish Real Estate Market
Major warehouse space transactions, 2016
Building Location Seller Buyer
P3LogisticsPortfolio acrossPoland TPG Real Estate GIC
HillwoodIndustrialPortfolio(8properties)
Wrocław,Gdańsk,OżarówMazowiecki,BielskoBiała,Bramki,Gdańsk,Bronisze,
Hillwood CBREGlobalInvestors
NBGIIndustrialPortfolio(5properties)
Legnica,Mysłowice,Toruń,GrodziskMazowiecki,Garwolin
NBGIPrivateEquity Hines
AnnapolBusinessPark Warsaw ECIGroup Hines Poland
Amazon Poznań Amazon GLLREPartners
ŁopuszańskaBusinessParkandSilesiaLogisticPark
Warsaw,Częstochowa Immofinanz LogiCor
PrologisParkWrocław Wrocław NorgesBank(NBIM) Prologis
DCGreenyard Warsaw Greenyard CPA:17
KCIParkTechnologiczny Kraków KCIS.A.CentrumNowoczesnychTechnologii
Source: EYPoland.Therealstateofrealestate|41
Polish Real Estate Market
Key points:• Thetotalvolumeoftransactionsin
2016amountedtoEUR4.55billion–thesecondhighestresultinthehistoryofPolishinvestmentmarket.
• In2016majorinvestmentactivitywasrecordedintheretailsector(43%),followedbyofficeandwarehousemarket(39%and17%respectively).
• Warsawremainsthecorerealestatemarketbutregionalcitiesaregrowinginimportance.
• Acquisitionof75%ofEchoPrimePropertyPortfoliobySouthAfrican
investorRedefinePropertieswasthebiggesttransactionin2016onthePolishinvestmentmarket.Thecommercialportfolioof8officebuildingsand10retailschemeswasvaluedatEUR1.248billion.ThiswasthelargesttransactiononthePolishmarketever.
• Newrecordlowcapitalizationratesforprimeassetswereestablishedin2016.Thelowestcapitalizationratesin2016wereatthelevelof5.25%intheofficesector(Warsaw),5.00%inretailand6.50%forexceptionalindustrialassets.
42|Poland.Therealstateofrealestate
Poland.Therealstateofrealestate|43
1.7. Key cities in Poland
44|Poland.Therealstateofrealestate
WARSAWPopulation 1,749,000
Unemployment 2.8%
Majorindustries Tradeandservices
Majorcompanies
Accenture,BankPekao,BGŻ,mBank,BritishAmericanTobacco,Budimex,Bumar,Citibank,Coca-Cola,ColgatePalmolive,Deloitte,EY,FranceTelecom,GeneralMotors,GrupaŻywiec,GTC,HutaArcelorWarszawa,IBM,ING,KompaniaPiwowarska,KPMG,KraftFoodsPolska,Nestle,PGNiG,PKOBP,PLLLOT,Polkomtel,Procter&Gamble,PwC,PZU,RBS,RWE,SamsungElectronicsPolska,Shell,Skanska,Strabag,Unilever
OFFICE SECTOR
Rental level (m2/month)
CentralBusinessDistrict:EUR18.0–23.0; Non-central:EUR11.0–15.0
Totalofficestock 5.05millionm2ofmodernspace
Currentsupply(selectedbuildings)
AdgarPlaza,Ambassador,Atrium1,AtriumComplex,BusinessGarden,CatalinaOfficeCenter,CristalPark,DomaniewskaOfficeHub,EMPARK,Equator,Eurocentrum,FlandersBussinesPark,Focus,GdańskiBusinessCentre,HarmonyOfficeCenter,HorizonPlaza,FeniksOfficeBuilding,Focus,IO-1,JerozolimskieBusinessPark,KarolkowaBusinessPark,KonstruktorskaBusinessCenter,KopernikOfficeBuidlings,LipowyOfficePark,Lumen,MarynarskaBusinessPark,MarynarskaPoint,Metropolitan,MilenniumPlaza,MokotówBusinessPark,MokotówNova,MokotówPlaza,Nefryt,NorthGate,OkęcieBusinessPark,ParkPostępu,PlatiniumBusinessPark,PoleczkiBusinessPark,PlacUnii,Rondo1,RoyalWilanów,SaskiCrescent,SaskiPoint,Senator,Skylight,TrinityPark,TulipanHouse,WarsawFinancialCenter,WarsawTradeTower,WilanówOfficePark,WiśniowyBusinessPark,WolfMarszałkowska,ZebraTower,AstrumBusinessParkI,Atrium2,EurocentrumOfficeComplexII,Grzybowska43,HalaKoszyki,ProximoI,PrimeCorporateCenter,Q22,WestStation,Wołoska24,WarsawSpire
Polish Real Estate Market
Poland.Therealstateofrealestate|45
Polish Real Estate Market
Futuresupply(selectedbuildings)
ArtNorblin,AstrumBusinessParkII,BalmoralBuisinessCentre,BusinessGardenIII-VII,Cedet,CentrumMarszałkowska,ECPowiśle,EQlibrium,FlandersD,GenerationPark,GrójeckaOffices,Infinicity,LibertyTower,LincolnPark,MennicaTower,MokotówOne,Neopark,PlatiniumBPVI,RomaTower,SiennaTowers,SilverTower,SouthPark,SpinnakerTower,Vector,WestPoint,VarsoTower,TheWarsawHub,Spark,Wronia31,CentrumMarszałkowska,ProximoII,P4,BusinessLiner,EquatorIV,D48,Graffit,NowogrodzkaSquare,Bobrowiecka8,Neopark
Generalvacancylevel 14.4%
RETAIL SECTOR
Rental level (m2/month)
EUR90–130forprimeshoppingcenterunitsEUR70–95forprimestreetunitsEUR40–70forshoppingcenterunitsEUR9–12forretailparkunits
Totalretailstock 2.2millionm2ofmodernspace
Currentsupply
Arkadia,BlueCity,CHBemowo,CHJanki,AtriumReduta,AtriumTargówek,CHWileńska,DomTowarowyBraciJabłkowskich,FortWola,GaleriaMokotów,KingCross,Klif,M1Marki,AtriumPromenada,PlacUniiShoppingCenter,SadybaBestMall,WolaPark,WolfBracka,ZłoteTarasy,AuchanŁomianki,GaleriaBrwinów,FactoryOutletUrsus,GaleriaRembielińska,FashionHousePiaseczno,FactoryOutlet,Annopol,FerioWawer,FactoryUrsus,PlacVogla,GaleriaGondola,GaleriaWołomin
Futuresupply GaleriaPółnocna,ParkHandlowyMarywilska44
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.0–5.0
Totalwarehousestock 3.1millionm2
46|Poland.Therealstateofrealestate
CurrentandplannedsupplyinWarsawarea
AnnopolLogisticPark,CityPoint,DiamondBusinessParkPiaseczno,DiamondBusinessParkWarsaw,EuropolisParkBłonie,KrakowskaDistributionCenter,ŁopuszańskaBusinessPark,ManhattanBusinessandDistributionCenter,MilleniumLogisticParkPruszków,PanattoniParkOżarów,PanattoniParkBłonie,PanattoniParkGarwolin,PanattoniParkPruszków,PanattoniParkTeresin,PlatanPark,ProLogisParkBłonie,ProLogisParkNadarzyn,ProLogisParkSochaczew,ProLogisParkTeresin,ProLogisParkWarsaw,SegroBusinessPark(Ożarów,Nadarzyn,Pruszków),TulipanParkWarszawa,ŻerańPark,GoodPoinPuławska,DiamondBusinessParkRaszyn,DLInvestSłomczynGrójec,Hilwood(Marki,Pruszków),IdealIdea(III&IV),PointofView(GóraKalwaria,Kawęczyn,Piaseczno),WestPark(Ożarów,Pruszków)
KRAKÓWPopulation 762,400
Unemployment 3.7%
Majorindustries Tourism,steelworksandmetallurgy,tobacco,pharmaceuticals,IT
Majorcompanies
BP,CanPack,Capgemini,Coca–ColaNiepołomice,ComArch,Delphi,Google,HSBC,ArcelorMittalPolandOddziałwKrakowie,InternationalPaper,Motorola,PhilipMorris,Teva,Shell,StateStreet,UBS,VistulaGroup,Wawel
OFFICE SECTOR
Rental level (m2/month)
EUR13.5–14.5(class–Aspace) EUR11.0–13.0(class–Bspace)
Totalofficestock 910,000m2ofmodernspace
Currentsupply(selectedbuildings)
AlejaPokoju5,AlmaTower,AlstarOfficeCenter,Avatar,AzbudBusinessCenter,Bonarka4Business,BramaBronowicka,BumaSquare,CBiICopernicus,CentrumBiuroweEuromarket,CentrumBiuroweKazimierz,CentrumBiuroweLubicz,CracoviaBusinessCenter,DiamantePlaza,Edison,EnterprisePark,Fronton,G21,Galileo,GreenOffice,KazimierzOfficeCenter,KrakówBusinessPark(Zabierzów),Meduza,Newton,NowaKamienica,Onyx,Pascal,Portus,QuattroBusinessPark,RondoBusinessPark,VinciOfficeCenter,O3BusinessParkI,Axis,Topos,Bonarka4Business,GOCenter
Polish Real Estate Market
Poland.Therealstateofrealestate|47
Polish Real Estate Market
FuturesupplyBonarka4BusinessG,DotOffice,ZabłocieBusinessParkParkII,Astris,EnterprisePark,ZabłocieBusinessPark,Principio,HighFive,Kotlarska11,UnityCentre
Generalvacancylevel 7.1%
RETAIL SECTOR
Rental level (m2/month)
EUR65–75forprimeshoppingcenterunitsEUR50–100forprimestreetunitsEUR40–60forshoppingcenterunitsEUR10–15forretailparkunits
Totalretailstock 755,000m2ofmodernspace
CurrentsupplyLogisticCenterKrakówI,II,III,KrakówAirportLogisticsCentre,MARRBusinessPark,MKLogisticsPark,PanattoniParkKraków,LogicorKraków,MARRBusinessPark,MGLogistic,RBLogistic,PanattoniParkKrakówII
WAREHOUSE SECTOR
Rental level (m2/month) EUR3.0-4.1
Totalwarehousestock 250,000m2
Currentandplannedsupply
LogisticCenterKrakówI,II,III,KrakówAirportLogisticsCentre,MARRBusinessPark,MKLogisticsPark,PanattoniParkKraków
POZNAŃPopulation 541,600
Unemployment 2.0%
Majorindustries Foodprocessing,electrotechnical,chemical,automotive,retail,services(includingfinanceandbanking),constructionindustry,locationofmajortradefairsinPoland
48|Poland.Therealstateofrealestate
Polish Real Estate Market
Majorcompanies
AluplastAustria,Beiersdorf,Bridgestone,Carlsberg,CPCInternational,Enea,FranklinTempletonInvestments,GlaxoSmithKline,IKEA,JeronimoMartins,KompaniaPiwowarska,LorensBahlsen,MAN,McKinsey,Microsoft,MiędzynarodoweTargiPoznańskie,Nestle,Unilever,Volkswagen,Wrigley,Wyborowa
OFFICE SECTOR
Rental level (m2/month)
EUR13.5–14.0(class–Aspace) EUR11.0–13.0(class–Bspace)
Totalofficestock 430,000m2ofmodernspace
Currentsupply(selectedbuildings)
AndersiaBusinessCentre,AndersiaTower,BusinessGardenPoznań,CentrumTulipan,CityPark,Delta,DwórHamburski,GaleriaMM,Globis,JetOffice,KupiecPoznański,Kwadraciak,MaltaHouse,MaltaOfficePark,NickelTechnologyPark,NobelTower,NoweGarbary,NoweJeżyce,Okraglak,Omega,PGKCentrum,PoznańFinancialCenter,PoznańskieCentrumBiznesu,Rataje164,RBHouse,SkalarOfficeCenter,SzyperskaOfficeCenter,Temida,UbiqWinogradyBusinessCenter,MaratonI&II,ZaBramką
Futuresupply BałtykTower,ZajezdniaPoznań,Pixel2
Generalvacancylevel 13.4%
RETAIL SECTOR
Rental level (m2/month)
EUR65–70forprimeshoppingcenterunitsEUR40-60forprimestreetunitsEUR35–50forshoppingcenterunitsEUR7–12forretailparkunits
Totalretailstock 705,000m2ofmodernspace
Currentsupply
StaryBrowar,PoznańPlaza,KingCrossMarcelin,KupiecPoznański,Auchan–SwadzimandKomorniki,ETC–Swarzędz,CHM1,IKEA,CHFranowo,GaleriaPanorama,CHPiątkowo,FactoryOutlet–Luboń,GaleriaPodolany,GaleriaPestka,CHMalta,GreenPoint,GaleriaSucholeska,GaleriaMalta,PoznańCityCenter,ParkHandlowyFranowo,GaleriaMM,Posnania
Futuresupply GaleriaA11
Poland.Therealstateofrealestate|49
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.1-3.2
Totalwarehousestock 1.6millionm2
Currentandplannedsupply
CLIPPoznań,DoxlerBusinessPark,MillenniumLogisticParkPoznań,PanattoniPoznańI,II,III,PanattoniRobakowo,ParkMagazynowyLogit,PointParkPoznań,ProLogisParkPoznańI,II,III,ProLogisParkWrześnia,TulipanParkPoznańI,II,SegroLogisticParkPoznań,AmazonWarehouse,GoodmanPoznańIILogisticCenter,GoodmanPoznańIIILogisticCenter,MLPPoznańSouth&West
TRI–CITYPopulation 747,400
Unemployment 3.7%
Majorindustries Maritimeindustry,fuelindustry,construction,foodprocessing,tourism,IT
Majorcompanies
BayerSSC,BlueMedia,DGT,GdańskieMłynyiSpichlerzeDrCordesmeyer,ElektrociepłowniaWybrzeże,Elektromontaż,Energa,ZPCBałtyk,GdańskaStoczniaRemontowa,GdańskieZakładyNawozówFosforowych,BankBPH,GrupaLotos,IKEA,IntelTechnologyPoland,JyskPolska,LidoTechnologyPoland,LPP,LufthansaSystems,MetroAG,MostostalGdańsk,Neste,PepsiCo,Satel,Shell,StoczniaPółnocna,ThomsonReuters
OFFICE SECTOR
Rental level (m2/month)
EUR13.0–14.0(class–Aspace) EUR10.0–12.0(class–Bspace)
Totalofficestock 636,000m2ofmodernspace
Polish Real Estate Market
50|Poland.Therealstateofrealestate
Currentandplannedsupply
Akwarium,AlfaPlaza,Alchemia,AmbraTower,ArkońskaBusinessPark,BCBBusinessPark,CentrumBiuroweHossa,CentrumKwiatkowskiego,CentrumBiuroweNeptun,CityArkade,GarnizonIdalHouse,Grunwaldzka413,Grunwaldzka417,Grunwaldzka48-50,Ka5,ŁużyckaOfficePark,MorskiParkHandlowy,Nordika,OfficeIsland,OliviaBusinessCentre,OperaOffice,PasażPrzymorze–Kołobrzeska32,PianoHouse,PomeraniaOffice,TrytonBusinessHouse,WAN–Śląska,ŁużyckaPlusSadowaBusinessPark,Sanipor,Vigo,Waterside,TensorOfficePark,C200,ForumGdańsk
Generalvacancylevel 11.3%
RETAIL SECTOR
Rental level (m2/month)
EUR35–50forprimeshoppingcenterunitsEUR27–50forprimestreetunitsEUR25–35forshoppingcenterunitsEUR8–12forretailparkunits
Totalretailstock 720,000m2ofmodernspace
Currentsupply
Smallshopsandboutiquesalongshoppingstreets(ŚwiętojańskainGdynia,DługaandGrunwaldzkainGdańskaswellasMonteCasinoinSopot).Modernshoppingcenters:GaleriaBałtycka,AuchanPortRumia,CHKlif,Batory,CityForum,KrewetkaCinemaCity,AlfaCenter,MadisonShoppingGallery,CHManhattan,CentrumKwiatkowskiego,CHWzgórze,MatarniaRetailPark,OsowaShoppingCenter,CentrumRodzinneWitawa,FashionHouseGdańsk,Castorama,Real,Tesco,SelgrosCashandCarry,TescoChełm,IKEA,CHOliwa,GaleriaPrzymorze,CentrumHaffnera,SzperkGdynia,CHRiviera,MorskiParkHandlowy,CentrumKowale,GaleriaMorena,GaleriaZaspa
Futuresupply ForumGdańsk,CHAuchan
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.5–3.5
Polish Real Estate Market
Poland.Therealstateofrealestate|51
Polish Real Estate Market
Totalwarehousestock 385,000m2
Currentandplannedsupply
ProLogisParkGdańsk,CentrumLogistycznePruszczGdański,PanattoniParkGdańsk,SEGROLogisticsPark,7RLogisticParkGdańsk,PortGdyniaWarehouse,GdańskPomeraninaLogisticCenter,DiamondBusinessPark
ŁÓDŹPopulation 698,000
Unemployment 8.1%
Majorindustries Textile&clothes,foodprocessing,mechanicalengineering,chemicalproduction,tradefairs
Majorcompanies
ABB,Amcor,Bosch–SiemensHausgeräte,HP,CacaoBerry,Coca–Cola,Dell,GrupaAtlas,Fujitsu,Idesit,Infosys,Nordea,Phillips,PolishPharmaceuticalGroupPollena–Ewa,SanitecKoło,Textilimpex,Vistula&Wólczanka
OFFICE SECTOR
Rental level (m2/month) EUR11.5–13.0(class–A/Bspace)
Totalofficestock 360,000m2ofmodernspace
Currentsupply(selectedbuildings)
AleksanderPlaza,ArmadaBusinessPark,Aviator,BusinessHouse,CentrumBiuroweZenit,CentrumBiznesoweFaktoria,CentrumBiznesoweStanley,CentrumBiznesuPracownia,CentrumBiznesuŁódź,Cottonhouse,CrossPointŁódź,FabrykaLnu,Gdańska,GreenHorizon,Inter-Mar,JaraczaPrestige,Kopcińskiego,MediaHub,OrangePlaza,OrionBusinessTower,Papiernicza,ParkBiznesuTeofilów,PrometeonŁódź,PrzędzalniaBraciMuehle,RealOffice,RedTower,Synergia,Unicity,UniversityBusinessPark,Wólczańska,Łódź1
Futuresupply SymetrisBusinessPark,UniversityBusinessParkII,NowaFabryczna,CrossPointB,Ogrodowa8Office
Generalvacancylevel 6.5%
52|Poland.Therealstateofrealestate
Polish Real Estate Market
RETAIL SECTOR
Rental level (m2/month)
EUR45-50forprimeshoppingcenterunitsEUR22–40forprimestreetunitsEUR23–35forshoppingcenterunitsEUR7–13forretailparkunits
Totalretailstock 676,000m2ofmodernspace
Currentsupply
SmallboutiquesalongPiotrkowskastreet,Modernshoppingcenters:Manufaktura,GaleriaŁódzka,TulipanCenter,PasażŁódzki,CHM1,E.Leclerc,CHCarrefourPrzybyszewskiego,OBI,Praktiker,Castorama,LeroyMerlin,MakroCash&Carry,SelgrosCash&Carry,CHPtakinRzgów,CHGuliwer,CHTescoBałuty,CHTescoWidzewska,PortŁódź,PtakOutlet,VisavisStreetMall,CHCarrefourKolumny,Sukcesja
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.0–3.8formodernspace
Totalwarehousestock 1.41millionm2
CurrentandplannedsupplyinCentralPolandregion
BusinessParkŁódź,DiamondBusinessParkŁódź,DiamondBusinessParkStryków,PanattoniBusinessCenterŁódź,PanattoniŁódźEast,PanattoniParkŁódźSouth,ParkridgeBusinessCenter,ProLogisParkStryków,TulipanParkŁódź,TulipanParkStryków,SEGROLogisticsParkStryków,PanattoniCastorama,PanattoniParkStryków,LogicorŁódź(I,II,III),ŁódźBusinessPark,MLPŁódźWest
WROCŁAWPopulation 637,100
Unemployment 2.8%
Majorindustries automotive,IT,businessprocessoffshoring,pharmacy/medicalassortment,finances,medicalmachineryproduction,electrical,metallurgy,houseappliancesandfoodprocessing
Poland.Therealstateofrealestate|53
Polish Real Estate Market
Majorcompanies
3M,Alcatel,AmRest,Bosch,BZWBK,Mondelez,CreditAgricole,Eurobank,EYSSC,CreditSuisse,Google,GKKogeneracja,GKImpelHewlett–Packard,IBM,KRUK,LG,MacoPharma,Nokia,PPG-Polifarb,Siemens,Toyota,Ultimo,USPharmacia,Volvo,Wabco,Whirlpool,UBS
OFFICE SECTOR
Rental level (m2/month)
EUR13.0–14.5(class–Aspace) EUR11.0–12.5(class–Bspace)
Totalofficestock 845,000m2ofmodernspace
Currentsupply(selectedbuildings)
AquariusBusinessHouse,ArkadyWrocławskie,AscoBusinessCentre,BemaPlaza,BetaCentre,CuprumNovum,DługoszaBusienssPark,Dominikański,Dubois41,FocusPlaza,GlobisWrocław,GreenTowers,GrunwaldzkiCenter,HeritageGates,HubskaOfficeCenter,LegnickaPark,MillenniumTower,NewPointOffices,Oniro,OławskaPrestige,PasażPkoyhof,Platon,PromenadyEpsilon,QuattroForum,RacławickaCenter,RenaissanceBusinessCentre,SilverForum,SilverTower,SkyTower,SzwedzkaCentrum,WratislaviaTower,WrocławskiParkBiznesu,WestHouse,WestGate,NobilisBusinessHouse,BusinessGardenWrocławI,KauflandHQ,Pegaz,PromenadyZita,Twelve
Futuresupply SagittariusBusinessHouseI&II,RetroOfficeHouse,Green2Day,GreenTowers,BusinessGardenWrocławII,CuprumSquare
Generalvacancylevel 12.6%
RETAIL SECTOR
Rental level (m2/month)
EUR65–70forprimeshoppingcenterunitsEUR44–60forprimestreetunitsEUR20–40forshoppingcenterunitsEUR8–12forretailparkunits
Totalretailstock 693,000m2ofmodernspace
54|Poland.Therealstateofrealestate
Polish Real Estate Market
Currentsupply
PasażGrunwaldzki,ArkadyWrocławskie,MagnoliaPark,FactoryOutlet,CHKorona,BielanyRetailPark(IKEA),AuchanRetailParkBielany,GaleriaDominikańska,SzewskaCenter,Kaufland,CHBorek,TGG,Tesco,E.Leclerc,IKEA,CHMarino,Renoma(aftermodernization),SkyTower,FerioGaj,RetailParkMłyn,FamilyPoint,AlejaBielany
Futuresupply Wroclavia,TarasyGrabiszyńskie,OlimpiaPark,N-Park
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.5-3.6
Totalwarehousestock 1.49millionm2ofmodernspace
Currentandplannedsupply
ProLogisParkWrocławI,III,IV,V,VI,ParkridgeBusinessCenter,TinerLogisticCenter–Pietrzykowice,PrologisParkWrocławI,III,IV,V,PanattoniBTSforLear,PanattoniforAmazon,GoodmanforAmazon,PanattoniParkWrocławV,BTSBombardierWrocław,HilwoodWrocławI,II,III,SegroIndustrialParkWrocław,TinerLogisticPark,WrocławBusinessPark,MountParkWrocław,WrocławBielanyBusinessPark,MLPWrocław
KATOWICEPopulation 299,000
Unemployment 2.9%
Majorindustries Coalmining,metallurgical,steel,machinery,electrical,ceramic,automotive,printing,informationandIT
Majorcompanies
Capgemini,DuPont,ElectrabelPolska,ZPUE,GKFarmakol,GKFamur,GKKopex,GKTauronPolska,IBM,ING,KatowickiHoldingWęglowy,PolskiKoks,PowertrainPolska,PwCSSC,Roca,Unilever,Węglokoks
OFFICE SECTOR
Rental level (m2/month)
EUR13.0–13.5(class–Aspace) EUR10.0–11.5(class–Bspace)
Poland.Therealstateofrealestate|55
Polish Real Estate Market
Totalofficestock 440,000m2ofmodernspace
Currentsupply(selectedbuildings)
Altus,ApissCenterPoint,ArmiiKrajowej6,Atrium,CentrumBiuroweFrancuska,CentrumBiuroweKatowice,Chorzowska50,Euro-CentrumKatowice,GórnośląskiParkPrzemysłowy,JesionowaBusinessPoint,Kostki,MillenniumPlazaKatowice,NoweKatowickieCentrumBiznesu,RawaOffice,RevitaPark,A4BusinessPark,SilesiaStar,SilesiaBusinessParkI&II
Futuresupply SilesiaBusinessParkIII,.KTW
Generalvacancylevel 14.1%
RETAIL SECTOR
Rental level (m2/month)
EUR49–60forprimeshoppingcenterEUR25–47forprimestreetunitsEUR20–35forshoppingcenterunitsEUR9–11forretailparkunits
Totalretailstock 1.3millionm2ofmodernspace
CurrentsupplySilesiaCityCenter,3Stawy,CHDąbrówka,Castorama,OBI,MediaMarkt,RetailParkRAWA(IKEA),DomHandlowyZenit,GaleriaAuchan,GaleriaKatowicka,RawaParkHandlowy,GaleriaSkarbek,GaleriaNowyRóździeń
Futuresupply GaleriaLibero,GeminiParkTychy,CentrumSkałka
WAREHOUSE SECTOR
Rental level (m2/month) EUR2.5-3.5
Totalwarehousestock 2.0millionm2
56|Poland.Therealstateofrealestate
Polish Real Estate Market
CurrentandfuturesupplyintheUpperSilesiaregion
TulipanParkGliwice,PanattoniParkGliwice,ProLogisParkBędzinI&II,ProLogisParkSosnowiec,ProLogisPark–DąbrowaGórnicza,ProLogisParkChorzów,ProLogisParkUjazd,DiamondBusinessParkGliwice,CrossPointDistributionCenterŻory,MilleniumLogisticParkTychy,AllianceLogisticCenterSilesia,PanattoniParkCzeladź,PanattoniParkMysłowice,PanattoniParkBielsko-Biała,PanattoniParkSosnowiec,SegroBusinessParkGliwice,SegroIndustrialParkTychy,SegroLogisticsParkGliwice,SegroBusinessParkGliwice,CityFlexBusinessPark(Gliwice,Bytom,Katowice,Sosnowiec),PrologisParkRuda,MLPGliwice
Poland.Therealstateofrealestate|57
258|Poland.Therealstateofrealestate
Legal and tax aspects of investing in real estate
ThisChapterconsidersthemostimportantlegalandtaxissuesarisingduringeachofthefollowingfivestagesofarealestateinvestment:
• Financing
• Acquisition
• Developmentandconstruction
• Operationandexploitation
• Sale
TheChapterisarrangedsothateachoftheaboveaspectsisdealtwithinaseparatesection(2.3.–2.8.),consideringlegalimplicationsfirst,followedbyanassessmentofrelatedimportanttaxconsequences.
Thesection2.1.onthelegalbackground(below)willintroducethereadertocertainconceptsandtermsthatmaynotbecommonplaceintransactionselsewhereinEurope.ThisshouldbereadasageneralintroductiontothelegalenvironmentinPoland.Thechapteralsocontainssection2.2.oninvestmentvehiclesandstructurespresentinginformationonthemostcommonstructuresusedinrealestateinvestmentsinPoland.Takentogether,theyformthebasisforunderstandingthemostrelevantlegalandtaximplicationsofinvestinginrealestateinPoland.
Legal,financialandtaxduediligencearealsofundamentaltoanyinvestmentcycleandgiventheimportanceofduediligencetoanytransaction,wediscusstherelevantproceduresandkeyconsiderationsindetailinsection2.9.
Poland.Therealstateofrealestate|59
2.1.1. GeneralremarksIngeneral,Polishrealestatelawprovidesquiteclearandstableruleswhichallowpotentialinvestorstomakewell-foundeddecisionsaboutenteringintorealestatetransactions.Additionally,therearemeasuresandinstitutionswhichenableinvestorstosafelyconcludetransactionsadaptedtotheirneedsandexpectations.Inparticular,mostrealpropertydeeds(sale,contributioninkind,othertransfers,establishingofamortgage)mustbeexecutedbeforeanotarypublic.Apubliccredibilitywarrantyofthelandandmortgageregisterisanadditionalinstrumentwhichprotectsthepurchaseragainstthirdpartyclaimsandguaranteesthevalidityofthetitleacquired(aslongasthepurchaseractedingoodfaith).Moreover,since1July2016,anotarypublicshallimmediatelyafterconcludingrealpropertytransferagreementinaformofnotarialdeedprepareanelectronicapplicationtothelandandmortgageregisterandthusmakeanentryintheregister,whichalsoenhancesaprotectionofthepurchaserandtransactionsecurity.
BelowwepresentsomekeyinformationonrealestatelawinPolandwhichshouldbethebaseforothercommentsinthischapter.
2.1. Legal background
60|Poland.Therealstateofrealestate
2.1.2. Legal titles to real estateThebasicsourceofrealpropertylawinPolandistheCivilCodeof23April1964(withmanyamendmentssince;hereinafterreferredtoastheCivilCode).Althoughitdoesnotregulatethisbranchoflawexhaustively,itconstitutesabasisforotherregulationsregardinglegaltitlestorealestateandtheirlimitationsormodifications.
ThemostcommonlegaltitlestorealestateinPolandaretheownershipright,theperpetualusufructright,andobligationrights,suchaslease,tenancyorleasing.Polishlawalsoprovidesseverallimitedpropertyrightssuchaseasementsandusufruct.
Ownership rightOwnership(prawowłasności)isthebroadestrighttorealestateinPoland,equivalenttoafreehold.Asarule,ownershipconveystherighttopossessanduserealestateforanunlimitedperiodoftime(withtheexceptionofownershipofanybuildingsconnectedwiththeperpetualusufructright;seeourcommentsbelow)andtransferorencumbertherealestate.Theownershiprightmaybelimitedbystatutorylaw,principlesofcommunitylifeandthesocioeconomicpurposeoftheright.Themostcommonlimitationsresultfromconstructionlawandlocalspatialdevelopmentplansadoptedbylocalauthorities(municipalities).
Right of perpetual usufructPerpetualusufruct(użytkowaniewieczyste)isarightofusetherealestatewhichmaybegrantedbytheStateinrelationtotheState-ownedlandorbyalocalauthority
inrelationtotheauthority-ownedland.Ineithercasetherespectiveentity(theStateorthelocalauthority)remainstheownerofthe land.
Theperpetualusufructrightissimilartotheownership,however,thereareseveralcrucialdifferences:
• Theperpetualusufructrightiscreatedforadefinedpurpose(developingaprojectorconductingaspecificactivity)setoutinthecontract.Iftheperpetualusufructuaryisinbreachoftheseprovisions,thismayleadtoanincreaseintheannualfeesoreventerminationofthecontractbythecommoncourt.
• Theperpetualusufructrightiscreatedforaspecificterm,inprincipleforaperiodof99years.
However,whentheeconomicpurposeoftheperpetualusufructofpropertydoesnotrequirelettingthelandforalongerperiod,ashorterperiodofnolessthan40yearsisallowed.Theholderoftherightmayapplyforextendingthetermoftheperpetualusufructforafurtherperiodof40to99yearsfollowingthelapseoftheinitialperiod.Refusaltoprolongthetimelimitisadmissibleonlyonaccountofimportantsocialinterest.
Oncecreated,theperpetualusufructrightcanbeinherited,transferredtothirdpartiesorencumbered(i.e.mortgage,easements).Theholderoftheperpetualusufructrightenjoystherighttousetherealpropertyandtodrawbenefitsfromit,e.g.rentalincome.
Currently,theperpetualusufructrightmaybecreatedbycontract,whichgenerallyrequiresputtingthelandupforatender
Legal and tax aspects of investing in real estate
Poland.Therealstateofrealestate|61
(thereareseveralexceptionsprovided).Thewinningbiddersignsanotarialdeedwiththeowneroftherealestateestablishingtherightofperpetualusufruct.Theright,however,doesnotcomeintoexistenceuntilitisregisteredinthelandandmortgageregister.Otherissuesinvolvingtheestablishmentandtransferoftheperpetualusufructareaccordinglygovernedbytheregulationsregardingthetransferofownershipofrealestate.
Thecontractunderwhichthelandistransferredforperpetualusufructmaylaydownpotentiallimitationsontheuseofrealpropertyandindicatethemannerinwhichtherealestateistobeused.
Iftherealestatetransferredforperpetualusufructisapieceofdevelopedland,thebuildingsandotherconstructionserectedthereonaresoldtotheperpetualusufructuaryinadditiontotheestablishmentoftheperpetualusufructright.Ifthebuildingsareerectedaftertheperpetualusufructrightisestablished,theyalsobecometheperpetualusufructuary’sproperty.Separateownershipofthebuildingsduetotheperpetualusufructuaryisarightstrictlyconnectedwiththerightofperpetualusufructand,inconsequence,thebuildingssharethelegal“lot”oftheland.Inparticular,theownershipofbuildingsmaybetransferredonlywiththerightofperpetualusufruct.Oncetheperpetualusufructrightexpires,theholderoftherightisentitledtoareimbursementcorrespondingtothecurrentmarketvalueofthebuildingsandotherimprovementslegallyimplementedonthelandthatisthesubjectoftheperpetualusufructright.
Theperpetualusufructuaryisobligedtopaytotheowneraone-offinitialfeewhichamountsfrom15%to25%ofthetotalmarketvalueofthelandandthenanannualfeeofupto3%ofthetotalmarketvalueoftheland.Therateof3%isthebasicrateprovidedbythelaw;however,therecanbeotherrates(0.3%,1%,2%)appliedtotherealestateassignedforspecificpurposes,strictlylistedinthelegalprovisions(e.g.1%forresidentialpurpose).Thevalueofthelandasestablishedforthepurposeofcalculatingtheannualfeeissubjecttoindexation(notmorethanonceforthreeyears).Theperpetualusufructuaryhastherighttoquestionanewvaluationbeforethelocalappealcommitteeand,ifunsuccessful,beforeacommoncourt.
Theperpetualusufructuarymayrequesttoupdatetheannualfeeforperpetualusufruct,ifthevalueofthepropertyhaschanged.Theburdenofproofthattherearereasonstoupdatetheannualfee(e.g.declineinrealpropertyvalue)remainswiththeperpetualusufructuary.
Conversionoftheperpetualusufructintoownershipingeneralrequiresconsentofanownerofarealestate(theStateoralocalauthority)andisexecutedinacivillawsaleagreement(buyout).However,certainperpetualusufructuaries(inparticularnaturalpersons),subjecttocertainconditions,maydemandperpetualusufructbeconvertedintoownershipinasimplifiedadministrativeprocedure.
Theconversionissubjecttoafeewhichisequaltothedifferencebetweenthevalueofownershipandthevalueoftheperpetualusufruct.
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Ingeneral,legalpersonsorentrepreneursarenotentitledtodemandtheconversioninthesimplifiedadministrativeprocedureunderjudgmentoftheConstitutionalTribunal(dated10March2015).Theymayonlypursuethebuyoutunderastandardsaleagreement.
Attheendof2016,thePolishgovernmentpublishedadraftofanactontheconversionofperpetualusufructofdevelopedlandforresidentialpurposesintotheownershipright.Thedraftactenvisagesthattheperpetualusufructrighttothelanddevelopedwithresidentialbuildingswillbetransformedautomatically,withoutnecessitytofileanyapplications,bytheforceoflaw,intotheownershipright.Theownersofthepremisesinbuildingsdevelopedonthelandheldunderperpetualusufructrightwillbecomeaco-ownersoftheland,insteadofholdingsharesinperpetualusufructright.Theownersofpremisseswillpay,upto20years,aspecialfeeforconversion,intheamountofthelastannualfeeforperpetualusufruct.Accordingtotheneweststatementsofthegovernment,itisplannedthatthisconversionofperpetualusufructintoownershipwillbecomeapplicableon1July2017.
Leases and TenanciesPolishlawdistinguishesbetweentwotypesofleases:lease(najem)andtenancy(dzierżawa).Leasesareusedmainlyforcommercialandresidentialpremises.Tenanciesareusedespeciallyforindustrialandagriculturalproperty.Underaleaseagreement,thelessorundertakestohandovertherealpropertyforthelessee’suse
forafixedornon-fixedterm,andthelesseeundertakestopaythelessoranagreedrent.Thetenancycontract,however,providesforthelesseeadditionalrighttocollectprofitsfromtherealestate.
LeasingByaleasingcontract,thefinancingparty,whoisanentrepreneur,undertakestoacquiretherealestatefromaspecifiedtransferoronthetermsandconditionssetforthinthatcontractandtogiveitovertotheuserforuseorforuseandcollectionofprofitsforaspecifiedperiod.Theuser,however,undertakestopaythefinancingparty,byinstallments,amonetaryremunerationequaltoatleasttheremunerationorthepriceatwhichthefinancingpartyacquiredtherealestate.
TherearetwotypesofleasingthatcanbeexecutedinPoland:
• operatingleasing,inwhichcasetheleaseholdisanassetofthelessorwhomakesdepreciationwrite-offsandthelesseehasanoptiontopurchasethepropertyattheendoftheleasingterm;
• financialleasing,inwhichcasetheleaseholdisanassetofthelesseewhomakesdepreciationwrite-offsandthetransferoftheownershipofarealestateattheendoftheleasingtermmaybestipulateddirectlyintheleasingagreement.
Thelesseeshouldchoosethetypeofleasingaccordingtohisrequirementsandneedswithrespecttotaxsettlementsandtheperiodofusingtheleasehold.
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EasementsEasements(służebności)overlandarelimitedpropertyrightswhichmaybegrantedoverapieceofrealestate(encumberedproperty)forthebenefitofanotherpieceofrealestate(masterproperty).Dependingonthecontentofaneasementdeed,theholderofthemasterpropertymaybeentitledtoalimiteduseoftheencumberedproperty(activeeasement),ortheholderoftheencumberedpropertymayberestrictedintheexerciseofhisownrightsforthebenefitofthemasterproperty(passiveeasement).
Polishlawdistinguishesbetweentwotypesofeasements:
• groundeasements,whichareestablishedforthebenefitoftheownerorperpetualusufructuaryofthelandandaretransferredtogetherwiththeproperty(whetherthatencumberedorthemasterproperty);
• personaleasements,whichareestablishedforthebenefitofanaturalpersonandarenon-transferrable(norcantherighttoexercisethembetransferred).
TheCivilCodealsolistsaseparatecategoryofeasement,i.e.utilityeasementwhichmaybeestablishedforthebenefitofentrepreneursbeingutilityproviders.Autilityprovidermayaskthelandownertoestablishaneasementoverhislandinordertoinstall(andthenoperateandmaintain)e.g.electricitycables,installationsservingtosupplyandtochannelliquids,gas,steamorotherfacilities.Iftherealestateownerrefuses,theutilityprovidermaydemand
thataneasementbeestablishedinreturnforanappropriateremuneration.
Inpractice,realestatemaybeencumberedwithmorethanoneeasementorotherlimitedpropertyright.Insuchacase,asarule,arightthataroselatercannotbeexercisedtothedetrimentoftheearlierright;however,therearealsoregulationswhichspecifypriorityinadifferentmanner.
Inparticular,ifoneoftherightsisenteredinthelandandmortgageregister,itbenefitsfrompriorityagainsttherightwhichisnotenteredintheregister,regardlessofthedatesoftheirestablishment.
Itshouldbenoted,however,thateasementsarenotalwaysdisclosedinthelandandmortgageregister.
Inconsequence,thepotentialinvestorshouldverifywhethersuchrightsarenotbeingexecutedbycarryingoutanon-siteinspection,i.e.duringaduediligencereview.
UsufructUsufruct(użytkowanie)ofrealestateisalimitedpropertyrightwhichallowsitsholdertousetherealestateandcollectbenefitssimilartothosetowhichtheownershipholderisentitled.Thescopeoftheusufructmaybelimitedbyspecifiedprofitsbeingexcluded,ortoadesignatedpartoftherealestate.Usufructiscreatedbyacontract.Usufructisnon-transferable,strictlyconnectedwiththeusufructuary,sotherightexpiresontheusufructuary’s
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death(orliquidation,inthecaseoflegalentities).Moreover,ausufructexpiresifnotexercisedfortenyears.
Usufructissimilartotenancy,yetitslegalnatureisdifferent.Usufruct,asalimitedpropertyright,iseffectiveergaomnes(itiseffectiveinrespectofthirdparties)andtenancyiseffectiveonlybetweenthepartiestoanagreement.
2.1.3. Real property registersTherearetwotypesoflandregistersinPoland:thelandandmortgageregister(księgawieczysta),whosemainpurposeistoregistertitlesandencumbrancesoverrealestateandthelandandbuildingsregister(ewidencjagruntówibudynków),themainpurposeofwhichistodescribethephysicalfeaturesandtheuseofthelandand buildings.
Land and Mortgage RegisterLandandmortgageregistersarekeptbydistrictcourtsandprovideinformationonthelegalstatusofrealestate,e.g.thelocationofparcelsofland,theownershipstatusofland,encumbrancesontheland,mortgages.
Thefollowingrealestaterightsareregisteredinthelandandmortgageregister:ownership,perpetualusufructandlimitedpropertyrightssuchascooperativemember’srighttoanapartment,cooperativemember’srighttocommercialpremises,righttoasingle-familyhouseinaresidentialcooperative,mortgage,easementandusufruct.Asarule,registrationstakeplaceattherequestofthepartyconcerned.
Landandmortgageregistersarepubliclyavailableforreviewbyanybody(eventhosewithnolegalinterest)andmaybealsoreviewedon-line,viaITsystem.
Asfaraslandandmortgageregisterfiles(includingmaps,deeds,courtdecisions)areconcerned,onlypartieswithalegalinterestmayinspectthem.Legalinterestisinterpretedquitenarrowlyandcomesdowntothosepartieswhoserightsareregisteredinagivenregister.
Entryofarightinthelandandmortgageregisterispresumedtoreflecttheactuallegalstatusoftherealestate.Shouldtherebeanyinconsistencybetweenthelegalstatusofrealestate,thecontentoftheregisterprevailsinfavorofthepersonwhohasacquiredtherightofownershiporanotherpropertyrightbyperforminganactinlawwithapersondulyregisteredastheholderoftherightandentitledaccordingtothepubliccredibilitywarrantyofthelandandmortgageregister(rękojmia wiary publicznej ksiąg wieczystych). In consequence,ifapurchaseracquiresapropertyingoodfaithfromanon-ownerregisteredasowner,theacquisitionisvalidandthetrueownercannotrenderthetransferinvalid.Hisonlyrecourseisanindemnityclaimagainstthevendor.Inconsequence,anexcerptfromthelandandmortgageregisteristhekeydocumentthatshouldbeobtainedandanalyzedbeforeadecisiontoacquirerealestateismade.
Thepubliccredibilitywarrantydoesnotconferprotectionongratuitousdispositionsorthosemadeinfavoroftheacquirerinbadfaith.Itisalsoexcludedbyanmentioninthelandandmortgageregister
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concerninge.g.filled,butunexaminedapplicationforentryintheregisterorlodgingacomplaintagainstacourtdecision.
Land and Buildings RegisterThelandandbuildingsregisteriskeptbystarostasofthepoviats(orpresidentsoftownswiththerightsofapoviat)andisauniformcollectionforthewholecountryofsystematized,updateddataonland,buildingsandpremises,theirownersandothernaturalpersonsandcorporatebodiesholdingtheland,buildingsandpremises.
Informationonland,buildingsandpremisesisavailabletothepublicandcommonly
accessible.However,feesarecollectedfordisseminateddatasetsanddistributedextractsfromtheregistersanddirectoriesaswellasforcopiesofcadastralmaps.Additionally,thepartyintendingtoinspecttheregistershouldprovehis/herlegalinterestifthedemandedextractincludespersonaldata.Thepubliccredibilitywarrantydoesnotapplytothelandandbuildingsregister,hence,theregisterdoesnotprovidethepersonacquiringtherightofownershiporanotherrealpropertyrightwiththeprotectionwhichisprovidedinthecaseoflandandmortgageregistersheldbycourts.
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2.2.1 GeneralremarksFurthertothePolishCommercialCompaniesCodeof15September2000(hereinafterreferredtoastheCommercialCompaniesCode)thelegalentities,referredtotherein,canbedividedintotwogroups:partnershipsandcompanies.Therearetwomaindifferencesbetweenthem:(i)generally,partnersinapartnershiptakefullresponsibilityforthepartnership’sliabilities(subsidiaryresponsibility)and(ii)partnershipsarenotlegalpersons,however,theymayacquirerightsandincurobligations.
Investinginrealpropertyisgenerallycarriedthroughspeciallycreatedentities–socalledspecialpurposevehicles(SPV).Polishlegalregulationsdonotimposeanyspecificlegalformforsuchanentity.Consequently,anentityorganizedinanyformlegallyacceptedinPolandmayserveasanSPV.TheSPVmayoperatebothasapartnershipandasacompany.
AmongallthelegalformsoforganizingtheentityprovidedforintheCommercialCompaniesCode,wewouldliketopresentthreethatarethemostcommonlyusedbytheinvestors:alimitedliabilitycompany,alimitedpartnershipandapartnershiplimitedbyshares.
2.2.Investmentvehicles and structures
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ThechoiceofthelegalformfortheSPVwilldeterminethestructureunderwhichsuchanentitywillbeoperating.TheforeigninvestormayeitherbeadirectshareholderintheSPV,remainaparentcompanyforaforeign/PolishcompanycontrollingtheSPV,orarrangeanyotherstructurethatwouldsuititsneedsfromthelegalandtaxperspective.
TherearetwowaysforaninvestortointroducetheSPVintoitscapitalstructure:theSPVmaybeboughtorestablishedbytheforeigninvestor.Therearenumerousservicefirmsofferingthesaleofestablishedcompaniesorpartnerships(so-called“shelfcompanies”),thatcanbeusedstraightaway.However,thisisalwaysmoreexpensivethansettingupanewentity.
Apartfromthelegalformsmentionedabove,aforeigninvestormayalsooperateinPolandandinvestinrealproperty:
• directlythroughitsbranch;
• byenteringintoajoint-venture.
Formorecomplexanddiversifiedinvestmentsaformulaofaclosed-endfund(FunduszInwestycyjnyZamknięty;FIZ)couldbeused,whichhoweverbecomelessattractiveduetorecenttaxchangesimplemented.
2.2.2.LimitedliabilitycompanyAlimitedliabilitycompany(spółka z ograniczoną odpowiedzialnością)iscommonlyusedastheSPVforrealestateinvestmentsordevelopmentprojects.
Thefeaturesofthelimitedliabilitycompany
aresetoutintheCommercialCompaniesCode,themostimportantofthembeing:
• itmaybecreatedbyoneormorepersonsforanypurposeallowedbylaw(itmaynotbeformedsolelybyanothersingle-shareholderlimitedliabilitycompany);
• liabilityoftheshareholdersislimitedtotheircontributiontothesharecapitalofthecompany;
• thesharecapitalofthecompanyshallamounttotheminimumofPLN5,000(ca.EUR1,200)andisdividedintosharesofequalornon-equalnominalvalue;
• thesharecapitalcanbecoveredbyacontributionin-kind;
• limitedliabilitycompanyisalegalpersonandassuch,itisapartytospecificrightsandobligations;
• itactsthroughitsbody,i.e.themanagementboard;themembersofthemanagementboard,ingeneral,arenotliableforthecompany’sliabilities.
TheCommercialCompaniesCodeprovidesforaninstitutionofa“companyinorganization”.Thismeans,thatalimitedliabilitycompanysetupbysigningthearticlesofassociationmayacquirerightsonitsownbehalf,includingtherightofownershipofrealestateandotherrights,incurobligations,sueandbesuedevenbeforeitsregistrationwiththeregistrycourt.
ItisalsopossibletoregisteralimitedliabilitycompanywiththeregistrycourtviatheInternet.Theprocedureissimplifiedincomparisontothestandardprocedureand
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requirestheregistrationofthecompanythroughadedicatedwebsiteoftheMinistryofJustice(https://ems.ms.gov.pl/).However,duringtheonlineregistrationofthelimitedliabilitycompanyitisnotpossibletomakeanin-kindcontribution,hence,theentiresharecapitalmustthereforebepaidincash.
TheSPVsmaybesetupdirectlybytheforeigninvestor,beingtheonlyshareholder(bearinginmindthelimitationsindicatedabove).ItisobviouslypossibletointroduceseveralSPVsestablished(orpurchased)bythesameshareholderinordertodividetheinvestmentriskbetweenthem.However,depending on the intentions of the investorandbearinginmindpossibletaxeffectivenessofthescheme,asimpleonestepstructuremaybeenlargedandinvolve,forexample,settingupaholdingcompany,abroadorinPoland,whichholdsthesharesoftheSPVs.
One step structure with several SPVs, allowing
diversification
Foreign Investor
A structure with a holding company,
gathering several SPVs
Foreign Investor
SPVs
SPVs
Hold Co
2.2.3 Partnerships
Themainfeaturesofpartnershipsarethefollowing:
• partnersactinthenameofthepartnership;
• partnersareresponsiblefortheliabilitiesofthepartnership;
• theassetsofthepartnershipincludeanypropertycontributedtothepartnership;
• therearenominimumcapitalrequirements(excludingthepartnershiplimitedbysharesincaseofwhichtheminimumsharecapitalamountstoPLN50,000,i.e.ca.EUR12,000);
• althoughitisnotclassifiedasalegalperson,apartnershipmayacquirerightsonitsownbehalf,includingtherightofownershipofrealestateandotherrights,incurobligations,sueandbe sued.
Inrecentyearsthenumberofpartnershipsusedforthepurposesofinvestmentstructuressignificantlygrew.
Limited partnershipAlimitedpartnership(spółkakomandytowa)isapartnershipofwhichatleastonepartnerisliabletothecreditorsfortheobligationsofthepartnershipwithoutlimitation(thegeneralpartner-komplementariusz)andtheliabilityofatleastonepartner(thelimitedpartner-komandytariusz)islimitedtothevaluedefinedinthepartnershipagreement.
Thisfeatureofthelimitedpartnershipresultsinthespecificstructurethatneeds
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tobeimplemented.Rightsandobligationsinthepartnershipshouldbesplitbetweentwoentities(limitedpartnerandgeneralpartner).Itisacommonpracticethattheinvestortakestheroleofthelimitedpartnerinordertoavoidthefullliability,whereasanadditionallimitedliabilitycompanyisestablishedtoserveasageneralpartnerintheSPV.Asmentionedwithrespecttothestructuresinvolvinglimitedliabilitycompanies,alsoincaseoflimitedpartnershipsvariousstructuresmaybeinvolved,dependingonthespecificneedsoftheinvestor.Mostcommonlyhowever,thelimitedliabilitycompanywillpossessaminoritypositionintheSPVandshallbea100%subsidiaryoftheinvestor,neverthelessitmaytakespecificfunctionsintheSPV-e.g.managementduties.
Structure with limited partnership
Foreign Investor(limited partner
SPV
LLC(general partner)
Partnership limited by shares
Apartnershiplimitedbyshares(spółkakomandytowo-akcyjna)isapartnershipthepurposeofwhichistoconductabusinessenterpriseunderitsownbusinessname,whereatleastonepartner(generalpartner
komplementariusz)shallbearunlimitedliabilitytowardsthecreditorsforobligationsofthepartnershipandatleastonepartnershallbeashareholder(akcjonariusz).
Partnershiplimitedbysharesistheonlypartnershipincaseofwhichthereareminimumsharecapitalrequirements,i.e.thesharecapitalhastoamounttoatleastPLN50,000(ca.EUR12,000).
Thespecificfeaturesofthisentityresultsintwokindsofinvolvementinthepartnership,thegeneralpartneractslikeapartnerinanyotherpartnership-i.e.representsthepartnershipandtakessubsidiaryresponsibilityforthepartnership’sobligations,whiletheshareholderactslikeashareholderinajoint-stockcompany,i.e.hisinvolvementispurelyofafinancialnature.
ThepartnershiplimitedbysharesissubjecttosomeadditionalrestrictionsprovidedforbytheCommercialCompaniesCode:
• incaseofin-kindcontributionstheauditor’sopinionisrequired,
• profit-sharingoccursingroups(separatelyshareholdersandgeneralpartners).
Tax advantages
Till31December2013bothlimitedpartnershipandpartnershiplimitedbyshareswereconsideredtransparentforthepurposesofcorporateincometaxandthereforecommonlyusedasSPVsinrealpropertyinvestments.
DuetoCITlawchangesfrom1January2014partnershipslimitedbysharesare
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nolongerconsideredtaxtransparentandbecamecorporateincometaxpayers.
Inthecaseoflimitedpartnership,taxablerevenuesandcostsgeneratedbythepartnershipareallocatedtothepartners(bothlimitedandgeneral)andrecognizedforcorporateincometaxpurposesonanon-goingbasisattheirlevel(i.e.limitedpartnershipsaretaxtransparent).
Partnershipspayothertaxes,suchasVAT,realestatetax,andcivillawtransactiontax,andtheymaypaywithholdingtaxes(e.g.withholdingtaxoninterestandroyaltiesaswellaswithholdingtaxonremunerationpaidtoindividuals,asataxremitter).
Thetablebelowcomparesthebusinessandtaxationaspectsofthelimitedpartnershipsandlimitedliabilitycompanies:
Limited liability company Limited partnership
possesseslegalpersonality YES NO
canbeestablishedbyasingleshareholder/partner
YES (NO if to be established by aLLC,whichhasonlyone
shareholderitself)
NO
canacquirerealproperty YES YES
theshareholders/partnersarepersonallyliableforthecompany’sdebt
NO generalpartner–YES limitedpartner–NO
minimalsharecapital 5.000 PLN (ca.EUR1,200) NO
managementboard obligatory NO
supervisoryboard voluntary* NO
Taxationofincome(fromexploitationorsaleofassets)
19% atthecompanylevel
19% atthelevelofthepartners
Taxationofthedistributionofincometoshareholders/partners
19% undercertainconditionstherecanbereliefforshareholders
whoarelegalpersons(basedinPolandorintheEU/EEA). Reducedratesforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)
NO
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Limited liability company Limited partnership
Civillawtransactiontaxonshareholder/partnerloans NO
0.5% on the value of the loan
payablebythepartnership
Applicabilityofthincapitalizationrules YES
NO althoughinterestpaidtothepartnerbeingthelendercannotberecognizedasatax
deductiblecostofthispartner(ontheother
hand,interestreceivedconstitutestaxableincome
ofthispartner)
Abilitytooffsetprofitsandlossesfromvariousprojects(carriedoutinseparatecompanies/partnerships)
NO onlyinthecaseofestablishing
ataxcapitalgroup
YES profitsandlossesare
compensatedatthelevelofpartners
TaxationinPolandofthesaleofsharesinthecompany/partnership
19% possiblereliefforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)
19% itisnotclearwhether
thesamereliefpossible inthecaseofpartnerships
Themainadvantagesofusingalimitedpartnershipinaninvestmentstructureareasfollows:
• profitdistributionsarenottaxed:thereisonlyoneleveloftaxation;
• limitationofliabilityvis-à-viscreditorsforthelimitedpartner(whoisliableonlyuptotheamountagreedbythepartnersinthearticlesofassociation,calledthecommendamsum);
• theabilitytooffsetprofitsandlossesondifferentprojectsconductedatthelevelofthepartners.
Alimitedliabilitycompanycanbetransformedintoalimitedpartnership,althoughsuchaprocessmayattracttaxationinPoland.Adetailedanalysisisrequiredineachcase.
2.2.4. Joint venturePolishlegalregulationsdonotprovideanydefinitionofajointventure,nevertheless,itisausefulsolutiontocombineentrepreneurs’effortsinachievingthecommongoal.
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Thetermjointventuremaybeunderstoodasacooperationoftwoentitiesresultinginsettingupanewcompany(theinvestmentonsuchbasisiscarriedthroughthegivencompany,asdescribedbefore)oritmaybeonlyaveryclosecooperationbetweenthetwoentities,whichallocatecapitalforactivitiesimplementedjointlybysharingcostsandrevenuesunderajointventurecontract,withoutcreatingaseparatebusiness entity.
Theobjectivesforthecreationofjointventuresare:
• gainingaccesstonewmarkets,
• synergies,
• riskdiversification,
• achievingeconomiesofscale,
• gainingaccesstocheapersourcesofsupplyandcheaperfinancing,
• jointdevelopmentandsharingoftechnology,
• overcomingbarriersandadministrativedutiescreatedbythecountryofoneofthepartners.
2.2.5 InvestmentFund-closed-end fund
ThePolishInvestmentFunds’activityiscomprehensivelyregulatedbytheActof27May2004onInvestmentFunds(hereinafterreferredtoastheActonInvestmentFunds).AccordingtothatAct,thesoleobjectoftheinvestmentfund’sactivityistoinvestthemoniesacquiredfromtheparticipantsinshares,securities,moneymarketinstrumentsandotherpropertyrights–includingrealproperty.
Investmentfundsdifferfromregularlegalentitiessuchascapitalcompanies,asaninvestmentfundmerelyformsanassetpoolconsistingofthepaymentsoftheparticipantsandtheassetsacquiredforthesaidpayments.
TheActontheInvestmentFundsdifferentiatesingeneralbetweenOpen-EndInvestmentFundandClosed-EndInvestmentFund(hereinafterreferredtoasFIZ).
FIZisalegalperson.TheprimaryprincipleoftheFIZisthefixednumberofparticipationtitles(investmentcertificates)issuedinexchangeforcontributionsmadebyitsparticipants(investmentcertificate-holder).FIZdoesnotissueparticipationtitlesoneverydemandofaninvestorasisthecasewiththeopen-endinvestmentfunds,butratherindiscretionaryperiodsoftime.Inordertosubscribeforinvestmentcertificates,theparticipanthastomakeacontributiontotheFIZ.Generally,theparticipantsmaycontributetotheFIZcash,sharesorrealestate.
TheFIZ’sbodiesaretheManagementCompany,theBoardofInvestors(controllingbody)andGeneralInvestor’sMeeting.
TheManagementCompany(Towarzystwo Funduszy Inwestycyjnych)isalegalentityseparatefromtheInvestmentFund.Accordingtothelegalprovisionsonlyajoint-stockcompanywithitsregisteredofficeinPolandholdingauthorizationtoconducttheactivitiesrelatedtocreatinginvestmentfundsandmanagingthemissuedbythePolishFinancialSupervisionAuthority(Komisja Nadzoru Finansowego),
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maybeaninvestmentfundmanagementcompany.ThismeansthattheManagementCompanycarriesoutitsactivitiesonthebasisofthepermitissuedbythePolishFinancialSupervisionAuthorityandunderitssupervision.
AManagementCompanymaybeformedbyaninvestor,however,itiscommonpracticethatalreadyexistingManagementCompaniesareengagedtotakethisrole.InsuchacaseaninvestormakesanagreementwithaManagementCompany.Consequently,theinvestoronlyholdsinvestmentcertificatesintheFIZandthroughthisstructureinvestsinparticularproperty.
TheManagementCompanyfulfilstwoprimaryfunctions:(i)atthebeginning-itactsasafounderoftheFIZ,(ii)whentheFIZisestablishedandregistered-itbecomesitsgoverningbody(representsFIZintransactionswiththirdparties).
InaccordancewiththeActonInvestmentFunds,theManagementCompanyshallbeliabletotheparticipantsintheFIZforallthedamagecausedbythefailuretoperformorimproperperformanceofitsdutiesasregardsthemanagementoftheFIZanditsrepresentation.
TheaboveshowsthatthestructureneededtoimplementFIZiscomplexandrequires:
a) engagingaManagementCompany,
b) establishinganFIZ,
c) establishingtheoperatingcompanies,whichmayacquiretherealproperty.
Nevertheless,establishinganFIZstructurehasimportantadvantages.Firstofall,itallowsforadditionalfinancingfor
theinvestmentstoberaisedbysellinginvestmentcertificates.Thismaybeveryusefulinenteringinlarger,long-termrealpropertyinvestments.
Untilrecentlytheuseofthisstructure,ifproperlyimplemented,couldleadtothedeferral,orevenexemptionfromtaxation,oftheoperatingandcapitalgainsgeneratedfromrealestateasFIZwasgenerallyexemptfromCITinPoland.
Similarly,aforeigninvestmentfundestablishedintheEUorEEAcountrycouldbeused(thePolishCITlawinforcefrom1January2011providesforsuchapossibilityexplicitly).
However,starting1January2017,incomeofFIZoraforeigninvestmentfundresultingfrom:
• ashareinprofitgeneratedbytaxtransparententities;
• interestonloansissuedtotaxtransparententitiesandinterestonthoseentities’otherliabilitiestowardsthefund;
• interestonashareintaxtransparententities;
• donations/giftsorotherfreeorpartiallyfreebenefitsfromtaxtransparententities;
• interest(discount)onsecuritiesissuedbytaxtransparententities;
• transferofsecuritiesissuedbytaxtransparententitiesorsharesinsuchentities;
isnolongerCITexempt.Set-upofthestructuredesignedforrealestateholdingwhichcouldbenefitfromtheCITexemptionis,therefore,evenmorecomplexexercisethanbefore.
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Example of a FIZ structure
Foreign Investor
FIZ
SPV
Management Company
investment certificates
2.2.6 Realestateinvestmenttrusts
General remarksRealestateinvestmenttrust(hereinafterreferredtoasREIT)isafundinvestingincommercialrealestate,guaranteeingaregulardividendforinvestors.AccordingtotheEuropeanPublicRealEstateAssociation,theaveragedividendfundsinEuropefortheperiod2010-2015amountedalmost5percent.Worldwide,REITsofferinvestorsmanyadvantages:highliquidityandrateofreturn,exemptionfromcorporateincometaxand,finally,aregulardividendofupto90-100percentofprofit.
However,sofar,thisformofinvestmenthasnotbeenregulatedbythePolishlaw.InOctober2016,thePolishgovernmentpublishedadraftofanewactonrealestateinvestmenttrusts(inPolish: spółka rynku wynajmu nieruchomości).
Accordingtothedraftregulation,aREITmustbeapubliccompanylistedontheWarsawStockExchange,createdforanindefiniteperiodoftime.Itssharecapital
mustbeatleastPLN60million.Atleast70%ofitsassetvaluemustbecomprisedofrealpropertiesorsharesinotherREITsoritsspecial-purposevehicles,andconsequentlyatleast70%ofitsnetsalerevenuesmustbegainedfromtheleaseofatleastthreerealpropertiesorthesaleofrealproperties.
Itshouldbenotedthatundertheproposedregulation,aREITmostprobablywillnotbeabletoinvestinundevelopedrealestateorinresidnetialassets.
Anotherimportantprovisionisthatatleast90%ofREIT’sprofitmustbepaidoutasannualdividendstoitsshareholders-unlesstheshareholdersdecidetoallocateitforre-investmentontherealestatemarket.Finally,aREIT’sliabilitiesmaynotexceed70%ofitsassets.
ThePolishgovernmentexpectedthenewlawtoenterintoforceon1January2017,buttheworksonnewregulationweredelayed.Accordingtothelatestinformations,thegovernmentconsidersallowinginvestmentinhousingrealestatebyREITs.Furtherworkonthisdraftlawshouldbecloselymonitoredbytheinvestors.
Tax remarksAccordingtothebill,aREITisexemptfromCITonincomefromtheleaseandsaleofrealestateaswellassaleofsharesofotherREITsandsocalledrealestatesubsidiaries(thatmustalsomeetcertaincriteria).Realestatesubsidiariesthatmeetcriteriaandare95%heldbyREITscanalsoenjoyataxexemptiononcertainrealestaterelatedsourcesofincome.
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2.2.7 Public-private partnership
General remarksPublic-privatepartnership(hereinafterreferredtoasPPP)isoneoftherisingformsofcooperationbetweenpublicauthoritiesandtheprivatesector.Itallowsforanincreaseintheefficiencyofpublicservicesthroughtheuseofprivatesectorexperienceandforthesharingofriskbetweenpublicandprivateentities.
PPPenablesamutualadvantageforthepublicandprivatesector–forpublicentitiesitguaranteesanadditionalsourceofcapitalandasaconsequenceprovidesthepublicsector-withfundstoallocateforotherpurposes.Ontheotherhand,thepublicsectormayprovidetoprivateinvestorsthelong-termcertaintyofcashflowsfrompublicsources.
InPolishlawthelegalframeworkforPPPisestablishedbytwoactsthatregulatethecooperationbetween
publicentitiesandprivatepartners:
• theActof19December2008onPublic-PrivatePartnership,hereinafterreferredtoastheActonPublic-PrivatePartnership,
• theActof21October2016onConcessionforWorksandServices,hereinafterreferredtoastheActonConcessions,whichhasreplacedthepreviousActof9January2009onConcessionforWorksandServices.
ThemainsimilaritiesbetweentheActonPublic-PrivatePartnershipandtheActonConcessionsareasfollows:
• cooperationbetweenapublicandprivatepartner,
• privatepartnersreceivepaymentsfortheservicerendered,
• constituteaspecialformoftenderagreements.
Selection of the private partnerTheActonPublic-PrivatePartnershipbasicallydistinguishestwowaysofselectingtheprivatepartner.Thewaysofselectiondependonthetypeoftheprivatepartner’sremunerationandareasfollows:
• IftheremunerationoftheprivatepartnerisrepresentedbytherighttoexploittheworkorservicesthatarethesubjectofthecontractorinthatrighttogetherwithpaymentselectionoftheprivatepartnershallbedoneapplyingtheActonConcessionssubjecttoprovisionsoftheActonPublic-PrivatePartnership.
• Inothercases,theselectionoftheprivatepartnershallbedoneapplyingtheprovisionsoftheActofJanuary29,2004onPublicProcurementLaw(hereinafterreferredtoasPublicProcurementLaw)subjecttoprovisionsoftheActonPublic-PrivatePartnership.
IncaseswheretheActonConcessionsandPublicProcurementLawdonotapply,theselectionoftheprivatepartnerismadeinawaythatensuresthemaintenanceoffairandfreecompetition,aswellastheprinciplesofequaltreatment,transparencyandproportionality.Ifthepublicpartnerbringsinrealestateasitsowncontribution,theprovisionsoftheActofAugust21,1997onthePropertyManagement
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(hereinafterreferredtoastheActonPropertyManagement)mustbetakenintoaccount.
Implementation of PPPPursuanttotheActonPublic-PrivatePartnershippublicandprivateentitiesconcludeanagreementunderwhichtheprivatepartnercommitsitselftoimplementtheprojectatanagreedremunerationandtocoverinwholeorinparttheexpendituresforprojectimplementation,orcoverthemthroughathirdparty,whilethepublicentitycommitsitselftocollaborateforthepurposeofachievementoftheprojectgoal,inparticularbymakingitsowncontribution.ThePPPcontractcanalsoprovidethatforthepurposeofitsperformance,thepublicentityandtheprivatepartnershallestablishacompany,alimitedpartnershiporapartnershiplimitedbyshares.
Financial restrictionsThetotaljointamountuptowhichbodiesofgovernmentadministrationcancontractfinancialliabilitiesonthebasisofcontractsofPPPinagivenyearisspecifiedintheBudgetAct.
However,asarule,thefinancingofaprojectfromtheStatebudgettotheamountexceedingPLN100millionrequiresaconsentissuedbytheministerresponsibleforpublicfinance.Whenissuingtheconsenttheministerresponsibleforpublicfinanceshallconsidertheinfluenceoftheplannedbudgetexpendituresonthesafetyofpublicfinance.
The concession contract – legal basicsTheActonConcessionsspecifiestherulesandproceduresforcontractingconcessionsforworksorservicesandthelegalprotectionmeasures.
Thedurationofaconcessioncontractshouldtakeintoaccounttherecoveryoftheconcessionaire’sexpenditureincurredwithreferencetotheperformanceoftheconcession.Aconcessioncontractisconcludingforalimitedperiod.
Theconcessionaireundertheconcessionsignedwiththeconcession-grantingauthorityisobligedtoperformthesubjectofconcessionforremuneration,whichconstitutesincaseof:
• theconcessionforworks–exclusivelytherighttoexploittheworksthatarethesubjectofthecontractorinthatrighttogetherwithpaymentbyconcession-grantingauthority;
• theconcessionforservices-exclusivelytherighttoexploittheservicesthatarethesubjectofthecontractorinthatrighttogetherwithpaymentbyconcession-grantingauthority.
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2.3.1.ModesoffinancingtheSPVs/investments
Themostimportantthinginstartinginvestments,istoprovidefinancingfortheSPVs,sotheycanoperateandacquirerealproperty.
Thereareseveralmethodsoffinancingthecompany,somefundscanbereceivedfromoutside,butsomemaycomefromthecapitalgroup–e.g.fromtheparentcompany.Inmanycasesbothsolutionsarepossible.
Loan and credit agreementByloanagreementalenderundertakestotransfertheownershipofacertainamountofmoneyorgoodstoaborrower,whileaborrowerundertakestoreturnthesameamountofmoneyorthesameamountofgoodsofthesamekindandthesamequality.Loanscanbegrantedbyanyentity/personandmayberelativelyfreelyregulatedbytheparties.
Acreditagreementisaspecifickindofexternalfinancing,whichisregulatedbytheBankingLawof29August1997andcanbegrantedonlybybanks.Byacreditagreementabankagreestoprovideaspecificamountofmoneyforaspecificpurposeandtime,andtheborroweragreestousethecreditforitsintended
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purpose,andpaybacktheamountofcreditalongwithduerewardintheformofbankinterest.
Onthefinancialmarketthereisawidechoiceofbankcreditsandtheirpricedependsonvariousfactorsas:duration,securitiesavailable,financialconditionoftheborrower.Additionally,banksmaychargetheborrowerapreparationfeeforallworkconnectedwiththepreparationofthecredit.
Banksalsogenerallyrequiresecuritiesforthecredits.Amongothers,themostpopularare:
• mortgages;
• sharepledges;
• assetandbankaccountpledges;
• powersofattorneytobankaccounts;
• securityassignmentsofreceivablesoftheborrower;
• submissionstoexecution;
• subordinationagreements.
AmortgageisthecommonformofsecurityrequiredbyPolishbanks–especiallyrequiredinrealestatefinancingtransactions.
Mortgageshallbedefinedasaright,underwhichthelender(creditor)maysatisfyhisclaimsfromtheproperty,regardlesswhoisthecurrentowneroftheproperty,andwithpriorityoverotherpersonalcreditorsoftheborrower,whosecreditsarenotsecuredwithmortgage.
AmortgagebecomeseffectiveafterenteringintheLandandMortgageRegister.Theentrytakeseffectatthedateoffiling,soeventhoughtheregistrationmaytake
severalmonths,marketpracticeissuchthatbankspayouttheamountofthecredituponreceiptofconfirmationoffilingoftheapplicationforregistration.
Amortgageisaverysecuresolutionforthebank,asinthecaseofthedebtornotbeingabletopayoffhisdebt,therealpropertymaybesoldinapublicauctionandthus,thebankmayretrievethewholeamountofdebt.
Shareholder’s loanAloanfromshareholdershastwoimportantadvantagesoverthebankloan.First,itisingeneralacheapersolutionandwhatismore,itdoesnotbaretheriskofenforcementincaseofdifficultfinancialsituationoftheborrower.
Itisimportanttomentionthespecificrulesresultingfromart.14§3oftheCommercialCompaniesCode,whichprovidesthatshareholder’sclaimresultingfromaloanshallbeconsideredtobehiscontributiontothecompanyincaseofdeclarationofbankruptcywithintwoyearsfromthedateoftheloanagreement.However,theabovedoesnotconstituteanincreaseinthesharecapitalofthecompany,andthecontributionistreatedasmadeonthesupplementarycapital.Thisprovisionisintendedtoprotectcreditorsofthebankruptcompany.
BondsBondscanbeissuedbyajoint-stockcompany,alimitedliabilitycompanyandapartnershiplimitedbyshares.Bondscanbedefinedassecurities,whichobligetheissuer(thecompany)togivecertainbenefitsincashorinkindtothebondholder
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(thebuyerofthebonds).Companiescanissueregisteredorbearerbonds.
Theadvantageofthisformoffinancingistheabilitytofairlyfreelydeterminethebenefitsthatareassociatedwithbonds.Theconstructionofthesecuritydoesnothavetobelimitedtoasimplefinancialbenefitintheformofrepaymentofthebondsplusinterestrepresentinganincomeofthebondholder.Whileissuingbonds,thecompanyisfreetoformulatethegratificationtobeprovidedtobondholders,suchasthepossibilityofparticipatinginprofitsofthecompany,ortheconversionofbondsintoshares.
Thebondsmaybedistributedonanopenmarket,insearchforanoutsidefinancing,orserveasamodetotransferfundsfromanotherrelatedcompany.ItshouldbenotedthatthereareseveralcompaniesintherealestatesectorlistedonthePolishbonds’openmarket.
InthecaseofSPVswhichaimtoobtainfinancingfromtheshareholders,thegratification(amutualbenefit)totheparentcompanyasabondholderwillbeofsecondaryimportance.ApracticalsolutionisthatiftheSPVgeneratefutureearningsfromrealproperty,bondscouldentitlebondholderstoparticipateintheprofit.Duetothehighdegreeoffreedomintheframeworkofthisinstrument,itisveryrecommendedasanoptimalwaytobringthefundsdownwards.
Wewouldliketonote,however,thattheissuingofbondscreatesadditionalobligationsforthebondissuer,relatedtoprovidingdatatoassessthefinancialconditionofthatentity.Additionally,ifthe
issueroperatesformorethanayear,itisrequiredtoprovidefinancialstatementspreparedasatthebalancesheetdate,noearlierthan15monthsbeforethedateofthepublicationofthetermsofissuingthebonds,alongwiththeauditor’sopinion.
Promissory notesInordertoobtainfinancingSPVsmayissuepromissorynotes.
Apromissorynotemayincludeadeferredpaymentdate.Itshouldhaveaclearlydefinedduedate,intheformofacalendardate.Thereareexemptionsfromthisrule–e.g.an‘avista’promissorynote-whichprovidesthatthepaymentismadeondemandfromthepayeeorwithinacertainperiodafterthedemand.Additionally,an‘inblanco’promissorynoteallowsapayeetofillin(atitsowndiscretion)-theconditionsofsuchpromissorynote(e.g.dateofpayment)withinthescopeforeseenbyamutualagreement.
Theobligationfromthepromissorynotedoesnothavetobeaccompaniedbyanyotherlegalrelationshipthatitsecures.Itmeansthattheholderhasanunquestionableclaimfrompromissorynote,evenif,forexample,promissorynoteliabilitywasnotbasedonanyotherparticularobligations-suchasloans.
Similarlyasinthecaseoftheloanagreement,theissuerofapromissorynotebecomesadebtor.Withtheuseofapromissorynote,SPVscaneasilyobtainfundsfromtheparentcompanyinalessformal,quickerwayandeasilysettlethedebtinanysuitabletimeframes.
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Increase of share capitalRaisingcapitalisacommonwayoffinancingcompanies.Itcanbecarriedbyincreasingthenominalvalueofthesharesexistingorcreatingnewones;bothwaysleadtoanincreaseofthesharecapital.
Thisprocessisassociatedwitheitherchangesinarticlesofassociation(aformalmodethatrequiresfilingthechangesinthearticlesofassociationwiththeNationalCourtRegister)oranincreasebasedonthecurrentprovisionsofthearticlesofassociation(informalmode).Theaimistochangethecapitalstructureofthecompanybydefiningthesharecapitalatahigherthancurrentlevel.Tocovertheincreaseofthesharecapital,thefundsmaybepaidincashorin-kindcontributionscanbemade.
Itshouldbenotedthatthesharecapitalincreaseneedssomeadditionalexpenses.TheseincludethefeeforchanginganentryintheNationalCourtRegister(ca.EUR60),afeeforthenotificationintheCourtandEconomicMonitor(ca.EUR25),notaryfeefortheminutesdocumentingthecapitalincreaseandforthepreparationofadeedcontainingastatementofacquisitionofsharesinthefullamount(notaryfeesdependonthevalueofincreaseandarelimitedbylegalprovisions).
Thecapitalincreaseisamoreformalprocessincomparisontotheadditionalcontributions(referredtobelow)andloans,buttheadvantageofthisformoffinancingistheabilitytocontributeinvariousforms,suchascashorin-kind.
AsignificantdrawbackofthismethodoffinancingSPVsisrelativelydifficultprocessofwithdrawingtheinvestedcapital.
Thisiscarriedthroughthereductionofsharecapital(Articles263-265oftheCommercialCompaniesCode),whichinvolvesagainadditionalcosts(notification,registration)andistime-consuming(e.g.includesthreemonthsforobjectiontothereductionthatcanbebroughtbycreditors).
Additional contributionsThismethodoffinancingisprovidedbytheCommercialCompaniesCode,butitisapplicableonlytothelimitedliabilitycompany.Accordingtotheprovisions,thearticlesofassociationofthecompanymayrequirethepayments(additionalcontributions)fromtheshareholdersinaspecificamountpaidbytheshareholdersinproportiontotheirshares.Infact,itisworthnotingthatpartnershipagreementscanalsoobligethepartnerstoadditionalpayments–suchasolutionispossiblebasedonthefreedomofcontractprinciple.
Paymentsofadditionalcontributionsinalimitedliabilitycompanydonotaffectthevalueofsharesinthesharecapitalofthecompany,andthereforethesharecapitalofthecompanyremainsunchangedaftertheadditionalcontributions.Thepaymentsincreasethecompany’sownfunds,whicharethusquitefreelyallocatedforthespecificneed,andthisiscertainlybeneficialfortheSPV.Theamountandtimingofpaymentsisdecidedbytheshareholders’meeting.
Asmentionedabove,thegeneralobligationtoadditionalcontributionshastobestipulatedinthearticlesofassociation(ifsucharticlesdonotcontainsuchprovisions,itwouldbenecessarytoamendthem,asotherwiseadditionalcontributions
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arenotpossible).However,itisnotenoughtocreateanactualobligationfortheshareholderstomakecontributions.Aresolutionoftheshareholder’smeetingtakenbyanabsolutemajorityofvotesisrequired.Afterthisstepiscomplete,theactualobligationarises.
PursuanttotheprovisionsoftheCommercialCompaniesCode,theadditionalcontributionsmayberefunded,providedthatfundsgatheredfromthosecontributionsarenolongerrequiredtocoverthelossesreportedinthefinancialstatements,andnotearlierthanonemonthafternoticeinwriting,announcingtheintendedrefund.Rulesontherefundmaybedifferentlyregulatedbythearticlesofassociation,whichmeansthatthisinstrumentisrelativelyflexible.Shareholdersmayinfactdecide,contrarytotheprovisionsoftheCommercialCompaniesCode,thatadditionalcontributionmayberefunded,evenifthecompany’sfinancialstatementsshowaloss,inlessthanamonthfromthedateofpublication,orevenwithouttheneedtoannouncetherefund.
Additionalcontributionsarealwaysmadeincashandcannotbefulfilledbyprovidingthecompanywithnon-cashbenefits.Paymentscanbeusedfordifferentpurposes,andtheapplicableregulationsdonotcontainrestrictionsinthisregard.
2.3.2.Taximplications
Equity financingWhenaPolishcompanyisfinancedthroughequity,thefundsrequiredfortheinvestmentarereceivedinexchangefor
thesharesinthecompany.Equityfinancingisgenerallysubjecttoa0.5%civillawtransactiontaxwithcertainexceptionsforrestructuringandreorganizationtransactions.Contributionstoareservecapital(sharepremium)shouldnotbesubjecttocivillawtransactiontax.
Generally,forPolishcorporateincometaxpurposes,acontributioninkind(exceptforthecontributioninkindofabusinessoranorganizedpartthereof)isataxableeventforthecompanymakingthecontribution,andissubjecttothestandardcorporateincometaxrate,currently19%.However,foreignentitiesmaybeexemptfromPolishtaxationundertherelevanttaxtreaty.
Sharesinthecompanygiveshareholderstherighttocontrolthecompanyandtherighttofinancialbenefitsfromthecompany.Theincomeofthecompanygeneratedthroughitsoperationsissubjecttocorporateincometax.Anyafter-taxprofitscanbedistributedtoshareholdersintheformofdividends.Theshareholdersarenotonlyentitledtodividendsbutalsotoashareofanyproceedsuponliquidationinproportiontotheirshareholdings.
Additionalpaymentsarecontributionsmadebytheshareholder(s)ofalimitedliabilitycompanywherenosharesareissuedinexchange.Usuallythesepaymentsaremadewhenthecompanyhasmadeafinanciallossanditslevelofequityislowerthanthenominalvalueofitsissuedsharecapital.Ifthecompany’sarticlesofassociationallowsuchadditionalpaymentstobemade,andlaterrepaidtotheshareholders,thenreceiptandrepaymentisnotsubjecttoincometaxation.Compensationformakingtheadditional
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paymentsmaybepaidtotheshareholdersintheformofinterestpayablebythecompany.Whenpaid,suchinterestshouldbetreatedasanon-taxdeductiblecost.
Taxation of dividendsDividendsdistributedbyaPolishcompanytoaforeignowneraregenerallysubjecttoa19%withholdingtaxinPoland.Thistaxmustbewithheldbythecompanydistributingthedividendonthedividendpaymentdate,andpaidtothetaxofficebeforetheseventhdayofthemonthfollowingthemonthinwhichthetaxwaswithheld.The19%ratecanbereduced(toalowerpercentage)iftherecipientisataxresidentinacountrywithwhichPolandhasconcludedataxtreaty.PolandhasconcludedmanytaxtreatiesandtherearejustasmanywaysinwhichthePolishwithholdingtaxcanbereduced.Usuallythetreatywithholdingtaxratesondividendsvarybetween5%and15%.
Appropriatetaxplanningintheinitialphaseoftheinvestmentshouldbecarriedouttodetermineinwhichcountrytherecipientofthedividendsshouldbelocatedinordertoreduceoravoidtheinternationaldoubletaxationofdividends(seetheAppendixattheendofthisbookforalistofwithholdingtaxratesunderPoland’svarioustaxtreaties).DoubletaxationoccurswhenthePolishwithholdingtaxcannotbereducedto0%byvirtueofatreatyandthedividendisalsosubjecttoincometaxinthecountrywheretherecipientisataxresident.Thetreatiesorunilateraltaxrulesinmostcountriesprovideacreditsystemtoavoidsuchdoubletaxation.
Inaddition,sincetheimplementationoftheEUParent–SubsidiaryDirective,anexemptionondividendspaidtocompaniesfromotherEEAcountriesandSwitzerlandapplies.ThisisprovidedthattheentityreceivingthedividendistaxedinanotherEEAcountry(orinSwitzerland)onitsworldwideincome(andisnotsubjecttotaxexemptiononitstotalincome)andhasheldorwillholdatleast10%(inthecaseofacompanyresidentfortaxpurposesinSwitzerland,atleast25%)ofthesharesinthePolishcompanypayingthedividendforatleasttwoyears.Thisconditioncanbealsometprospectively,i.e.aftertheactualdividendpayment.Iftheconditiontoholdtheamountofsharesforanuninterruptedperiodoftwoyearsisnotsatisfied,withholdingtax(asaruleat19%)togetherwiththepenaltyinterestforlatepaymentwillbedue.
Dividendspaid(orreceived)asof1January2016wouldnotbenefitfromtheEUParent-SubsidiaryDirectivebasedtaxexemptionifdividendsareconnectedwithanagreement,atransaction,oralegalactionoraseriesofrelatedlegalactions,wherethemainoroneofthemainpurposeswasbenefittingfromthesetaxexemptionsandsuchtransactionsorlegalactionsdonotreflecttheeconomicreality.Forthepurposeoftheaboverule,itisconsideredthatatransactionoralegalactiondoesnotreflecttheeconomicrealityifitisnotperformedforjustifiedeconomicreasons,butresults,inparticular,intransferringtheownershipofsharesofadividendpayingentityorinearningrevenuebythatentitywhichisthenpaidasadividend.Asthereisnowell-groundedpracticeregardingactualapplicationofsimilarprovisions,detailsof
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eachstructureshouldbeanalyzedcarefullytodetermineandaddresspotentialissueswithtaxationofdividends.
Itisuptothecompanypayingthedividendtodeterminetheapplicablewithholdingtaxrate.ThePolishwithholdingtaxsystemisnot“apayandrefundsystem”.ThePolishcompanydistributingthedividendcanbeheldliableformistakes,e.g.ifitappliesanincorrecttaxrate.AcertificateissuedbyaforeignlocaltaxofficeconfirmingthetaxresidenceoftheforeignshareholderreceivingdividendpaymentsfromPolandmustbeobtainedbythePolishcompanyinordertoallowapplicationofthelowerwithholdingtaxrateorexemption.AnadditionalrequirementisthatthePolishentity paying dividends should also hold awrittenconfirmationfromtherecipientthatthelatterdoesnotbenefitfromtaxexemptiononitsworldwideincome,iftheexemptionistoapply.
DividendspaidbetweencompanieswhichareresidentinPolandfortaxpurposesareexemptfromwithholdingtaxprovidedthatthedividendrecipienthasheldorwillhold(onorafterthedaywhenthedividendisreceived)atleast10%ofsharesinthedividendpayingcompanyforatleasttwoyears.Iftheaboveconditionsarenotmet,non-creditablewithholdingtaxisleviedondividendsattherateof19%.
Redemption of shares and liquidation distributionsTheredemptionofsharesandthereturnofequitytoshareholdersarepermittedunderPolishlaw.Theformalprocedureis
time–consumingandusuallytakesseveralmonths.
Standard,voluntaryredemptionofsharesissubjecttothesametaxtreatmentasdisposalofshares.ItmeansthatasarulesuchredemptionwillbesubjecttotaxinPoland,unlessrelevantdoubletaxtreatyprovidesfortaxexemption.
Otherthanvoluntaryredemptionofshares(compulsoryredemptionofshares)aswellasliquidationistaxedinthesamewayasdividendsandissubjecttotheapplicablewithholdingtax(takingintoconsiderationtheappropriatetaxtreaty)orwithholdingtaxexemptionbasedonthePolishCITlawprovisionsimplementingtheEUParent–SubsidiaryDirective.
Asof1January2015thePolishCITprovisionsexplicitlystatethatincaseofinkindremunerationforsettlingtheliability(e.g.uponsharesredemptionorinkinddividendpayment)thevalueofliabilitysettledinsuchawayconstitutesataxablerevenueofthepayingentity.Thisappliesrespectivelyalsotolookthroughentities.Liquidationproceedsarealsolikelytosharethistreatment,eventhoughliquidationisnotexplicitlymentionedinthisprovision.
Debt Financing (Loans): civil law transaction taxLoansaregenerallysubjecttocivillawtransactiontaxatthelevelof2%oftheloanprincipal.Thetaxmustbepaidwithin14daysofthedateoftheloanagreement,andthetaxliabilityrestswiththeborrower.
Nevertheless,thefollowingtypesofloansareexemptfromtaxation:
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• loansgrantedbyshareholderstoalimitedliabilitycompanyorjointstockcompany;
• loansgrantedbyforeignentitieswhichareengagedincreditandfinancingactivities(suchasgrouptreasurycompanies);
• loansrecognizedasanactivitysubjecttoPolishorforeignVAT(e.g.bankloans);
• financinggrantedasapartofbusinessactivityisrecognizedasafinancialservicespecificallyexemptfromVAT;therefore,nocivillawtransactiontaxapplies;
• Bondsissuanceisgenerallynotsubjecttocivillawtransactiontax.
Withholding tax on interestGenerally,interestpaidfromPolandtoaforeignlenderissubjecttoa20%withholdingtax.ThisratemaybereducedoreliminatedbasedonrelevanttaxtreatyorPolishimplementationofEUInterest–RoyaltyDirective.PleaseseeAppendixforalistofwithholdingtaxratesunderPoland’svarioustaxtreaties.Underthetaxtreaties,itisgenerallystipulatedthatifwithholdingtaxispayableitcanbecreditedagainstthecorporateincometaxoftheforeignlender.Asinthecaseofdividends,inordertoapplyatreatyrate,acertificateconfirmingthetaxresidenceoftheforeignlendermustbe obtained.
AfterjoiningtheEuropeanUnion,PolandimplementedtheEUDirective2003/49/EConthecommonsystemoftaxationapplicabletointerestandroyaltypaymentsmadebetweenassociatedcompaniesof
differentMemberStates.OneofthemainpurposesoftheDirectiveistoabolishwithholdingtaximposedbythecountryfromwhichpaymentsofinterestandroyaltiesoriginatewhensuchpaymentsaremadebetween“qualifyingEUentities”,i.e.paymentsmadebetweenparentandsubsidiary,subsidiaryandparentandbetweendirectsistercompanies(inallcasesaminimum25%stake,2yearholdingperiodisrequired).Asaresultofthat,awithholdingtaxexemptiononinterestpaymentsmadebetweenparentandsubsidiary,subsidiaryandparent,andbetweendirectsistercompanies(inallcasesaminimum25%stakeand2yearholdingperiodisrequired)iscurrentlyavailable.The2-yearholdingperiodconditioncanbealsometprospectively,i.e.aftertheactualinterestpayment.Iftheconditiontoholdsharesforanuninterruptedperiodof2yearsisnotsatisfied,outstandingwithholdingtax(asarule20%)togetherwiththepenaltyinterestforlatepaymentwillbedue.Penaltyinterestischargedfromthedayfollowingthatthedayonwhichtheaboveperiodexpires.
Inordertobenefitfromthatfavorabletreatmentthepayershouldholdrecipient’scertificateoftaxresidence.Anadditionalrequirementisthatthepayershouldalsoholdtherecipient’sconfirmationthattherecipientdoesnotbenefitfromthetaxexemptiononitsworldwideincome.Therecipientshouldalsobeconsideredabeneficialownerofthepayment.Withholdingtaxexemptiononlyappliestoarm’slengthlevelofinterest.
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Tax deductibility of interest paid on loansGenerally,interestonloansisdeductiblefortaxpurposeswhenactuallypaidorcompounded(addedtotheprincipalsothatitconstitutesabasisfornewinterestcalculation),i.e.accruedinterestmaynotbetreatedasataxdeductiblecostuntilitisactuallypaidorcompounded.
Ingeneral,itshouldbepossibletotreattheinterestonloansdrawntoacquiresharesinaPolishcompanyastaxdeductible.Carefultaxplanningis,however,alwaysrequiredinall“debtpushdown”structures.
Itisimportanttonotethatinterestaccruedduringthedevelopmentofrealestateonthepartoftheloanusedtofinancethatdevelopmentisnotdirectlydeductible.Thecostofsuchinterestshouldbeaddedtotheinitialvalueofthenewlydevelopedrealestate(i.e.thenewbuilding)inordertoincreasethebasisofitsfuturedepreciationfortaxpurposes.However,thisruleappliesonlytorealestatewhichisthecompany’sownfixedasset.Itdoesnotapplytoprojectsconstructedforresale(e.g.residentialprojects).Insuchcases,basedonthepracticeofthePolishtaxauthoritiesinterestmaybetreatedastaxdeductibleunderthegeneralrules(althoughthepracticewaschanginginthisrespectovertheyears).
Level of interestThePolishtaxauthoritiesareusuallyinterestedintheconditionsofloanagreementsconcludedbetweenrelatedparties.Theseconditionsshouldbethesameas,orcomparableto,thesortof
financingconditionswhichnon–relatedpartieswouldagreeupon,inaccordancewith“thearm’slengthprinciple”.ToohighaninterestratecouldleadtoanadjustmentofthePolishborrower’staxableincome.Inaddition,otherconditionsintheloanagreementwhichareunjustifiableorunfavorabletotheborrowercouldresultinfurthertaxadjustments.Accordingtoregulationsgoverningthedocumentationoftransactionsbetweenrelatedparties,taxpayersarerequiredtopreparespecifictransferpricingdocumentationorriskpayinga50%rateonanyadditionaltaxableincomeassessed(pleasenotethatstarting2017therewasachangetothetransferpricingdocumentationrequirementsincreasingthereportingobligationssubstantially).
Restrictions on the tax deductibility of interest paid on loansThePolishthincapitalizationruleshavebeensignificantlyamendedasof1January2015.
Accordingtothetransitionalprovisionsnewrulesapplytointerestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerasof1January2015orlater.Therefore,asregardsinterestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerbeforethatdate–oldrulesapply.
Old rulesThePolisholdthincapitalizationrulesrestrictthetaxdeductibilityofinterestontwotypesofloans(credits)grantedbycertainentities:
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• loans(credits)grantedtothetaxpayingcompanybyitsshareholderholdingnotlessthan25%ofthevotingrightsinthecompanyorloans(credits)fromshareholdersholdingjointlynotlessthan25%ofthevotingrightsinthecompany(“mothercompany”loans);
• loans(credits)grantedtothetaxpayingcompanybyanothercompany,ifthesameshareholderholdsnotlessthan25%ofthevotingrightsineachofthesecompanies(“sistercompany”loans);
wherethedebttoequityratio(theratioofthevalueofthedebtpayabletocertainentitiestothevalueofthesharecapital(seebelowfordetails)exceeds3:1atthedateoftheinterestpayment.Interestontheloans(credits)exceedingtheratioisnottaxdeductible(theterm“loans(credits)”alsocoversbondsanddeposits).
Forthepurposesofthecalculationofthedebttoequityratio,thedebtincludes:
• inthecaseof“mothercompany”loans:
• ►debtpayabletodirectshareholder(s)holdingatleast25%ofthevotingrightsintheinterestpayingcompany;and
• debt payable to entities holding at least 25%ofthevotingrightsintheabovementioneddirectshareholders.
• inthecaseof“sistercompany”loans:
• debtpayabletodirectshareholder(s)holdingatleast25%ofthevotingrightsintheinterestpayingcompany;and
• debt payable to entities holding atleast25%ofthevotingrightsintheabovementioneddirectshareholders;and
• debtpayabletotheentitygrantingtheloan(credit).
Inbothcases“equity”includesthesharecapitalstatedinthecompany’sdeedofassociationandequaltothenominalvalueofthesharesissued,excluding:
• ►capitalnotpaidinfull;
• capitalconvertedfromshareholderloans(credits)and/orrelatedinterest;
• capitalformedbyacontributioninkind,whichisanintangibleassetnotsubjecttodepreciation(e.g.goodwill).
Examplesofhowtheoldthincapitalizationruleswork:
Example 1
Investment Company
Polish Real Estate Company
CorporateInvestor
160
40
Assumption:
PolishRealEstateCompany’s(PREC)Nominalsharecapitalis: 50
Debtlimitis: 150
Totalloans: 200
Partofloansexceedingthreshold 50
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Poland.Therealstateofrealestate|87
Example 2
Polish Real Estate Company
CorporateInvestor
40
100 60
Investment Company A
Investment Company B
Assumption:
PREC’snominalsharecapitalis 50
Debtlimitis 150
Total loans 200
Partofloansexceedingthreshold 50
Example 3
Polish Company
Polish Real Estate Company
CorporateInvestor50
50
100
Investment Company
Assumption:
PREC’snominalsharecapitalis 50Debtlimitis 150
For shareholder loan:Total loans 100Loansexceedingthreshold 0
For sister company loan:
Total loans 200
Partofloansexceedingthreshold 50
= minimal 25% voting right relationship
= loans subject to thin-cap
= loans qualifying for calculation of debt limit
New rulesThenewrulesrestrictdeductibilityofinterestonabroaderrangeofloansthantherulesinforceuntiltheendof2014.Asof1January2015,generallyinterestonallintra-grouploans(alsothosefromindirectlyrelatedentities)maybesubjecttodeductibilityrestriction.
Underthenewthincapitalizationrules,ifthevalueofdebtowedtospecifiedrelatedpartiesexceedsequity(netassets)oftheborrower(1:1debttoequityratio),part(calculatedbasedonaproportion)ofinterestpaidonaloanfromarelatedpartyisnotdeductiblefortaxpurposes.Forthepurposesoftheserules,equityisdeterminedonthelastdayofthemonthprecedingthemonthofinterestpaymentwithouttakingintoaccountrevaluationreserveandsubordinatedloans.Thevalueofequityisfurtherdecreasedbythevalueofthesharecapitalthatwasnotactuallytransferredtothiscapitalorwascoveredwithshareholder’sloans’receivablesandintangiblesthatarenotsubjecttoamortization.
Debttakenforthedebttoequityratiocalculationisdecreasedbyloansgrantedbytheborrowertotheentities,loansfromwhichwouldbesubjecttothincapitalization
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88|Poland.Therealstateofrealestate
restrictions(onlynetdebtistakenintoaccount).
Thedefinitionofaloancoversanyformofdebtfinancing,includingtheissuanceofbonds,creditsandbankandnonbankdeposits.Thedefinitiondoesnotcoverderivatives.
Thethin-capitalizationrulesapplytointerestonloansgrantedbyPolishandforeignqualifiedentities.Theycoverthefollowingloans:
• loansgrantedbyanentitythatholdsdirectlyorindirectlyatleast25%ofthevotingrightsintheborrower,
• loansgrantedjointlybyentitiesthatjointlydirectlyorindirectlyholdatleast25%ofthevotingrightsintheborrower,
• loansgrantedbyonecompanytoanothercompanyifthesameentityholdsdirectlyorindirectlyatleast25%ofthevotingrightsinboththelenderandtheborrower.
Forgeneralpartnersinalimitedjoint-stockpartnership,theconditionsconcerningtheminimumshare(votingrights)arefulfilled,regardlessofthegeneralpartner’sshare.
Asof1January2015thetaxpayershavealsoarighttooptforanewalternativethin-capitalizationcalculationmethod.Ifchosenbythetaxpayer,theabovementionedmethodappliestointerestpaidtobothrelatedandunrelatedparties.TherecognitionofsuchinterestcostfortaxpurposesislimitedtotheamountoftheNationalBankofPoland’sreferencerateplus1.25percentagepointandthetaxvalueofassetswithinthemeaningofAccountingAct(excludingintangibleassets).
Thevalueofinterestrecognizedfortaxpurposescannotbehigherthanthevaluecorrespondingto50%oftheprofitfromoperatingactivities(thisconditiondoesnotconcern,generallyspeaking,banksandfinancialinstitutions).
Interestnotdeductedinagiventaxyearcanbedeductedinthefollowingconsecutive5taxyears.Ifataxpayerdecidestousethismethoditshouldbeusedforatleast3consecutivetaxyears.
Tobeentitledtoapplytheaboverules,taxpayersaregenerallyobligedtofilerelevantnotificationwiththetaxauthoritiesnotlaterthantilltheendoffirstmonthoftheirnewtaxyear.
Foreign currency financingAstheforeigncurrencyliabilitiesarereportedforaccountingpurposesinPLN,foreignexchangedifferences(gainsorlosses)accrueintheaccountingbooksofthePolishcompany.ForeignexchangedifferencesaccruealsoonloanliabilitiesinPLNdenominatedinforeigncurrencies.Thesegainsorlossesarerecognizedfortaxpurposesonlywhenrealized,i.e.whentherelatedliabilityispaidorsetoff(orwhenthedueinterestiscompounded).However,auditedcompaniescanreportforeignexchangegainsorlossesinaccordancewithaccountingstandardsuponnotifyingthetaxauthorities,providedthatsuchreportinginaccordancewithaccountingstandardswillcontinueforaperiodofatleastthreetaxyears.
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Poland.Therealstateofrealestate|89
2.4.1.GeneralremarksAsmanyotherjurisdictions,Polishlawprovidesdifferentmethodsofacquiringrealestatebyaninvestor,amongwhichanassetdealandasharedealarethetwomostcommonlyused.
Bothmethodsbearvariouslegalandtaxconsequenceswhichhavetobeconsideredinanygivencaseandthereforethereisnogenerallyacceptedrulewhenasharedealoranassetdealshallbeapplicable.Theinterestsofthesellerandthebuyer,theparticularsofthecaseandthepowerofeachpartytonegotiatehavetobeconsideredwhilechoosingoneofthesetwoforms.
Inpractice,ifasharetransactionisproperlystructured,thiscanbethemosttaxefficientdisposalmethodtouse.Inawell–organizedcorporatestructure,taxesoncapitalgainscanbeentirelyavoidedorinsomecasesdeferred.
Fromthebuyer’sperspective,itisusuallymoretaxefficienttobuythepropertydirectlythantobuysharesinacompanyholdingtheproperty.Thebuyercanthendepreciateasmuchastherealmarketvalueofthebuildingfortaxpurposes.Ontheotherhand,ifthesharesareboughtatahigherpricethanthebookvalueofthecompany’s
2.4. Acquisition of real estate – asset deal and share deal
90|Poland.Therealstateofrealestate
assets,goodwillpaidinreturnforthesharescanberecognizedforaccountingpurposes.Unfortunately,suchgoodwillcannotbeamortizedfortaxpurposes.Furthermore,acompanyowningrealestatewithalowbookvaluehasadeferredtaxexposurewithrespecttoanyfuturecapitalgainsmadeonthedisposalofthatrealestate.Thus,thebuyerofshareswillmostlikelytrytonegotiateadiscountonthetransactionpricetoeliminatethisnegativetaxaspect.
Thepurposeofthischapteristooutlinethemainfeaturesofthesetwotypesofrealestatetransactionfrom
boththelegalandtaxperspectives,andtoexaminetheconsequencesofeachstructure.
2.4.2. Legal aspects
Definition of a share deal and asset dealDespitethefactthatthesharedealandassetdealareequallypopular,theirobjectandmannerofconductingaredifferent.Thekeydifferencesbetweenthesetwomethodsofacquisitionconcerntheextensionandnatureofpurchaseditemsandarepresentedbelow.
• Asharedealisdefinedasatransactioninvolvingacquisitionofsharesinacompanyasaresultofwhichthebuyerpurchasesthewholeorapartofthesharesinthesharecapitalofthecompany(i.e.thetargetcompany).Thus,insuchtransaction,thepurchaserbecomestheownerofthesharesanddoesnotobtainanydirectrightsto
theassets(i.e.forinstancerealestate)whichremainthepropertyofthetargetcompany.Sinceinthistransactionaninvestorpurchasessharesinthetargetcompany,italsoacquirestheriskrelatedtotheliabilitiesofthiscompany(e.g.undisclosedliabilities,taxliabilities).Thus,anextensiveduediligenceofthetargetcompanyprecedingthepurchaseofsharesisrequiredandrecommendable.
• Anassetdealiswherethepurchaseracquiresallorsomeoftheassetsofthecompany.Unlikeasharedeal,inan asset deal it is possible to divide out certainelements,suchasrealestateandacquireonlythoseparts.Therefore,inanassetdeal,aninvestorpurchasesthepropertyitselfandattheendownstheassetsofthetargetcompanyonly.Sinceincaseofthistransactionitisnotnecessarytoexaminethetitletothecompany’ssharesorthecompany’scorporatestructure,theduediligenceprecedinganassetdealisgenerallyshorterandlessextensiveincomparisontotheduediligenceprecedingasharedeal.However,theassetsbeingacquired(suchasrealestate)mayrequireamoredetailedanalysis.
Oneofthemostsignificantdifferencesbetweenthesetwotypesoftransactionsistheguaranteeofthevalidityofthepurchasedtitle.PursuanttothePolishlaw,intheassetdealtheinvestor’sacquisitionofthelandfromatitle-holderwhoisregisteredintheLandandMortgageRegisterguaranteesthevalidityofthepurchasedtitle.Thisappliesonlywhenthepurchaseractedingoodfaith(i.e.onedoes
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Poland.Therealstateofrealestate|91
notactingoodfaithifknew,orshouldhaveknown,thatthelegalstatusofthepropertyisdifferentthantheoneresultingfromtheregister).Suchaguaranteedoesnotapplytothepurchaseunderasharedeal,inwhichthevalidityofthecompany’stitletothepropertyissupportedbytheseller’srepresentationsandwarrantiesthatareincludedinthesharepurchaseagreement.
Representations and warrantiesInordertosecurethepurchaser’sinterestextensiverepresentations,warrantiesandrelatedindemnitiesshouldbeincludedinthesharepurchaseagreement.Thisisusuallyoneofthemostimportantpartsoftheagreementsubjecttoextensivenegotiations.ThescopeofwarrantiesandrepresentationsaswellasdetailedlegalconsequencesoftheirbreachhavetoberegulatedinthesaleagreementindetailsasPolishlawdoesnotprovideforaspecificlegalregulationofthisissue.
Pleasenotethatrepresentations,warrantiesandaccompanyingindemnitiesincludedintheassetsaleagreementareusuallylessextensivethaninasharepurchaseagreement.
• Inanassetdeal,theseller’srepresentationsandwarrantiesconcern,inparticular,thevalidityoftheseller’stitletotherealestate,theinformationregardingencumbrances(ifany),thestatementconfirmingthatthedevelopmenthasbeencarriedoutinaccordancewiththebindingprovisionsoflawandtechnicalplansandthatrelevantpermitsarevalid.
• Theseller’srepresentationsandwarrantiesinasharedealusually
includetherepresentationsandwarrantiestypicalforanassetdealregardingrealestate,butalsoextensiverepresentationsandwarrantiesrelatingtoallaspectsofthecompany’sactivity:inparticulartax,employment,accounting,corporateandcontractualmatters.
Itisrecommendedthatthesaleagreementprovidesforspecificinstrumentssupportingtheenforceabilityoftheindemnitiessecuringtherepresentationsandwarranties.Inmarketpractice,partofthepurchasepriceisretainedinanescrowaccountorabankguaranteeisobtainedfromtheseller.
Types of agreementsThereisanumberofdocumentsrelatedtobothtransactions.Usually,inordertoclearlystatetheintentions,goalstoachieveduringnegotiationsandthekeyprinciplesofthetransaction,thepartiessignaletterofintentpriortosigningtherealestatepurchaseagreement.Suchletterisagoodsolutionforpartieswhointendtoconductmulti-stagenegotiationsandtothosewhowouldliketoagreeonminordetailsofthetransaction.Insuchacase,partiesmaydeterminethetimeframeofthenegotiationsandthemomentoftheircompletion,aswellasallissuesthathavetobediscussed.
PursuanttothePolishlaw,thelegaltitletothepurchasedpropertyorsharesofacompanyholdingtherealestateistransferredonthebasisofanagreementexecutedintherelevantform.
Incasewhencircumstancessurroundingthetransactionarestraightforward,such
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92|Poland.Therealstateofrealestate
agreementmaybeexecutedimmediately,withoutundertakinganyadditionalactions.However,insomecasespurchaseofarealestateorsharesmaybeeffectedbyexecutingtwoseparateagreements,i.e.apreliminaryagreementfollowedbyafinalagreement.Thetransactionstructuredintwoseparatestagesisespeciallyrelevantwhenthereisaneedtoobtainconsentsforthetransactionortofulfillcertainconditions.ThePartiesusuallyconcludesuchanagreementoncealetterofintenthasbeendrawnupandbeforethefinalpurchaseagreementhasbeenexecuted.Inordertobevalid,thepreliminaryagreementmustincludetheessentialcontentofthefinalagreement(i.e.thesubjectofthesaleandthepurchaseprice).Inpractice,thepreliminaryagreementregulatesallissuesrelatedtotherealpropertyorshares.
Pleasenotethat,ingeneral,pursuanttothePolishlaw,eachtransferofpropertyisregistered,asthemortgageregistersysteminPolandaimstohaveallpropertiesregistered.However,thefunctionofsuchobligationismerelyinformativeanddoesnotdeterminethetransferoftheownershiprightstothepurchasedproperty.Nevertheless,certainpropertyrights,suchastheperpetualusufructrightcanonlybetransferredifthereisanentryintheLandandMortgageRegistermade.Thus,theagreementisnotsufficienttotransfertheperpetualusufructrightandthedateoftheaboveentrydeterminesthedateofthetransfer.
Thetransferoftherealestatemustbeunconditionalwhichmeansthatbeforeittakesplace,allconditionsforeseenby
apreliminaryagreementneedtobefulfilledortheobligationtosatisfytheseconditionsneedstobedisclaimed.Inthatcase,theexecutionofanunconditionalagreementcompletesthetransaction.
Transfer of the property-related rightsInmanytransactions,itisnecessarytoobtainvarioustypesofconsentsorpermitsregardingthetransferoftherightsrelatedtotheproperty,thelackofwhichmayaffectthelegaleffectoftheentiretransaction.
Inthesharedealthepurchaserdoesnotobtainanydirectrightstotheassetsastheseremainthepropertyofthetargetcompany.Consequently,theproperty-relatedrightsandobligations(suchasleases,propertymanagementagreements,warrantyclaimsunderconstructioncontractsandcontractsofinsurance,permits)remainwiththecorporateentityholdingtherealestateandnoformalassignmentisrequired.
Intheassetdeal,theproperty-relatedrightsandobligationsarenotautomaticallytransferredasaresultofthesaleagreement.Incaseofcontractsasfortheformalassignmentitis,ingeneral,necessarytoobtaintheconsentoftheotherpartyofeachcontract.Incaseoflicenses,decisionsetc.itshouldbeanalyzedcasebycasewhatactionshavetobeundertakeninordertotransferthemtothepurchaser.Thismeansthattheabilitytoassigntheproperty-relatedrightsorassumingtheobligationsisexaminedindividually,inlightofspecificregulations
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Legal and tax aspects of investing in real estate
orcontractualprovisions,whichmaypreventorrestricttransferability.
Therefore,asharedealisatypeoftransactionusuallyconsideredbyinvestorswhenthetargetcompanyconductsregulatedactivityasallpermitsrequiredforitsoperationstayinthecompany.
Formalities• Purchase Agreement content
PursuanttothePolishlaw,theassetpurchaseagreementandthesharepurchaseagreementshoulddescribeatleastsuchelementsastheobjectofthesaleandtheprice.Inpractice,theagreementsarecomplexandprovideforthefollowingmaininformation:
a) thedetaileddescriptionofthepropertyorthesharesthataresubjectofthetransaction(thesaleobject);
b) thepriceandmechanismofpayment(includingdownpaymentifany,aswellasthepriceadjustmentmechanism);
c) securityinstruments(tobedeterminedbytheparties,e.g.amortgageovertheproperty,aregisteredpledgeovertheshares,thebankguarantee);
d) representations,warrantiesandindemnities;
e) othermatterssuchasincaseofanassetdealthetransferofrightsandobligationsrelatedtotherealestate,themethodofresolvingadisputeetc.
• Other requirements
Therequirementsregardingform,languageandgoverninglawoftheagreementdependonwhetherwedealwithanassetorasharedealtransaction.
Theformofanotarialdeedisrequiredfortheexecutionofarealestatepurchaseagreement,whilesuchrequirementisnotnecessaryfortheexecutionofthesharepurchaseagreement.Thesharepurchaseagreementrequiresthenotarialcertificationofthesignaturesoftheparties.
Consideringtheabove,sincetherealestatepurchaseagreementmustbeexecutedinaformofanotarialdeed,itmustbealsoconcludedinPolish.Bycontrast,inasharedealapurchaseagreementdoesnotrequiretheformofanotarialdeedbutjustnotarialcertificationofsignaturesand,therefore,itcanbeexecutedinaforeignlanguage.However,thePolishcommercialregistrycourtthatwillregisterthetransferofsharesmayrequestasworntranslationofsuchagreement.
TherealestatepurchaseagreementcanbegovernedbyPolishlawonly.Suchrequirementdoesnotapplytothesharepurchaseagreementwhichcanbegovernedbyaforeignlaw(providedthatconclusionoftheagreementisconnectedwiththelawofatleasttwodifferentcountries).
94|Poland.Therealstateofrealestate
Legal and tax aspects of investing in real estate
• Costs
Propertypurchaseagreementrequiresthenotarialdeedform,whichissubjecttoanotarialfee,depending on the value of the transaction,butnotexceedingPLN10,000foreachagreement.ThefeeforthecertificationofsignaturesismuchloweranddoesnotexceedtheamountofPLN300forcertificationofeachsignature.
Merger controlDuediligencereviewprecedinganyassetorsharedealshouldanswerthequestionwhetherthelegislationgoverningmergercontrolwillbeapplicable,inparticular,whetheranotificationofthetransactiontotheOfficeofCompetitionandConsumerProtectionisrequired.Shouldsuchnotificationberequired,theclosingofthetransactionmustbesuspendeduntilthepermitoftheOfficeofCompetitionandConsumerProtectionisissued.
AnotificationontheplannedtransactiontotheOfficeofCompetitionandConsumerProtectionisrequiredifanyofthefollowingconditionsismet:
• thecombinedworldwideturnoverofundertakingsparticipatingintheconcentrationinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR1billion,or
• thecombinedturnoverofundertakingsparticipatingintheconcentrationintheterritoryofPolandinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR50million.
However,thePolishantitrustlawprovidesforcertainexceptionsfromtheobligationofnotificationeveniftheaboveconditionsaremet,inparticular,whentheturnoveroftheundertakingoverwhichthecontrolistobetakendidnotexceedintheterritoryofPolandinanyofthetwofinancialyearsprecedingthenotification,theequivalentofEUR10million;theconcentrationarisesasaneffectofinsolvencyproceedings,excludingthecaseswherethecontrolistobetakenoverbyacompetitororaparticipantofthecapitalgrouptowhichthecompetitorsoftheto-be-takenundertakingbelong;theconcentrationappliestoundertakingsparticipatinginthesamecapitalgroup.
The pre-emption rightsItmayhappenthatthepublicauthoritieshaveastatutorypreemptiverighttorealestatewhichisabouttobesold.Therightofpre-emptionisarighttoacquirethepropertybeforeitcanbepurchasedbyanyotherpersonorentity.Wheretherealestateissubjecttoarightofpre-emptionheldbyStateTreasuryorlocalauthority,itmayonlybesoldtoathirdpartyundertheconditionthatthebeneficiaryofthatrightdoesnotexerciseit.Ifsuchapropertyissoldwithoutobservingthisright,thesaleisconsideredtobenullandvoid.
ThenotaryexecutingtheconditionalagreementwillsendacopyofittotheStateTreasuryorlocalauthority,whichmaythenexerciseitspreemptiverightwithinonemonthofreceivingtheconditionalagreement.Ifthepublicauthoritydoesnotexerciseitspreemptiverightwithinthatperiod,thepartiescanconcludethefinal
Poland.Therealstateofrealestate|95
agreement,whicheffectstheunconditionaltransferofthetitletotherealestate.
Restrictions in acquiring of real estate Asageneralrule,foreigners(orPolishentitiescontrolledbyaforeigner)arerequiredtoobtainaspecialpermitoftheMinisterofInternalAffairsforacquiringarealestateinPoland.Thepermitisnecessarywhenacquiringownershipofrealestateorperpetualusufructonthebasisofanylegalevent(e.g.purchase,in-kindcontribution,mergerwithaPolishentity,takingupsharesinPolishentities).
Thepermitisissueduponawrittenrequestofaforeigner,providedthat:
• aforeigner’sacquisitionofrealestatedoesnotposeathreattotheState’sdefense,nationalsecurity,publicorderandisnotcontrarytothesocialpolicyandpublichealthconsiderations;
• theforeignerprovesthattherearecircumstancesconfirminghisbondswithPoland(i.e.forexamplethebuyerhasPolishoriginsorisconductingbusinessoragriculturalactivitiesintheterritoryofPolandunderthePolishlaw).
TheMinister’sdecisionconcerningrealestateacquisitionshouldbeissuedwithinonemonth(twomonthsinparticularlydifficultcases).Thepermitisvalidfortwoyearsfromthedayofissuance.
Theacquisitionofrealestatewithoutapermitisinvalid.AforeignerintendingtoacquirerealestateinPolandmayapplyforapromiseofthepermit.Thepromiseofthepermitisvalidforoneyear.Duringthis
periodapermitcannotberefusedunlesstheactualcircumstancespertinenttothedecisionhavechanged.
TheaboverestrictionsdonotpertaintoacquiringrealestateorsharesincompaniesbyentitiesfromEuropeanUnion,EuropeanEconomicAreaorSwitzerland(orPolishentitiescontrolledbysuch).
On1May2016,thepreviouslyexistingobligationtoobtainthepermitforacquisitionofagriculturalorforestlandbyentitiesfromEU,EEAorSwitzerlandwasabolished.
Inconnectionwiththeabove,anewlegislationrestrictingtradeofagriculturallandwaspassedandcameintoforceasof30April2016.ThenewregulationrestrictstradeofagriculturallandforbothPolishandforeign(EUandnon-EU)entities.
Underthenewlawonshapingtheagriculturalsystem,agriculturallandisthelandusedforagriculturalpurposesorlandthatmaybeusedforsuchpurposes,excludinglandintendedforotherpurposesinapplicablelocalspatialdevelopmentplans.
Thenewlawprovidesformajorrestrictionsinsaleofagriculturallandsuchas:
• 5yearsmoratoriumonsaleofagriculturallandownedbytheStateTreasury(AgriculturalPropertyAgency);themoratoriumdoesnotpertaini.a.toagriculturallandoftheareabelow2haorlandsdesignatedforotherpurposesinthezooningdecision,localspatialdevelopmentplanorstudy,landsinspecialeconomiczones;the
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96|Poland.Therealstateofrealestate
landmayalsobesolduponobtainingMinisterofAgriculturepermit,
• agriculturallandmaybeacquiredonlybyindividualfarmershavingagriculturaleducationandresidinginthesamemunicipalitywherethelandislocatedforatleast5years,
• anobligationtoobtainapermitoftheChairmanoftheAgriculturalPropertyAgencyforsale/acquisitionofanagriculturallandto/bypersonsotherthanindividualfarmers,includingcompanies,underpainofinvalidity,
• generalprohibitiononsaleortransferringpossession(e.g.underleaseagreement)ofanagriculturallandwithin10yearsfromitspurchase;inill-fatedreasonsacommoncourtwillbeentitledtoallowthesale,
• agriculturallandacquiredunderChairmanoftheAgriculturalPropertyAgencyconsentwithin10yearsfromitspurchase;incaseasaleortransferofpossessionisnecessaryduetomisfortunereasonsbeingbeyondthebuyer’scontrol,acommoncourtisentitledtoallowfortheconclusionoftherelevantagreement,
• AgriculturalPropertyAgencypossessapre-emptionrighttoagriculturallandregardlessofthearea(previouslythisrightappliedonlytoareasofatleaset5ha),
• AgriculturalPropertyAgencywasgivenawiderbuyoutrightincaseotheracqusitionsthatacqusitionsundersaleagreemente.g.merger,divisionortransformationofacurrentowner(perpetualusufructuary)oftheland,
• AgriculturalPropertyAgencywasgivenarighttobuyofanagriculturallandincaseofpartnerschangeinpartnerships,
• AgriculturalPropertyAgencywasgivenapre-emptionandbuyoutrighttopurchasesharesincompaniesowninganagriculturalland,e.g.incaseofsharepurchaseagreementsorshareswap(excludingsharesinpubliclistedcompanies).
Acquisition of real estate from public entitiesInPoland,realestateisoftenacquiredfromtheStateorlocalauthorities.Suchtypeofacquisitionisconsideredtobesafeandanattractivealternativetoacquisitionofrealestatefromprivateowners.Nevertheless,inpractice,acquisitionofrealestatefrompublicentitiesissubjecttoadditionalspecificrequirementssuchasanobligationtodisposethelandviapublictenders.
AninvestorinterestedinacquiringrealestatefromtheStateorlocalauthoritiesshouldasktheauthoritiesforinformationonthecontemplatedpropertytobeacquired.Unfortunately,itisnotpossibletopurchasesuchrealestateonthespot,asthereisaspecialprocedureofsellingrealestateheldinpublicentities’possession.Withonlyafewexceptionsprovidedbythelaw(e.g.realestatebeingsoldtoitsperpetualusufructuary),realestateheldbytheStateorlocalauthoritiesmaybedisposedbywayofpublictender,afteralengthyprocedureiscompleted.
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Poland.Therealstateofrealestate|97
2.4.3.TaximplicationsAsmentionedabove,realestatecanbesoldeitherthroughadirectsaleoftheproperty(anassetdeal)orindirectlythroughasaleofthesharesinthecompanyowningtheproperty(asharedeal).ThesetwotypesoftransactionsareaffordeddifferenttreatmentbythePolishtaxregulations.
Asset dealTherevenuesgeneratedonthesaleofrealestatearesubjecttothestandardtaxationrulesofPolishcorporateincometax.Taxablerevenuesarereducedbythenetbookvalueoftheproperty.Effectively,onlythe“capitalgain”istaxedattherateof19%.Therevenuefromthesaleofrealestatemustbevaluedatthepricesetinthesalecontract.However,ifthepricedifferssubstantiallyandwithoutajustifiedreasonfromthemarketvalueoftherealestate,therevenuemaybeassessedbythetaxauthoritiesaccordingtothemarketvalue.Thistransactionpriceadjustmentmaybeappliedtotransactionsbetweenrelatedandunrelatedentities.Adjustmentstriggernotonlyahighertaxburdenbutalsopenaltyinterest.
ThePolishtaxsystemdoesnotincludeareplacementprovision.Therefore,thecorporatesellercannotdefertaxationofacapitalgain.
Costsincurredbythebuyerfortheacquisitionofrealestate:purchaseprice,transactioncostsincludingadvisory,civillawtransactiontax–ifapplicable,financialcostsaccruedtillthepurchase,etc.,formtheinitialvalueoftherealestateandarerecognizedastaxdeductiblecosts
throughdepreciationwrite-offsoruponsale.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofanybuildingsorstructureseparately.
VAT on the acquisition of real estateThesupplyofbuildings,infrastructure,orpartsofbuildingsorinfrastructureisgenerallyVATexempt,exceptfor:
• thesupplyofabuilding,infrastructureorpartofabuildingorinfrastructureinthecourseofitsfirstoccupationorpriortoit;and
• thesupplyofabuilding,infrastructureorpartofabuildingorinfrastructuremadewithintwoyearsofthefirstoccupation;
inwhichcasesthesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructurearegenerallysubjecttoVAT.
“Firstoccupation”meanshandingoverabuilding,infrastructureorpartofabuildingorinfrastructurewithinthecontextoftheperformanceofVAT-ableactivities(subjecttoVATorVATexempt)tothefirstacquireroruser,afterthe:
• initialcompletion;or
• improvement(iftheexpensesincurredfortheimprovementconstitutedatleast30%oftheinitialvalue)
ofthatbuilding,infrastructureorpartofabuildingorinfrastructure.
TaxpayersmaychoosenottoapplytheexemptionandchargeVATif:
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98|Poland.Therealstateofrealestate
• bothbuyerandsellerareVATregistered;and
• beforethedayofsupplytheysubmittheappropriatejointstatementtothetaxofficeofthepurchaser.
Thesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructurewhichshouldbesubjecttoVAT(i.e.supplyinthecourseoffirstoccupationorwithintwoyearsofthefirstoccupation)mustbeVATexempt(nooptiontotaxallowed)if:
• thesellerwasnotentitledtodeductinputVAT;and
• thesellerdidnotincurimprovementexpensesonwhichhehadrighttodeductVAT,orsuchexpensesdidnotexceed30%oftheinitialvalueofthebuilding,infrastructureorpartofabuildingorinfrastructure(unlesstheimprovedrealestatewasusedfortaxableactivitiesfornolessthan5years).
ThediagrambelowoutlinesVATrulesonthetaxationofthesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructure.
TAXATION
YES
YES
NO
NO
NO
Did the supplier have the right to deduct input VAT in relation to the building, infrastructure or part of a buildingor infrastructure?
Did the supplier incur improvement expenses higher than 30% of the initial value of the building, infrastructure or part of a building or infrastructure?
EXEMPTION
Did the supplier have the right to deduct the input VAT in relation to the improvement expenses?
EXEMPTION
EXEMPTION
Had the improved building, infrastructure or part of a building or infrastructure been used to execute taxable activities for at least 5 years?
TAXATION
Did a period shorter than two years elapse between the point of first occupationand the supply of the building, infrastructure or part of a building or infrastructure?
Is the supply of the building, infrastructure or part of a building or infrastructure being carried out in the course of the first occupation or prior to it?
EXEMPTIONWITH AN OPTION OF TAXATION
NO
YES
NO
NO
YES
YESYES
Generally,theVATtreatmentofownershiptitletolandoraperpetualusufruct(RPU)overlandfollowstheVATtreatmentofthebuildingsandinfrastructuredevelopedonthe land.
AnexceptiontotheaboveruleiswhenanRPUisacquiredforthefirsttimefromtheStateorlocalauthority,inwhichcase,theRPUisalwayssubjectto23%VAT,eventhoughthebuildings/infrastructuredevelopedonthelandmaybeexemptfromVAT.
Thesupplyofownershiptitle/RPUtoundevelopedlandqualifiedaslandfordevelopmentpurposesissubjectto23%VAT(supplyofagriculturallandisasaruleexemptfromVAT).
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IfsubjecttoVAT,thesupplyofrealestateissubjectto23%VAT.However,thesupplyofresidentialbuildingsandseparateapartmentsissubjecttoareduced8%VAT,exceptforpartofresidentialbuildingswhoseusablefloorspaceexceeds300m2 andapartmentswhoseusablefloorspaceexceeds150m2.Insuchacaseonlythepartofresidentialbuildingand/orapartmentwhichfitswithintheabovelimitsbenefitsfromthe8%VATrate,whereasthepartexceedingthethresholdsissubjecttoastandard23%VATrate.Dependingonthelegalcaseunderlyingthetransaction,saleofaparkingspacesoldjointlywiththeapartmentbutconstitutingaseparatelegalproperty,canbesubjecttoastandard23%VAT.
Starting1January2014,asarule,VATtaxpointarisesinthemonthofdeliveryofgoodsorrenderingtheservicestothepurchaser.Theinvoiceshouldbeissuedbythesellernolaterthanuntilthe15thdayofthemonthfollowingthemonthinwhichthegoodsweredeliveredortheserviceswererendered.
IfthesupplyofrealestateisVATexempt,itissubjecttocivillawtransactiontaxpayablebythebuyer.Theapplicablerateis2%ofthemarketvalueoftherealestate.
IfthebusinessofthePolishcompanyorpartofitsbusinessissoldasagoingconcern,thetransactionfallsoutsidethescopeofVAT.Theassetsofthebusinessorpartthereofwillbesubjecttocivillawtransactiontaxpayablebythebuyerattherateappropriateforaparticularitem(2%forland,buildingsandothertangibleproperty,1%forintangibles,includinganygoodwillthatwouldcrystallizeon
suchtransfer).Civillawtransactiontaxconstitutesanadditionalcostofthetransactionandisnon-recoverable.
Therehasbeensomecasesrecently,whenthetaxauthoritieschallengedthequalificationofarealestate(shoppingcenter)fromanassetdealperformedonpiece-mealbasis(whichissubjecttoVAT)intoasaleofagoingconcern(subjecttocivillawtransactiontax),evenwhenataxrulingwasobtainedupfront.Asthereisalotofuncertaintyinthisrespectthesedays,adetailedanalysisofeachparticulartransactionisrecommended.
Recoverability of input VATInputVATisrecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhicharesubjecttoVAT(e.g.leaseofthecommercialrealestate).InputVATwillnotberecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhichareVATexempt.Ifthisisthecase,theinputVATwillincreasetheinitialtaxbasisoftherealestate.
Forexample,certainfinancialactivitiesperformedbybanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT:theseinstitutionshaveno(orlimited)outputVATandthereforetheyarenotentitledtorefundsoranyotherkindofrecoveryofinputVATincurredinthecourseoftheirVATexemptfinancialactivities(incertaincasestheremaybealimitedrecoveryavailable).
Ifbusinessactivitiesarepartlyexempt,therecoveryofanyinputVATwhichcannotbematcheddirectlyeithertoVAT-ablesalesorVATexemptsalesshouldbeeffectedinlinewiththeproportionofthenetvalue
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100|Poland.Therealstateofrealestate
ofthetaxedsuppliestothetotalvalueofallsupplies(asocalledproratarecovery).Duringacalendaryear,theproportioniscalculatedbasedonthevolumeofsuppliesmadeinthepreviousyear.Attheyearend,theamountofdeductionsisadjustedtotheactualpercentagecalculatedforthewholeyear.Inthecaseoftangibleorintangibleassetssubjecttodepreciationfortaxcalculationpurposes,thepercentageofinputVATwhichmaybedeductedissubjecttoadjustmentsovertheperiodof5oreven10years(inthecaseofrealestate).
CalculationofthepercentageofinputVATtobedeductedisnecessaryonlyifitisnotpossibletomatchinputVATwithtaxedactivitiesorexemptactivitiesdirectly.
Asof1January2016taxpayersalsoneedtotakeintoaccountsocalledpreliminarypro-ratathatlimitsinputVATrecoveryonpurchases,iflinkedbothwiththeeconomicactivityofthetaxpayerandotheractivitiesnotrelatedwithbusinessoperations.
TherecoveredinputVATalsohastobeadjustediftheliabilityresultingfromtheinvoicedocumentingtheexpenseincurredisnotsettledwithinthespecifieddeadlines(asarule150days).Additionalsanctionsmayapplyifnoadjustmentismade(i.e.additionaltaxliabilityupto30%oftaxresultingfromthenotsettledinvoices,whichhasnotbeenaccordinglyadjusted).
Date of input VAT recoveryTherighttorecoverinputVATarisesintheperiodwhen–withrespecttotheacquiredgoodsorservices–thetaxpointarose(i.e.inthemonthinwhichtheserviceswererenderedto,orthegoodswereacquired
bythepurchaser).Itcannotbe,however,recoveredearlierthanintheperiodinwhichthetaxpayerreceivestherespectiveinvoice(prepaymentinvoicesdonotfallunderthisrule:theymustbepaidinorderforinputVATtobereclaimable).
Direct refund of input VATAdirectrefundofanysurplusinputVATincurredshouldbemadewithin60daysofthesubmissionoftheapplicationfortherefund(theVATreturn)onconditionthatthetaxpayerperformedVAT-ablesupplyintheperiodforwhichtherefundisclaimed.
Pleasenotethatthisdeadlinecanbeshortenedto25daysatataxpayer’srequestiftheinputVATtoberefundedresultedfrominvoicesthathavebeenpaidinfullbut–duetothechangesasof1January2017–thisshortenedrefundperiodoptionwouldrathernotapplytothepurchaseofrealestate.
ItispossibletogetarefundofinputVATevenifVAT-ablesuppliesarenotmadeintheperiodforwhichtherefundisclaimed.However,insuchacasetheperiodfortherefundisextendedto180days,unlessaformofsecurity,e.g.abankguaranteeisprovided(inwhichcasetherefundmustbemadewithin60days).
Share dealAcapitalgainonthesaleofsharesissubjecttoPolishcorporateincometaxatthestandardrateof19%.
Ifthesellingpartyisaforeignshareholder,theapplicabletaxtreatyinfluencesthetaximplicationsofsuchatransaction.UndermosttaxtreatiesconcludedbyPoland
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therighttoimposetaxesonthesaleofsharesincorporateentitiesisallocatedtothecountrywheretheshareholderisataxresident.InsuchcasesPolishincometaxrulesarenotapplicableandthefiscalrulesofthecountryinwhichtheshareholderisataxresidentgovernthetransaction.Insomecountriescapitalgainsonsharesareexemptfromtaxation.Therationalebehindthisexemptionisthatthetaxationofcapitalgainsonsharesconstitutesdoubletaxation:theprofitwithinthecompanyistaxedusingthenormalincometaxrateand,therefore,theprofitonthesharetransactionshouldnotbetaxedagain.IninternationaltaxationterminologythisexemptionisknownastheParticipationExemption.SomecountrieslimitthisParticipationExemptiontocapitalgainsonsharetransactionsinvolvingdomesticsharesonly.OthercountriesenabletheParticipationExemptiontobeapplicabletotransactionsinvolvingthesharesofforeigncompaniesaswell.
SignificantpartofPolishtaxtreaties(e.g.withSpain,France,Denmark,Sweden,Germanyand–followingrecentchangesofPolishtaxtreaties-alsoLuxembourgthatusedtobeapreferredjurisdictionforholdingstructures)providethatasaleofsharesinacompanyholdingmainlyrealestateassetsshouldberegardedasasaleofrealestate.Consequently,incomeearnedonthesaleofsharesinthePolishcompanywillbetaxedinPoland(thesocalledRealEstateClause).
ThesaleofsharesinthePolishcompanyissubjecttoa1%civillawtransactiontax(onthefairmarketvalueofshares)payablebythebuyer.Thisisirrespectiveofwherethetransactiontakesplaceorwheretheparties
tothetransactionareresidentfortaxpurposes.AsharetransactionisnotsubjecttoPolishVAT.However,whereasharetransactionistreatedasbeingmadeinthecourseofbusinessactivity(ratherthanasaone–offtransaction),itmaybeclassifiedasaVAT-ableevent.However,itwillstillbesubjecttocivillawtransactiontax.
Costswhichmustbeincurredinordertoacquireshares(e.g.purchasepriceandnotarypublicfees)mayberecognizedastaxdeductiblecostsuponthesaleofshares.
Othercostsindirectlyconnectedwithacquisitionofsharessuchasfinancingcostsmayberecognizedastaxdeductiblecostswhenincurred(incertaincasesrecognitionovertimemayoccur).
Cross-border structureTypically,foreigninvestmentsarestructuredinsuchawaythattheoverallleveloftaxationofthefinancing,exploitation,andpotentialcapitalgainiskeptaslowaspossible,seekingtoavoiddoubletaxation.Internationaltaxplanningshoulddeterminethefinalstructureoftheinvestment.Commonly,astructureinvolvingmorethantwojurisdictionsisusedtooptimizetheoveralltaxposition.ThetaxtreatmentofalltherelevantlegaltransactionsinvolvedinaPolishrealestateprojectdiffersaccordingtotheotherjurisdiction(s)involved.ThetaxtreatiesconcludedbyPolandshouldpreventdoubletaxation.Investigatingthetaxtreatiesandtheapplicablerulesinthedifferentrelevantjurisdictionswillhelptodeterminewhatstructure,giventhespecificcircumstances,shouldbearranged.Therefore,itisfairtosaythatthereisnotypicalcross–border
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investmentstructure,andthateachinvestmentprojectisunique.
Nevertheless,thefollowingpointsshouldbeconsideredwhendesigningthemostefficientstructure:
• interestpayableinrespectofanydebtfinancingoftheinvestmentshouldbefullytaxdeductible;
• interestincomeshouldbereportedastaxableincomeinajurisdictionwitharelativelymodesttaxrate;
• theexploitationandoperationalcostsoftherealestateshouldbetaxdeductibletothelargestextentpossible;
• profitsfromtheexploitationofrealestateshouldbetaxedatthelowestratepossible;
• after–taxprofitsshouldbeeasilydistributed;
• Polishwithholdingtaxshouldbereducedasmuchaspossible;
• revenuesfromthefuturesaleofrealestateorthesharesofacompanyshouldbetaxedatthelowestratepossibleorshouldbeexemptfromtaxation;
• allstrategiesforthedeferralofthetaxpaymentdateshouldbeexplored;
• levelofsubstancewhichcanbemaintainedinagivenjurisdiction.
Addressingthesepointswillhelptodesignandimplementatailor–madestructure.
Additionally,bearinginmindthegeneralantiavoidanceregulationthatisconsideredtobeintroducedtothePolishtaxregulationsandintroducedasof1January2015CFC(“ControlledForeignCompany”)rules,thecrossborderinvestmentsshould
Legal and tax aspects of investing in real estate
beeachtimecarefullyexaminedandproperlystructuredalsofromthebusinessperspectivetoensuretheireffectivenessfromthetaxpointofview.
CFC RulesTheimplementedfromJanuary2015CITregulationsregardingCFCdefineCFCas:
1. aforeigncompanyseatedinataxheaven(asofficiallyblacklistedbythePolishMinistryofFinance)or
2. aforeigncompanyhavingitsseatorplaceofmanagementinthecountryotherthanmentionedinpoint1),withwhich:
a) Polandhasnotconcludedaninternationalagreement,inparticulardoubletaxtreaty,or
b) EUhasnotconcludedaninternationalagreement
• beingabasisforrequestingtaxinformationfromtaxauthoritiesofthatcountry,or
3. aforeigncompanywhichjointlyfulfillsthefollowingconditions:
a) thePolishtaxpayerhasadirectorindirectshareholding(foranuninterruptedperiodofatleast30days)ofatleast25%sharesor25%votingrightsora25%stakeinprofitsoftheCFC;
b) atleast50%ofannualrevenuesoftheCFCconsistofapassiveincome,i.e.:
• dividendsandotherincomefromsharingprofitsoflegalpersons
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• disposalofshares,receivables
• interestorbenefitsfromalltypesofloans,securitiesorguarantees
• copyrightsorintellectualpropertyrights–includingdisposalofthoserights
• disposalorexerciseofrightsfromderivatives;
c) atleastoneofthesourcesofpassiveincome(listedinpointb)isnotsubjecttotax,istaxexemptorissubjecttotaxatalowerratebyatleast25%thanthePolishstatutoryCITrate(now19%)intheCFCscountryofresidence(unlessthetaxexemptionresultsfromoftheParentSubsidiaryDirective).
CFCprovisionsshouldnotapplyinthecasewhere:
• theCFC,whichissubjecttotaxationonitstotalincomeinoneoftheEU/EEAMemberStates,carriesoutactualbusinessoperationsinthisstate,or
• theCFCrevenuesinataxyeararebelowEUR250000;or
• theCFCcarriesoutactualbusinessoperationsoutsideoftheEUorEEAMemberStatesinwhichitissubjecttotaxonitstotalincomeanditsnetincomedoesnotexceed10%ofrevenuesearnedfromtheactualbusinessoperationsinthisstate–
subjecttotheconditionthatthereisalegalbasisresultingfromtheagreementbetweenPolandorEUandarespectivestate,basedonwhichthePolishtaxauthoritiesmayrequestinformationfromthetaxauthoritiesofthatparticularstate.
ThePolishcompaniesareobligedtoholdregistersoftheCFCcompanies.
Step-up of initial tax basis of assetsPolishtaxregulationsinsomecasesprovidedanopportunitytoincreasetheinitialtaxbasisofassets,whichwasusedtogenerateataxshield(byincreasingtheabilitytomaketaxdepreciationwrite-offsandtominimizetaxablecapitalgainsuponsale).Carefultaxanalysiswasalwaysrequiredbeforecarryingoutsuchatransactionbutitshouldbenotedthattheenvironmenthassignificantlychangedduetoimplementationofgeneraltaxanti-abuserule(GAAR)asof15July2016.TheintentionwastopreventthecreationanduseofartificiallegalconstructstoavoidpaymentoftaxinPoland.TheruleappliestotaxbenefitsexceedingPLN100kobtainedfollowingtheimplementationofthenewregulation,howeverthisincludesalsotaxbenefitsthatresultsfromartificialstructuresset-upbeforeGAARcomeintoforce.
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2.5.1 Legal aspects
2.5.1.1LanddevelopmentissuesLanddevelopmentissuesareimportantforrealestateinvestors,astheydeterminethepossiblemethodofinvestinginagivenarea.Regulationsonlanddevelopmentmayinfluencetheshapeoftheplannedbuilding,butsometimestheyalsopreventtheinvestorfromtheinvestment.
Legal backgroundLanddevelopmentissuesrepresentoneofthemaindifficultiesintherealestateinvestmentprocessinPoland.AsaresultoftheintroductionoftheSpatialPlanningandDevelopmentActof27March2003(hereinafterreferredtoastheSpatialPlanningandDevelopmentAct),alllocalspatialdevelopmentplansadoptedbefore1January1995expiredasof1January2004.Forthisreason,aswellasduetothecomplexprocedureforadoptingalocalspatialdevelopmentplan,currentlyonlyapartoftheterritoryofPolandiscoveredwithlocalspatialdevelopmentplans,mostlywithintheboundariesofbiggercities.
TheSpatialPlanningandDevelopmentActsetsouttheprinciplesforthelanddevelopmentprocess.Inparticular,it
2.5.Developmentand construction
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grantsauthorizationtotherelevantlocalauthoritiestodevelopandmanagespatialpolicy.TheSpatialPlanningandDevelopmentActalsosetsforththeprocedureunderwhichspatialplanninganddevelopmentactsaretobeadoptedbytheseauthorities.Thetwomainspatialplanninganddevelopmentactsdetermininglanddevelopmentwithinagivenmunicipality(commune)arethespatialdevelopmentconditionsanddirectionsstudyandthelocalspatialdevelopmentplan.However,frominvestors’perspective,thelocalspatialdevelopmentplanisofhigherimportance,asitdeterminestheirrightsandobligations,whilethespatialdevelopmentconditionsanddirectionsstudybindsthelocalauthoritiesonly.Inthecasewherenolocalspatialdevelopmentplanhasbeenadoptedforagivenarea,theinvestormayapplyforadecisiononlanddevelopmentandmanagementconditions(hereinafterreferredtoasthezoningdecision).Whereabuildingpermitisrequiredforaninvestment,eitheralocalspatialdevelopmentplanorazoningdecisionarerequiredtostartthedevelopmentoftherealproperty,since,asarule,nobuildingpermitmaybeissuedwithoutthem.
Therefore,beforebuyingtherealproperty,itiscrucialforinvestorstoverify:
• whethertherealpropertyinquestioniscoveredbyalocalspatialdevelopmentplan(orwhethersuchaplanwillbeadoptedsoon);
• intheeventthereisnolocalspatialdevelopmentplan,whetherazoningdecisionhasbeenissuedfortherealpropertyinquestion;and
• whethertheprovisionsofthelocalspatialdevelopmentplanorzoningdecisionallowfortheimplementationoftheirinvestmentplans.
Spatial development conditions and directions studyAspatialdevelopmentconditionsanddirectionsstudyisaninternaldocumentissuedbyeachmunicipality(commune),whichcoversthewholeterritoryoftherelevantcommune.Aspatialdevelopmentconditionsanddirectionsstudyprovidesthebackground/guidelinesfordraftingalocalspatialdevelopmentplan.Asaninternaldocument,aspatialdevelopmentconditionsanddirectionsstudydoesnotbindinvestorsbutonlythelocalauthoritieswhichdesignandadoptlocalspatialdevelopmentplans.Localspatialdevelopmentplansmaynotbecontrarytotheassumptionsofaspatialdevelopmentconditionsanddirectionsstudy.Therefore,spatialdevelopmentconditionsanddirectionsstudiesmaybeagoodsourceofinformationfortheinvestoronthefuturedirectionsofagivenarea’sdevelopment.
Local spatial development planThelocalspatialdevelopmentplanisadoptedbythecommunecouncilandisbindingforthirdparties(investors)asanactoflocallaw.
Eachlocalspatialdevelopmentplandeterminesthemannerofdevelopmentoftheterritorycoveredbythatplan.Inparticular,itdeterminesthedesignationofplots(landuse–agricultural,forest,buildingpurposes,etc.),developmentconditionsandtypesoffacilitieswhichcanbelocatedontheplots.Theprocedurefor
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adoptingalocalspatialdevelopmentplanisrathercomplexandtimeconsumingasthedraftlocalspatialdevelopmentplanissubjectto“publicconsultation”withthepartiesconcernedaswellasopinionsissuedbytherelevantadministrativebodies.
Theprovisionsofthelocalspatialdevelopmentplanarecrucialforinvestors,astheplanneddevelopmentoftheplotscoveredbysuchaplanmustcomplywithitsprovisions,inparticular,regardingthedistanceofabuildingfromtheplot’sborderortheheightofabuilding.Sometimestheprovisionsofalocalspatialdevelopmentplanmayrenderthedevelopmentofthegivenplotimpossible.Moreover,largeretailunitswithasalesurfaceexceeding2,000m2canonlybeconstructedifalocalspatialdevelopmentplanprovidingforretaildevelopmenthasbeenadoptedforagivenarea.
Therefore,tobeabletoimplementtheirinvestmentplans,sometimesinvestorsstartaprocedureofamendingthelocalspatialdevelopmentplan,whichmayprovetoberathertimeconsuming.
Zoning decisionInthecasewherenolocalspatialdevelopmentplanhasbeenadoptedforthegivenarea,aninvestormayapplyforazoningdecision,whichsetsoutalltherequiredconditionsforthedevelopmentofthatarea.Beforethebuildingprocessisstartedonthegivenplotunderabuildingpermit,theplotmustbecoveredeitherbyalocalspatialdevelopmentplanorbyazoningdecision(therefore,itcanbesaidthatazoningdecisionsubstitutesalocalspatialdevelopmentplanforaninvestor).
Azoningdecisionisissuedbythegoverningauthorityofthecommune.Theprocedureforissuingzoningdecisionsincludesperformanceofazoninganalysisbythelocalauthority’sarchitecturedepartmentanditmay,therefore,takeevenuptoseveralmonths.
Ifalocalspatialdevelopmentplanisbeingadoptedforarealproperty,zoningdecisionsrelatedtothisareaexpireiftheprovisionsofthelocalspatialdevelopmentplandifferfromthoseofthezoningdecision.However,thisshallnothappenifafinalbuildingpermithasalreadybeenissuedfortherealpropertyinquestion.Therefore,inthecasewherethereisnolocalspatialdevelopmentplanforagivenrealproperty,priortoinvestmentplanningtheinvestorshouldmonitorthestageofworksrelatedtothelocalspatialdevelopmentplanandshouldlearnifitispossibletoacquireafinalbuildingpermitbeforethelocalspatialdevelopmentplanisadopted.
Anapplicationforazoningdecisionmaybefiledwiththerelevantauthorityevenwhentheapplicantdoesnotholdanytitletothelandinquestion.Azoningdecisionmaybetransferredtothirdparties.
Thismeansthatinvestorsmayuseadecisionissuedforthesellerofarealproperty,astheydonothavetoapplyforthedecisiononceagainafteracquiringtherealproperty(theinvestoronlyappliesforthetransferofsuchadecisiontohimself).Investorsmayalsoapplythemselvesforsuchadecisionbeforedecidingontheinvestment.
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liberalizedbyabolishinganobligationtoobtainabuildingpermitforseveralminorconstructions(e.g.gazebos,culverts,etc.).
Thenotificationprocedurepertainshowevergenerallytominorconstructionworksordevelopingsomeofresidential(singlefamily)buildings.
In2016PolishgovernmentbeganworkonnewUrbanPlanningandConstructionCode.Thenewregulation,replacingSpatialPlanningandDevelopmentAct,BuildingLawandminoracts,willsignificantchangetherulesofinvestmentprocess.
Undertheproposedlaw,onedocument–aninvestmentconsentwillreplacefollowingdocuments:abuildingpermit(ornotification),zoningdecisionandadecisionondivisionofarealestate.UrbanPlanningandConstructionCodeprovidesfortheclassificationofinvestmentinto6categoriesoftheinvestmentprocedure,dependentonthecomplexityoftheinvestment.
Moreover,thecodewillstrengthentheroleofdevelopmentstudy(now:spatialdevelopmentconditionsanddirectionsstudy),whichwillceasetobeapurelyinternaldocument.Intheproposedlegalframework,thedevelopmentstudywillbeconsideredintheprocessofissuingainvestmentconsent.Theactwasnotadoptedyetandtherearesmallchancestheacttobeadoptedin2017.
Usage of the buildingDependingontheindividualcase,theuseofabuildingorstructureafteritscompletionrequireseithernotifyingtheconstruction
Building permitAbuildingpermitisanadministrativedecisionissuedbyalocalauthority(starostaormayorinbiggercities)whichallowsaninvestortostartthedevelopmentprocesson the site.
Thedocumentsattachedbytheinvestortotheapplicationforabuildingpermitshouldinclude,inparticular,adeclarationofhavinglegaltitletousetherealpropertyforconstructionpurposes.Moreover,theapplicationmustalsoencloseapprovalsofthelocalauthoritiesresponsibleforlocalinfrastructure,inparticularutilities,roads,environmentalprotectionandsewagetreatment.Thebuildingpermitwillonlybegrantediftheconstructiondesignisconsistentwiththeassumptionsofthelocalspatialdevelopmentplanorzoningdecisionaswellaswiththeregulationsgoverningtechnicalconditionsforthedevelopment.
Asageneralrule,abuildingpermitexpireseitherifconstructionworkshavenotbeenstartedwithinthreeyearsofthedateonwhichthepermitbecamefinalorifconstructionworkshavebeendiscontinuedformorethanthreeyears.
Notallconstructionworksrequireabuildingpermit.ConstructionofcertainstructureswhicharelistedintheBuildingLawof7July1994(hereinafterreferredtoastheBuildingLaw)maybecommenceduponanotificationsenttotherelevantauthoritiesifnoobjectionshavebeenraisedbythemwithin30daysofthenotificationdate.
Recently,in2016,therequirementsonobtainingabuildingpermitwere
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supervisoryauthoritiesthatconstructionworkshavebeencompletedoracquiringapermitforuse.
Inthecasewhereonlyanotificationisrequired,underthegeneralruletheinvestormayoccupyandusethebuildingorstructureifnoobjectionhasbeenraisedbytheauthoritieswithin14daysofthedateofnotification.
Incaseswhereapermitforuseisrequired,thebuildingmaybeoccupiedonlyafterthedecisiongrantingthepermitforuseisgranted.Thegrantingofapermitforuseisprecededbyatechnicalinspectionofthebuildingorstructuretoconfirmthatallconstructionworkshavebeenperformedincompliancewiththetermsandconditionsofthebuildingpermitaswellastechnicalrequirements.
Occupyingabuildinginbreachoftheabove-mentionedregulationsmayresultinafine.
Environmental issuesThebuildingprocesshasmanyenvironmentalaspectsthatmustbetakenintoaccount.ThePolishlawprovidesthatanenvironmentaldecisionmustbeobtainedpriortoobtainingazoningdecisionandabuildingpermitforthegivenproject.PursuanttothePolishlaw,fromtheenvironmentallawpointofview,theinvestmentsaredividedintotwogroups:
• projectsthatalwayshavesignificantimpactontheenvironment;
• projectsthatmayhavesignificantimpactontheenvironment.
Environmentaldecisionmustbeprecededbytheenvironmentalimpactassessment
proceeding(whichincludespreparationofenvironmentalimpactassessmentreport)incaseofprojectsthatalwayshavesignificantimpactontheenvironment(i.a.parkinglots,buildingsofaparticularsizeetc.).However,theenvironmentalimpactassessmentproceedingmaybealsoorderedbytheauthorityissuingtheenvironmentaldecisioninrelationtoprojectsthatmayhavesignificantimpactontheenvironment.
Despiteofthefactthatenvironmentalimpactassessmentiscarriedoutatthestageofissuingtheenvironmentaldecision,itmayalsoberepeated(incertaincircumstances)atthestageofissuingabuildingpermit.
Environmentalimpactassessmentisalegalinstrumentthatallowstodeterminetheeffectoftheplannedinvestmentontheenvironment(i.e.water,landandairqualityaswellasimpactonfloraandfauna).Environmentalimpactassessmentproceeding,beyondtheidentificationofspecificimpactsthattheproposedprojectmayhaveontheenvironment,concentratesonthewaystopreventandminimizetheeffectsoftheplannedproject.
PursuanttothePolishlaw,authoritiesmustinformthegeneralpublicabouttheenvironmentalimpactassessmentproceedingandallowthegeneralpublictosubmitcommentsandrecommendationstotheproceeding.
Moreover,Polishlawincertaincircumstancesallowsabroadaccesstotheenvironmentalimpactassessmentproceedingtonon-governmentalenvironmentalprotectionorganizations.
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Environmentaldecisionmaybetransferred(aswellasthebuildingpermitissuedonthebasisofazoningdecision).
Energy efficiencyTheEUregulationswithinenergyefficiencyofbuildings,areambitious,soisthepolishlegislationkeepingupwiththenewestdirections.
AccordingtotheinformationoftheMinistryofInfrastructureandConstruction,startingJanuary2017,therealestatemarketwillbechallengedwithanewvaluesofEPenergyratiofornewlybuiltbuildingsandsomeofthecoefficientUfactorsforthermaltransmittanceofexternalwallsofbuildings.Thenewlaw,incorporatedbackin2014isenteringintoforcegraduallyinordertomakepolishlegalsystemcompliantwiththeEuropeanDirectiveontheenergyperformanceofbuildings,accordingtowhich,until31December2020eachandeverynewlybuiltbuildingshallbenearlyzero-energy.
Theregulationwillcoverallofthearchitecturalandconstructiondesignswhicharegoingtobesubmittedtogetherwiththeapplicationsforaconstructionpermissionin2017.Newprovisionsintroduceagradualincreaseinthelevelofrequirementsuptotheyear2021.Suchaphasedchangesallowsmoothadjustmentoftheconstructionmarkettotheapplicablelegalrequirements.
2.5.1.2 Construction issues
Legal framework for construction works contractsTheCivilCodeincludesprovisionswhichestablishthelegalframeworkforconstructionworkscontracts.Mostofthoseprovisionsaregeneralinnatureandenablecontractingpartiestostructuretheconstructionworkscontractsinawaythataddressestheirparticularbusinessneeds.Suchaflexiblelegalframeworkallowsthepartiesveryoftentouseinternationalstandardsforconstructionworkscontracts,includingthepopularFIDICforms.However,notalltheprovisionsofinternationalstandardsforconstructionworkscontractscomplywiththerequirementsoftheCivilCodeandtheBuildingLaw.
Inparticular,amoredetailedanalysisshouldbeperformedwithrespecttocontractualclausesregardingstatutorywarrantyperiods,contractswithandliabilitytowardssubcontractorsaswellascontractor’spaymentguarantees.Belowwepresentthekeylegalregulationsinthisareas.
Legal framework for development of wind farms Withinthe2016approachtoinvestmentsofwindenergyhasfundamentallychanged.Thesechangesrefertoabovealltwomainareas,concerning:(i)supportingtheproductionofwindenergyand(ii)newrestrictionsfordevelopmentofwindfarmsandincreaseofrealestatetax(“RET”).
Theforegoingisaresultofnewlawregulationswhichenteredintoforcein
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110|Poland.Therealstateofrealestate
July2016,exercisingsubstantialinfluenceonwindfarmprojectefficiency,i.e.:(i)amendmenttotheActonRenewableEnergySources(“RESAct”)(ii)newActonWindfarmsInvestments(“WindfarmsAct”).Toagreatextent,thesaidrestrictionsregardonlynewwindfarmprojects,onlypartiallyapplyingtothealreadyexistingwindfarms,e.g.withrespecttoRET.
MostimportantamendmentsprovidedbyRESActinclude:(i)changestotheauctionsystem–auctionswillbedividedintodifferentgroupsdeterminede.g.bytechnology(so-called“baskets”);foreachindividualgrouptheauctionswillbeheldseparatelyand(ii)changesforlargerrenewableenergysourcesinstallationsandgreencertificatessystem,accordingtowhich,e.g.mandatoryenergypurchasebyanobligatedsellerisnolongerapplicable,thusmanylargeentitiesmaysufferfromareductionintheirrevenues.
Theabovechangesresultedinthedecreaseofpriceforgreencertificates.
Whatismore,additionalnewrestrictionsapplicableforwindfarmmarketwereintroducedbytheWindfarmsAct,including:
(i)minimumdistancerequiredbetweenawindpowerplantandresidentialbuildings,forests,andenvironmentallyprotectedareas(e.g.Natura2000,nationalorlandscapeparks),i.e.10timestheheightofawindturbinegeneratorwithrotor(approximatelybetween1,5-2km)-inmanycasesitwillbeimpossibletobuildneworexpandalreadyexistingprojects;
(ii)re-constructionrestrictions:alreadyexistingwindfarmlocatedwithinthesmallerdistancethanindicatedunder
item(i)above,willnotbeallowedtobemodernizedordeveloped(onlyregularmaintenancewillbepermitted);
(iii)planningconditions:newwindfarmscouldbelocatedonlyonthebasisoflocalspatialdevelopmentplans(individualzoningdecisionsanddecisionofpublicaiminvestmentswillnolongerbesufficient),
(iv)newdefinitionofwindturbinegeneratorwhichmayresultinincreaseofRETimposedontheownersofthewindfarms.
Takingtheaboveintoconsideration,atendencyofthePolishgovernmenttoreducesupportforthewindenergyindustryandimposenewrestrictionsregardingconditionsofdevelopmentandRETincreasecanbeobserved.
Statutory warranty periodsUnderthePolishlaw,thestatutorywarrantyperiodforacquiredrealestates,includingbuildingsisfiveyearsfromtheproperty‘shand-overdate.Theabovementionedstatutorywarrantyperiodoffiveyearsappliesalsointheconstructionworkscontracts.
Approval of a contract with a subcontractorBeforeasubcontractisconcludedbythegeneralcontractorwithasubcontractor,suchasubcontractshouldbeapprovedbytheinvestorinwriting.Uponbeingprovidedwiththedraftsubcontract,theinvestorreviewsitanddecideswhetherthesubcontractshouldbedismissedorapproved.Theinvestorshouldrespondinthematterofdismissingorapprovingthesubcontractwithin14daysofitsreceipt.
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Ifnoresponseisgivenbytheinvestor,thesubcontractisdeemedtohavebeenapproved.Inthecasewhereaninvestorhasdismissedasubcontract,suchasubcontractsignedbetweenthegeneralcontractorandthesubcontractorisunenforceableagainsttheinvestor.
Liability towards subcontractorsInthecasewheretheinvestorhasapprovedthesubcontractbetweenthegeneralcontractorandthesubcontractor,theinvestorisjointlyandseverallyliablewiththegeneralcontractorforthepaymentoftheremunerationtothesubcontractor.Thepartiesmustnotchangethisruleinacontract.Therefore,contractsoftenincludeaclauseunderwhichtheinvestorisnotobligedtopaytheremunerationtothegeneralcontractorunlessthegeneralcontractorpresentsaconfirmationofpaymenttothesubcontractor.Therearealsosomeothermethodsofsecuringtheinvestor’sriskofadoublepayment(tothegeneralcontractorandtothesubcontractor),whichmustalwaysbeadjustedtothebusinessrequirementsofgiveninvestment.
Contractor’s payment guaranteeOneoftheinconveniencesforinvestorssigningconstructionworkscontractsistheobligationtograntapaymentguaranteetothegeneralcontractor.Underthisobligationageneralcontractorisentitledtoastatutoryclaimagainst
theinvestorforapaymentguaranteeuptothemaximumamountofthecontractvalue.Theinvestormaysatisfythegeneralcontractor’sclaimbyissuingapaymentguaranteeintheformofabankguarantee,aninsuranceguarantee,aletterofcreditorabank’ssuretyship.Thestatutoryclaimforapaymentguaranteemayberaisedatanytimeandcanbeextendedtoincludethevalueofanyadditionalworksagreedinwritingduringthetermoftheconstructionworkscontract.
Construction design contractsOneofthekeyelementsofthebuildingprocessisdrawingupaconstructiondesign.Aconstructiondesignisaformalrequirementforobtainingabuildingpermitformostofbuildinginvestments.UnderthePolishlawaconstructiondesignmustbedrawnupandsignedbyacertifiedarchitect,whotakesresponsibilityforthetechnicalaspectsoftheconstruction.Thearchitectshouldprepareadesignunderacontractforarchitecturalserviceswhich,dependingonitsscope,mayeithertransferthecopyrighttotheconstructiondesigntotheinvestororprovidetheinvestorwiththerighttousetheconstructiondesignforthepurposesoftherelevantinvestment.Itisworthmentioningthatacontractforarchitecturalservicesmayincludevariousrestrictionswithregardtothecopyrightortheuseofthedesign.Suchrestrictionsmaybecrucialfortheinvestmentdevelopmentprocess,inparticularwhentheyregardthepossibilityofenteringmodificationstotheconstructiondesignortransferringthecopyrighttootherentities.
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Public procurement contracts
General overviewThankstoanumberofEUfundingprogramseveryyearPolishauthoritieshavebillionsofeurosattheirdisposaltobespentondevelopment.Aconsiderablepartofthisfundingwillbedesignatedforinfrastructuralprojects,inparticularroadandrailwayinfrastructure,whichisstillnotverywelldevelopedinPoland.Forthisreason,manyoftheinfrastructuralinvestmentsdevelopedonthePolishmarketwillbecarriedoutunderpubliccontracts.
Poland,asoneoftheEUMemberStates,wasobligedtoimplementregulationsgoverningpublicprocurementproceedings.TheprovisionsofEUdirectivesonpublicprocurementwereimplementedtothePublicProcurementLaw,whichconstitutesthelegalframeworkforthismatterinPoland.ThePublicProcurementLawissupplementedbyadditionallegalactswhichrelateinparticulartopublic-privatepartnershipandlicensesforconstructionworksandservices.
Themaingoalofpublicprocurementregulationsistoestablishclearandcompetitiverulesandproceduresforawardingpubliccontractstothesuppliersofworksandservicesaswellastoprovidemeasuresforsupervisionoverthepublicauthoritiesawardingpubliccontracts.ThekeyobjectiveofthePublicProcurementActistoensurethatpubliccontractsareawardedwhileapplyingequaltreatmenttoallentitiestakingpartintenderproceedingsaswellastoensureimpartialityandobjectivityofthefinaldecision.
ProcedureUnderthePolishpublicprocurementregulationstherearenumerousdifferentproceduresforawardingpubliccontracts.Theonesthataremostcommonlyappliedareopentenderingandlimitedtendering.Bothproceduresmustbefollowedbyapublicnotice.Noticeoncontractperformstheaimofprovidingproperimplementationoftheruleofequaltreatmentintheverybeginningoftheprocedure.Theobligationofpublishinganoticealsoprovidesnon-confidentialityandtransparencyoftheappliedpubliccontractsystems.
Ingeneral,opentenderingisasimpleprocedure,meaningthatentitiesfamiliarizethemselveswiththeinformationinthenoticeandinSETCand,iftheyareinterestedinsubmittingtendersinsuchprocedure,theysubmitatenderwhichshallthenbeevaluatedbyranking.
Underlimitedtenderingprocedure,entitiesinterestedinbeingawardedapubliccontractsubmitrequestsforparticipatinginthetenderandtheawardingpartydecideswhichbiddersmaysubmittheirproposals.Otherpublicprocurementproceduressuchascompetitivedialogue,negotiatedprocedurewithpublication,negotiatedprocedurewithoutpublication,singlesourceprocurement,requestforquotationsorelectronicauctioncanonlybeappliedunderspecificcircumstancesstipulatedinthebindinglaw.
Asimilarcourseofactionshouldbeappliedtotheabovemaintypesofthepublicprocurementprocedure.Eachofthemiscomprisedofpre-qualification,submissionofproposalsandselection
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ofthewinningtendererphases.Inthepre-qualificationphasetheawardingpartysetsouttherequirements/criteriatobemetbythetenderers.Basedonthespecificrequirements/criteria,tenderersdrafttheirproposalsandsubmitthemtotheawardingparty.Intheproposaleachtendererdemonstratesitscompliancewithtenderrequirementsbyreferringtoitscompetencies,suchasexperience,knowledgeandfinancialcapacitytoperformthecontractedwork.Afterreviewingallsubmittedproposalstheawardingpartyselectsthebesttendererwithwhomthepubliccontractistobesigned.
However,thisisnotnecessarilytheendofthepublicprocurementprocessasthereis a possibility of appealing against the decisionoftheawardingparty.Inpractice,theappealprocedureisquitecommonlyusedbythetendererswholostapubliccontract,whichoftenresultsindelaysinthecompletionoftheinvestmentprojectconcerned.
2.5.2.Taximplications
Tax treatment of the construction costsCostsrelatedtoconstructionprocessandaccruedpriortoputtingtheassetsintouseformtheinitialvalueoftherealestateandarerecognizedastaxdeductiblecostthroughdepreciationwrite-offsoruponsale.
Costsrelatedtofutureoperation/exploitationoftheassetsshouldbe
recognizedfortaxpurposesbasedongeneralrules.
VAT and the construction processDuringtheconstructionprocess,themostimportanttaxisVAT.ThestandardrateofVATinPolandis23%.AreducedVATrateof8%appliestotheconstructionofresidentialhouses/apartmentsexceptforpartofresidentialbuildingswheretheusablefloorspaceexceeds300m2 andapartmentswheretheusablefloorspaceexceeds150m2.Insuchcasesonlyconstructionofthepartoftheresidentialbuildingand/orapartment,whichiswithintheabovelimits,benefitsfrom8%VATrate,whereasconstructionofthepartexceedingthethresholdsissubjecttostandard23%VATrate.
PurchasestheinvestorneedstomakeduringconstructionwilltypicallyincludePolishVAT.ThisinputVATcouldbedeductedfromtheoutputVATthattheinvestorhastopaytothetaxauthoritiesasaresultofhisbusinessactivities.Astheconstructionprocessusuallytakesaconsiderableperiodoftimeandrequirestheavailabilityofsubstantialfinancialresources,itisessentialthattheinputVATpaidisrecoveredduringthisprocess.RulesofVATrecoveryandrefundsarepresentedinsection2.4.3.However,duringtheconstructionprocessthetypicalsituationisthatthecompanyhastopayhighinputVAT(resultingfrompurchaseinvoices),butnooutputVATisincurred.Therefore,specificrulesneedtobeobservedtoensuretherecoverabilityofinputVATpaidduringtheconstructionprocess.
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Also,itisworthmentioningthat–asof1January2017–certainconstructionservices(listedintheVATAct)providedbysubcontractorsmaybesubjecttoreversechargemechanism(i.e.self-assessmentofbothinputandoutputVAT).
Services of foreign contractorsTheplaceofthesupplyofservices(i.e.theplaceinwhichservicesaredeemedtoberenderedandshouldbetaxedaccordingly)dependsonthenatureofaparticularservice.Underthegeneralrule,servicesrenderedtoaVATtaxpayer(oralegalpersonnotbeingaVATtaxpayer)occurwheretheservicerecipientislocated.However,servicesconnectedwithrealestatearegenerallytaxedwheretherealestateislocated,i.e.inPoland.Servicesconnectedwithrealestateincludeconstructionworks,servicesofarchitectsandfirmsprovidingon-sitesupervisionandtheservicesofrealestateagentsandpropertyappraisers.
IftheplaceofsupplyofaparticularserviceisPoland,itispossibleforaforeignconstructioncompanytoregisterinPolandasaVAT–payer.ThisimpliesthattheforeigncompanywillitselfbeliableforPolishVAT.TherecipientoftheservicescanrecovertheVATpaidtotheserviceproviderasinputVATunderthegeneralrules.
IfservicesaredeemedtoberenderedinPolandandtheforeignservicesupplierdoesnotregisterandaccountforPolishVATonhisinvoice,thePolishrecipient(inthiscasetherealestatecompany)mustself–assesstheVATdueonthebasisofthereversechargemechanism.Thiscanthenbedeclaredbytherecipientasinput
VATandbedeductedfromitsoutputVAT.SuchadeductionmaybemadeinthesamemonthinwhichtheoutputVATonimportationofserviceswasrecognized(whichmeansthatthecompanysuffersnoadversecashfloweffect).
Taxes due on imported goodsImportedgoodsarealwayssubjecttoimportVATwhentheycrosstheEUborder(orintheEUdestinationcountrywhenthegoodsaretransportedunderaspecialcustomsprocedure).ThisVATiscalculatedbasedonthecustomsvalueofthegoodsincreasedbythecustomsdue.Itispossibleto offset this input VAT against output VAT inaccordancewiththegeneralVATrules.Typically,inPolandtheVATrateis23%.
ImportVATcanbesettledwithouttheneedforanupfrontcashpaymentthroughtheVATreturnratherthanbeingpaiddirectlytothecustomsofficeandthereafterreclaimed(thismechanismissometimesreferredtoas“postponedaccountingforVAT”).Thisruleappliesonlytoimportersusingthesimplifiedcustomsprocedure.
TheregulationsconcerningimportsdonotapplyifgoodsaretransportedfromanotherEUMemberState.Suchatransactionisclassifiedasanintra–CommunityacquisitionandissubjecttoVAT.Thecompanyisobligedtoself–assessVATontheacquiredgoodsattherateappropriateforthem(usually23%).Atthesametimeself–assessedtaxmaybetreatedasinputVATanddeductedfromoutputVATinthesamemonthinwhichitwasincurred,providedthattheacquirerisinpossessionofapurchaseinvoiceorwillobtainitwithin3months.
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Noexcisetaxisdueontypicalconstructionequipmentandmaterials.
Taxation of a foreign construction companyInsomecasesitisnotnecessaryforaforeignconstructioncompanytodobusinessthroughaPolishcompany.TheconstructionworkcanbeperformedinPolanddirectlybytheforeignentity.InthiscasethequestionarisesastowhethertheforeigncompanyissubjecttoPolishincometaxontherevenuesgeneratedfromtheconstructionwork.Polandisindeedallowedtotaxthisincomeatarateof19%iftheactivitiesoftheforeigncompanyconstituteapermanentestablishmentinPoland.
WhetherornotthegivenforeignconstructioncompanyhasapermanentestablishmentisdeterminedbytherelevanttaxtreatywhichPolandhasconcludedwiththecountryinwhichtheforeigncompanyisbased.Ingeneral,aconstructionsitebecomesapermanentestablishmentoncethedurationoftheconstructionworksexceedsacertainperiodoftime.Usuallythisperiodis12months.Ifthe
workisfinishedwithin12months,thennopermanentestablishmenthasbeencreated.Iftheconstructionperiodtakeslonger,thenapermanentestablishmentisrecognizedandtheincomederivedfromtheworkissubjecttoPolishincometax.ItshouldberememberedthatinsuchcasesthepermanentestablishmentisdeemedtoexistfromthestartoftheconstructionactivitiesinPoland.Standardratesandtaxrulesareapplicabletodeterminethetaxdue.
PleasenotethatiftheactivitiesofaforeigncompanyinPolandextendsignificantlybeyondasinglecontract,thecompanymayberequiredtosetupabranch.SettingupabranchwillmostlikelyleadtothecreationofapermanentestablishmentinPoland.
NotethatOECDworksonBaseErosionandProfitShifting(BEPS)shouldbecloselymonitored,sinceoneoftheproposedactionsisaimedatthecaseswheretheconstructionworksareartificiallysplitintovariousstagestoavoidpermanentestablishmentstatus.
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2.6.1. Legal aspects
2.6.1.1. IntroductionAccordingtotheCivilCode,partiesofthecontractmaybenefitfromtheprincipleoffreedomofcontracts,whichgivesthemanopportunitytomodifythestatutorytypesandprovisionsofthecivilcontract.However,therearesomemandatoryprovisionsandlimitations,whichhavetobeconsideredbytheparties.Amongalltypesofpropertyexploitationagreements,thebelowarethemostcommonforthePolishrealestatesector:
• Lease(najem)–regulatedinarticles659to692oftheCivilCode,
• Tenancy(dzierżawa)-regulatedinarticles693to709oftheCivilCode,
• Leasingofrealestate(leasingnieruchomości)-regulatedinarticles709(1)to709(18)oftheCivilCode,
• Propertymanagement(zarządzanienieruchomościami)-regulatedintheActonPropertyManagement.
2.6.1.2.Leaseagreement(najem)Undertheleaseagreementthelessorgrantstothelesseetherighttooccupypremises(office,residentialetc.)in
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exchangeforthepaymentofrent.Ingeneral,everythingthatcanbesubjecttotheownershipright,maybealsosubjecttothisagreement,neverthelessincaseofrealestate,themorestrictprovisionsmayapply.
DurationThedurationofaleaseagreementmaybedefiniteorindefinite.Theleaseagreementmaybeconcludedinanyform,however,incaseofaleaseofarealpropertyforaperiodlongerthanoneyear,theagreementshallbeconcludedinwriting.Incaseofalackofawrittenform,theleaseagreementshallbedeemedtohavebeenconcludedforanindefiniteperiodoftime.
Thedurationofaleaseagreementmaybefreelyfixedbytheparties,however,therearecertainrestrictions.Theleaseagreementconcludedforaperiodlongerthantenyears,is,afterthisperiod,deemedtohavebeenconcludedforanindefiniteperiodoftime.Theruleaboveisdifferentfortheleaseagreementsconcludedbetweenentrepreneurs.Inthiscasetheleaseagreementconcludedforaperiodlongerthanthirtyyearsisdeemedtohavebeenconcludedforanindefiniteperiodoftimeafterthethirtyyears’periodhaspassed.
RentPayingrentistheprincipalobligationofthelessee.Thelesseeisobligedtopayrentwithintheagreedtime.Iftheduedateisnotfixedintheagreement,therentshouldbepaidinadvance:iftheleaseisnotlongerthanonemonth-forthewholeleaseperiod,andiftheleaseislongerthanone
monthorifthecontractisconcludedforanindefiniteperiodoftime-monthly,nolaterthanonthetenthdayofthemonth.Inpractice,theleaseagreementsregulateindetailsthepaymentoftherent.
Maintenance and expenditures settlementThelessorshouldhandoverthepropertytothelesseeinaconditionfitfortheagreeduse.Itshouldbemaintainedbythelessorinthisconditionthroughouttheleaseterm.Minorrepairsconnectedwiththenormaluseofthepropertyshouldbefixedbythelessee,unlesstheleaseagreementprovidesforotherwise.Ifthesubjectofleaseisdestroyedduetocircumstancesforwhichthelessorisnotresponsible,heisnotobligedtorestoreit.If,duringtheleaseperiod,thepropertyrequiresrepairswhichencumberthelessor,thelesseemaysetthelessoranappropriatetimeforrepair.Afterthisperiodthelesseemaycarryouttherepairsneededatthelessor’scost.
Ifthelesseeimprovesthesubjectoflease,thelessormay–aftertheexpiryoftheleaseterm,atitsdiscretion,eitherdemandthatthepreviousconditionberestoredorpaythelesseeasumcorrespondingtotheimprovementvalueatthetimeofreturn.Inpractice,theseissuesareusuallycoveredbytheprovisionsoftheleaseagreements.
Subletting and disposal of the leased propertyThegeneralruleisthatthelesseemayhandoverthepropertyorpartofittoathirdpartyforfreeofchargeuseorsubletit,iftheleaseagreementdoesnotforbidit.However,whenthesubjectoflease
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constitutespremisesorretailareas,handoverthepropertyorpartofittoathirdpartyforfreeofchargeuseorsubletitrequiresthelessor’sconsent.Iftheleasedpropertyishandedovertoathirdparty,boththelesseeandthethirdpartyareliabletowardsthelessorforusingthepropertyinaccordancewiththeprovisionsoftheleaseagreement.Therelationshiparisingfromacontractforfreeofchargeuseorsublettingconcludedbythelesseeisterminated,atthelatest,whenthemainleaseagreementisterminated.Inpractice,theleaseagreementsforbidsublettingthepropertytoathirdpartyorrequirethepriorwrittenconsentofthelessor.
Theleasedpropertycanbedisposedofduringtheleaseperiod.Inthiscasetheacquirerbecomesapartytotheleaseagreementasalessorinplaceoftheseller.Theapprovalofthelesseeisnotrequired.Thenewownermayterminatetheleaseagreementretainingstatutorynoticeperiods.However,thenewownerdoesnothavearighttoterminatetheleaseagreementifitisconcludedforadefiniteperiodoftime,inwrittenformwithanauthenticateddate(datapewna)andthesubjectofleasehasbeendeliveredtothelessee.If,asaresultoftheleaseagreementbeingterminatedbytheacquireroftheleasedproperty,thelesseeisforcedtoreturntheleasedpropertyearlierthanhewouldhavebeenobligedtoundertheleaseagreement,hemaydemandcompensationfromtheseller.
SecurityLessorsoftenusethespecialclausesintheleaseagreementstosecuretheirpotentialclaimstolesseessuchasmoney
deposit,promissorynote,suretyandbankguarantee.
• Moneydeposit–itisasumofmoneysubmittedbythelesseeinordertosecurethelessor’spotentialclaimsincaseofnon-fulfillmentoftheleaseagreementordamagescausedbythelessee.Asfarastheleaseofcommercialpremisesisconcerned,thereisalmostunlimiteddiscretionindeterminingthecontentoftheclause.Inthecaseofleaseofresidentialpremises,whicharethesubjecttoregulationoftheActontheprotectionoflessee’srightsof21June2001(hereinafterreferredtoastheLessee’sProtectionAct),thefreedomofpartiesformingthecontentofthisadditionalcontractualclaimislimited.Amoneydepositcannotexceedtwelvetimesthemonthlyrentforthepremisesandtherentshouldbecalculatedattherateapplicableatthedate of the lease.
• Promissorynote–promissorynoteissuedbythelesseeisaneffectivewaytoprotectthelessor’spotentialclaims.Incaseofdefaultinpaymentofrentorincaseofotherclaimsagainstthelessee,thelessorcanmakeuseofthepromissorynoteandrequestthelesseetoredeemit.Incasethelesseedoesnotfulfillitsobligationsfromthepromissorynote,thelessorcanstartthecourtprocedureagainstthelessee.
• Surety–inthecontractofsurety,theguarantorundertakestoperformcertainobligationofthelesseetowardsthelessorifthelesseedoesnotperformthem,mostlythisreferstothepaymentofdueamounts.Theliabilityoftheguarantorisequivalent,notsubsidiary.
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• iftherentisdueforoneday–thecontractcanbeterminatedonedayinadvance.
Theleaseagreementconcludedforadefiniteperiodoftimemaybeterminatedonlyincasesspecifiedinthecontract.
However,theCivilCodestipulatesthatthepartiescanterminatetheleaseagreementimmediatelyifcertainconditionsdefinedbytheabovecodeoccur.Thisappliestocontractsconcludedforbothdefiniteandindefiniteperiodoftime:
• if,atthetimeofhandingitovertothelessee,thesubjectofleasehasdefectsthatmakeitimpossibletouseitinthewaydefinedintheleaseagreement,orifthedefectsoccurlaterandthelessordoesnot,despitereceivinganotice,removetheminanappropriatetime,orifthedefectscannotberemoved–thelesseemayterminatetheleaseagreementwithoutnotice;
• ifthelesseedefaultsinpayingrentforlongerthantwofullpaymentperiods–thelessormayterminatetheleaseagreementwithoutnotice(incaseofleaseofpremisesorretailareas,beforetermination,thelessorisobligedtowarnthelesseeinwritingbygivinghimanadditionalone-monthperiodtopaytheoverduerent);
• ifthelesseeusesthesubjectofleasecontrarytothetermsoftheagreementorthepurposeofthisand,despiteawarning,doesnotceasetouseitinthisway,orifalesseeneglectsittosuchanextentthatthesubjectofleaseisatriskofbeinglostordamaged–thelessormayterminatetheleasecontractwithoutnotice.
Thismeansthatthelessormayrequestapaymentfromboththelesseeandtheguarantor.
• Bankguarantee–itisaunilateralobligationoftheguarantor’sbank,accordingtowhichthebankwillprovidefundstothebeneficiaryoftheguarantee-thelessor,ifthelesseedoesnotfulfillitsobligation.Thepartiesoftheleaseagreementtypicallydetermineaperiodthathastoelapsefromthepaymentduedateandafterwhichthelessorhastherighttoexecuteabankguarantee.
TerminationAleaseagreementconcludedforanindefiniteperiodoftimemaybeterminatedbyanypartywithapriornoticeoftermination(itslengthisinpracticedefinedintheleaseagreement).Thestatutoryperiodofnoticeofterminationfortheleaseagreementconcludedforanindefiniteperiodoftimeisasfollows:
• iftherentisdueforaperiodlongerthanamonth–thecontractcanbeterminatedbygivingathree-monthnotice,effectiveattheendofthecalendarquarter;
• iftherentisdueeverymonth–thecontractcanbeterminatedwithaone-monthnotice,effectiveattheendofthecalendarmonth(three-monthnoticeincaseofleaseofpremisesorretailareas,effectiveattheendofthecalendarmonth);
• iftherentisdueforaperiodshorterthanamonth–thecontractcanbeterminatedwithathree-daynotice;
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Lease of premises for residential purposesResidentialleaseagreements,duetotheirpurposearesubjecttospecialprotectionwhicharisesfromtheprovisionsoftheLessee’sProtectionAct.Thisprotectionappliesmainlytothelimitedpossibilityofterminationofthelease.Thereisalsoaspecificregulationregardingtherentincrease.
2.6.1.3.Tenancyagreement(dzierżawa)
Byatenancyagreement,thelessorcommitstohandoverasubjectoftenancytothelessee’suseandcollectionofprofitsforafixedoranon-fixedterm.Inexchange,thelesseecommitstopaytheagreedrent.Thetenancyagreementgivesnotonlytherighttousethepropertybutalsotocollectbenefitsfromit,whichiswhythetenancyagreementusuallyconcernsland.
Thedurationofatenancyagreementmaybedefiniteorindefinite.However,thetenancyagreementforaperiodlongerthanoneyearshouldbeconcludedinwriting,otherwiseitisconsideredtobeconcludedforanindefiniteterm.Alsoatenancyagreementexecutedforalongerperiodthanthirtyyearsisdeemedtobeconcludedforanon-fixedterm,afterthisperiodpasses.
UndertheCivilCode,iftherentpaymentperiodisnotspecifiedinthecontract,rentispayableinarrearsonthedatecustomarilyaccepted,andintheabsenceofsuchcustom,semiannuallyinarrears.Ifthelesseedefaultsinpaymentofrentforatleasttwofullpaymentperiodsand,inthecaseofrentpaidannually,hedefaultsin
paymentforoverthreemonths,thelessormayterminatethetenancywithoutnotice.However,thelessorshouldwarnthelesseebygivingthelesseeanadditionalthree-monthperiodtopaytheoverduerent.
Thelesseeisresponsibleforthecostsofallrepairstotheextentnecessarytokeepthesubjectoftenancyinthesamecondition.However,thepartiesareabletomodifythisruleinthetenancyagreement.Therearealsosomedifferencesbetweenaleaseagreementandatenancyagreementinthefieldofsublettingaproperty.Thelesseecannotsubletthepropertywithoutthelessor’sconsent.Iftheaboveobligationisviolated,thelessormayterminatethetenancyagreementwithoutnotice.
2.6.1.4.Leasingagreement(leasing nieruchomości)
Byaleasingagreement,thefinancingpartyundertakes,withinthescopeofoperationsofitsenterprise,toacquireapropertyfromaspecifiedtransferorandtohanditovertotheusertouseforadefinedperiod.Inexchange,theusercommitstopaytheinstallmentsagreedinthecontract.Thelessorretainsownershipoftheproperty,however,whenthecontractexpires,thelesseehasarighttotakeovertheownershipoftheproperty.Inpractice,therearetwomaintypesoftheleasingagreement:
• operatingleasing–inthistypeofleasingthesubjectofleaseagreementremainstheassetofthelessorwhomakestherelevantdepreciationwrite-offs.Aftertheendoftheleasingtermthelesseemaypurchasethesubjectoftheagreementforremuneration.An
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operatingleaseiscommonlyusedtoacquireequipmentonarelativelyshort-termbasis;
• financialleasing–inthistypeofleasingthelessorremainsthelegalowneroftheasset,however,itisthelesseewhomakesthedepreciationwrite-offs.Thetransferofanownershipofasubjectofaleasingagreementafteritsterminationmaybestipulateddirectlyinthatagreement.
Thedurationofthefinancialleasingcontractisusuallylongerthantheoperatingleasingandsimilartotheeconomicutilityofthesubjectofleasing.
Thereisalsoanotherformoftheleasingagreementwhichisoftenusedintherealestatemarketcalledsaleandlease-back.Theessenceinthiscaseisthesaleofpropertybytheownertoaleasingcompany.Afterwards,theleasingagreementissignedbetweenthesamepartiesallowingthepreviousownertousethepropertyasthelessee.Thisoperationallowsthereleaseoffundsandgivestheopportunitytoinvesttheminotheractivities.Moredetailedlegalandtaxcommentsarepresentedinsection2.8.
2.6.1.5.Propertymanagementagreement
Propertymanagementisaprofessionalactivity,regulatedintheActonPropertyManagement.Managementofaparticularpropertyisbasedonthepropertymanagementagreementbetweentheowneroftherealestateandthepropertymanager.Theagreementforpropertymanagementshouldbeconcludedinwriting,otherwisenullandvoid.
Thepropertymanagerisrequiredtohaveacompulsoryinsuranceofcivilliabilityfordamagecausedinthecourseofactivities.
2.6.2. Taximplications
Income subject to taxTaxableincomecomprisestheentireincomegeneratedfrombusinessactivities(tradeorservices).TaxableincomeiscalculatedonthebasisofaccountingrecordspreparedinaccordancewithPolishaccountingstandardsaftersignificantadjustmentsrelatingtothetaxbase.Taxableincomeisasarulerecognizedfortaxpurposesonanaccrualbasis.Theapplicabletaxrateis19%.
Calculation of taxable incomeTaxablerevenuesminustaxdeductiblecostsconstitutethetaxassessmentbase.Thecostsaredeductibleiftheywereincurredforthepurposeofrevenueearningormaintaining/securingthesourceofrevenue.Fortheexploitationofrealestate,themostimportantcosts,suchasinterestpayments,thecostsofexploitationandmaintenanceanddepreciationwrite–offs,areconsideredtaxdeductible.Polishtaxrulesspecificallyexcludecertainexpensesfromtaxdeductiblecosts.Forexample,doubtfulreceivablescanonlybedeductedunderverystrictconditions.Alsobusinessentertainmentexpenses(e.g.thecostsofrepresentation)arenon–deductible.
Loss carry forward rulesPolishlegislationprovidesforcarryingforwardtaxlossesoverfiveconsecutivetaxyearsfollowingtheyearwhenthelosswas
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incurred.Theamountwhichcanbeutilizedinanyofthesefiveyearscannotexceed50%ofthetotalloss,however.
Example:
Year 0 1 2 3 4 5 6
(Loss)/profit (100) 60 10 10 20 5 20
Loss utilised - 50 10 10 20 5 -
Carryforward - 50 40 30 10 0 -
Effectivetaxbase - 10 0 0 0 0 20
Total loss effectively carried forward: 95, unutilized loss: 5.
Taxlossescannotbecarriedforwardfollowingcertainlegaltransactionsinvolvingthecompany(e.g.mergerswherethelossespertaintoentitieswhichnolongerexistafterthemerger).Thereisnotaxlosscarryback.
Depreciation rate for real estateThestandarddepreciationrateformostnewbuildingsfortaxpurposesis2.5%peryear.Hence,thecostsofrealestateinvestmentaregenerallydeductedoveraperiodof40years.Newlyacquiredbuildings,usedpreviouslybyaformerowner,canbedepreciatedfortaxpurposesduringtheperiodequaltothedifferencebetween40yearsandthenumberofyearsthathavepassedsincethebuildingwasputintouseforthefirsttime(thatperiodcannotbeshorterthan10years).Landisnotsubjecttotaxdepreciation.
Ifresidentialbuildingsconstitutefixedassetsusedforbusinesspurposes(e.g.if
theyareleased)theyaredepreciatedatarateof1.5%peryear.
Undercertaincircumstancesitmaybeworthcarryingoutacostsplitanalysisofinvestmentexpenditurespriortoputtingabuildingintouse.Thisisbecausesomemachinerymay–underspecificregulations–beexcludedfromthevalueofthebuildingandbetreatedasseparatefixedassetsdepreciatedathigherrates(4.5%–20%peryear).Thiscouldleadtosignificanttaxsavingsasthecostsincurredcouldbedeductedoverashorterperiodoftime.Acostsplitanalysisshouldbealsopossibleincaseofthepurchaseofanalreadydeveloped building.
Calculation of the depreciation baseThedepreciationbaseconsistsofallcostsincurredinmakingtheinvestment:constructioncosts,buildingmaterials,designs,interestandforeignexchangedifferencesaccruedduringtheconstructionperiod,commissionandpotentiallynon–recoverableinputVATrelatedtothebuildingincurredbeforeitwasputintouse.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofthebuildingseparately.
VAT implications of renting out real estateRentalincomeissubjectto23%VAT.ThisVATisaddedtotherentdueandispayablebythelesseetothelessor.IfthelesseeisaregularVATpayer,hecandeducttheVATpaidintherentinvoicefromhisoutputVATliabilityresultingfromtaxableactivities.
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IfthelesseeperformsVATexemptbusinessactivities,theinputVATontherentisirrecoverable.Forexample,theactivitiesofbanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT.
Ifthelesseeperformsexemptactivities,aswellastaxableactivities,thentheinputVATontherentcanbedeductedproportionatelyontheproratabasiscomputedforagivenyear.
Beginningof1January2016preliminaryproratamustalsobetakenintoaccount,whichmightresultinlimitedrecoveryofinputVATrelatedbothtoeconomicactivityandnon-businessactivities.
Rentalofresidentialunitsforhousing(butnottherentalofresidentialunitsforthepurposesotherthanhousing)isVATexempt.
Real estate taxRealestatetaxischargedtotheowner(orinsomecasestheholder)ofthelandorbuildingsandinfrastructurewhichareusedforbusinessactivities.Thelocalauthoritiessettherealestatetaxratesandcollectthetaxes.However,in2017localauthoritiesareboundbythefollowingmaximumPLNyearlytaxrates:
• forland,PLN0.89perm2ofland;
• forbuildings,PLN22.86,perm2 of the usablesurfaceofabuilding;
• forinfrastructure(e.g.roads,pipelines),2%ofthevalueoftheinfrastructurecalculatedaccordingtospecificregulations(initialvaluedeterminedforthepurposesoftaxdepreciation).
Localauthoritiesmaydifferentiatebetweentaxratesfordifferenttypesofactivitiesorlocationsandgrantexemptionsforcertaintypesofrealestate.
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Theinvestor’schoiceofexitstrategywillbepredominantlytaxdriven,anditisimportantattheoutsetoftheinvestmentprocesstohaveaclearideaofthepossibleexitmechanics.Theduediligencefindingsmadeduringtheacquisitionphasearelikelytobearrelevancetothequestionofwhichexitstrategytochoose,andshouldbegivenproperconsideration,sothattheinvestor’spositiononexitwillbeasstrongaspossible.
Generally,theexitmaybestructuredasanassetorsharedeal.Thelegalandtaxconsequencesofbotharepresentedinsection2.4.
2.7. Exiting the investment
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Legal aspectsAsaleandleasebacktransactionconsistsoftwostages.Thefirststageassumessellingthetargetrealpropertybythesellertothepurchaser.Inthenextstagethesellerconcludestheagreementontheleaseoftherealpropertyfromthepurchaser.Asaresultofthesale,theowner(orperpetualusufructuary)oftherealestatechanges.However,duetoleasingtherealpropertyback,therealestateremainsundertheoperationalcontroloftheoriginalparty(theseller).
Fromthelegalperspectiveitisimportanttosecurethesellers’interestalreadyinthefirststageofthetransaction,i.e.toestablishtheobligationofthepurchasertoleasetherealpropertybackintheagreementonthesaleoftherealproperty.Itisalsoimportantforbothpartiestoagreedetailsofthelease(duration,price,etc.)assoonaspossible,especiallyifthesellerandthepurchaserdonotbelongtothesamecapitalgroup.
Themainadvantageofsuchasaleandleasebackoperationisthereleaseoftheseller’scapitalasaconsequenceofthesaleoftherealproperty.Thiscapitalmaybethereafterusede.g.forinvestmentpurposes.However,thedecisionon
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choosingsuchasolutionshallbemadeondetailedcalculationofallthecostsrelated,includingtheleasecosts.
Tax implicationsIfasaleandlease-backtransactionisstructuredasanoperationallease,thebuyer/lessorisinmostcasestheowner,andwillbeabletodepreciatethevalueoftheinvestmentatthestandarddepreciationrateof2.5%.Accelerateddepreciationforusedbuildingscanbeconsideredinsomecases.Othercostsrelatedtothemaintenanceandexploitationofthebuildingaretax-deductibleforthelessor.
If,underasaleandlease-backcontract,therealestateassetwhichisthesubjectofthecontractissoldatahigherpricethanitsnetbookvalue,ataxablecapitalgainwilloccur.UnderPolishlegislation,
itisnotpossibletodeferthetaxationofsuchacapitalgaininordertouseitforreinvestment.
Asaleandlease-backarrangementhasanadvantagefortheseller/lesseethattheleasepaymentsarefullytaxdeductibleascostsincurredforthepurposeofearningrevenue.Bycontrast,fortheborrowerpartytoanormaldirectfinancingarrangement,onlytheinterestpaymentsmadeontheloanaretax-deductible.Therepaymentofcapitalisnotatax-triggeringevent.Underadirectfinancingarrangementsecuredbyamortgage,thedebtorwouldstillbetheowneroftherealestate.Assuch,thedebtorwouldbeunabletodepreciatethevalueoftheland.Underaleasecontract,theleasepaymentsarepartlyacompensationfortheuseoftheland.Therefore,paymentsfortheuseofthelandaretax-deductibleforthebenefitofthelessee.
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Themainpurposeoftheduediligenceprocessistoprovideinvestorswithacomplexoverviewofthesituationoftherealestatebeingthesubjectoftheacquisitionfromthelegal,financialandtaxperspective.Takingintoaccountthespecificstatusandfeaturesofagivenrealestate,abroaderduediligencereview,conductedbytechnicalandenvironmentalexperts,mayberecommended.
2.9.1. Legal due diligenceTheduediligenceprocessisallaboutmitigatinginvestmentrisks.Inpractice,thelegalduediligencereviewconsistsingatheringinformationandshouldprovidethepotentialinvestorwithacomprehensiveviewofthelegalissuesregardingtherealpropertyheconsidersacquiring.
Bytheendoftheduediligenceprocess,theinvestorshouldhaveafairideaofwhethertherealestateisworthinvestingtimeandmoney.Inthisregard,aduediligenceshouldbeascomprehensiveaspossible.
Thescopeofthelegalduediligencewilldependonthestructureofthedeal.Inasharedeal,thescopeoftheduediligencewillgenerallybewiderthanthatrequiredforanassetdeal,asitneedstocoveralltheaspectsrelatedtotheactivityofthe
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company.Incaseofanassetdealmostlythelegalstatusoftherealestateshouldbetakenintoconsiderationandexaminedcarefully.
Withinthelegalduediligence,thereviewbasesmainlyondataandinformationprovidedbythesellerandonenquiriesanddiscussionswiththesellerand/orthemanagementofthetarget.Additionally,publiclyavailablesources(suchasdataincourtregisters)areexplored.Inpractice,theduediligenceregardingtherealestateusuallycoversreviewofthefollowingmatters:
• legaldocumentsrelatedtotheseller’stitletotherealestateinuse(e.g.realestateacquisitionagreements,extractsfromthelandandmortgageregister,extractsfromthelandandbuildingsregister,etc.);
• documentsrelatedtotheencumbrancesovertheseller`srealestate;
• leaseagreementsfortherealestateconcludedbytheseller;
• developmentandconstructiondocumentation;
• planningandzoningissues;
• utilitiessupplydocumentation;
• environmentalissues(permits,licensesetc.).
Reviewofotheraspectsisusuallyagreedwiththesellerandstrictlydependsonthetypeoftransaction(shareorassetdeal).
Theaimofthelegalduediligencereviewoftherealestateistoidentifyareasofinvestmentrisksbutalsootherspecificlegalaspectsregardingperformingof
businessactivityontherealestateanditssale.Belowwepresentcertainissuesthatneedtobeanalyzedduringtheduediligenceprocessandwhichmayinfluencethestructureofthetransaction,orevenadecisiononenteringintothetransaction.
Local Spatial Development PlanThelocalspatialdevelopmentplansareissuedbythelocalauthorities(municipalities)foragivenarea.Generally,localspatialdevelopmentplansarelocalactsanddefineconditionsforlanduseanddestinationandthescopeofbusinessthatcanbeconductedwithinagivenarea.Municipalitiesissuelocalspatialdevelopmentplanswithaviewtolocaldevelopmentandpublicinterest.Developmentofaninvestmentontherealestateispossibleprovidedthatbuildings,plantsandotherindustrialfacilitiescomplywiththerelevantlocalspatialdevelopmentplanforagivenarea.Therefore,itisessentialtoestablishduringtheduediligenceprocesswhetherthereisalocallocalspatialdevelopmentplancoveringtheareawherethetargetedrealestateislocatedandifso,whataretheconditionsofthislocalspatialdevelopmentplaninordertoconfirmwhetheritwillbepossibletoperformtheplannedinvestment.Pleaserefertothesection2.5.1.formoredetailedinformationregardingthelocalspatialdevelopmentplan.
Withinthereviewofthelocalspatialdevelopmentplan,inparticular,theissuesoftheconservationandhistoricpreservationzonesandagriculturallandshouldbeverified.
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Conservations and historic preservation zoneThezoningmasterplanmayprovidethattheareawheretherealestatesubjecttothepotentialinvestor’sinterestislocatedfallswithinaconservationandhistoricpreservationzonewheresomespecificrulesapplyinordertoprotectthehistoricalmonumentslocatedinthezone.Dependingonthetypeoftherealestateanditshistoricalstatustheremaybeadditionalrequirementsandlimitationsestablishedbytheprovisionsoflaw.
RevitalizationTheRevitalizationActenteredintoforceattheendof2015.Undertheact,revitalizationisthecomprehensiveprocessofrescuingdegradedareasfromcrisisthroughintegratedactionsforthebenefitofthelocalcommunity,spaceandeconomy.Adegradedareaisaterraininwhichthereisaconcentrationofnegativesocialphenomenaaswellas,forexample,degradationofthetechnicalconditionofbuildings,alowleveloftransitservice,andpoorlyadaptedurbanplanningsolutions.
Underthenewlegislation,itisnecessaryforthecommuneauthoritiestopasslocalgovernmentlawintheformofaresolutioninestablishingarevitalizationzoneoraspecialrevitalizationzone.
ItshouldbenotedthattheRevitalizationActaddednewcases,whenacommunemayexercisetherighttopre-emptionofrealestate,i.e.incaseoftransactionsthesubjectofwhichisarealestatelocatedwithinarevitalizationareaorspecialrevitalizationzone.Incaseofconsidered
acquisitionofrealestatelocatedinoneofthoseplans,aninvestorshouldbearinmindthepre-emptionrightofacommune.
Agricultural landThelocalspatialdevelopmentplanmayprovidethattherealestateisassignedforagriculturalactivity.Asarule,thedevelopmentofrealestatedesignatedforagriculturaluserequiresaspecialprocedureinvolvingthemodificationofthelocalspatialdevelopmentplan.Suchaproceduremaybetime-consumingandisconnectedwiththeriskofthirdpartieschallengingtheproposedchangestotheplan.Additionally,realestateclassifiedasagriculturallandintheLandandBuildingRegister,butnotcoveredbythemasterplan,shouldbealsoexcludedfromagriculturalproductionbyobtaininganadministrativedecisionfromtherelevantauthority.
Itshouldbenotedthatafterexclusionoftheareafromagriculturalactivityanannualfeehastobepaidfortenyears(seecommentsbelow).
Aninvestorconsideringacquisitionofagriculturalrealestateshouldalsobearinmindexistingrestrictionsrelatingtopurchaseofanagriculturalland.Regulationsinforceprovideformanyspecificlegalrestrictionsandlimitationsandnewlegislationaretofurtherrestrainentitiesotherthanindividualfarmersfrompurchasinganagriculturalrealestate(please see comments in section 2.4.2).
Restitutions claimsUnderthenationalizationlawspassedinPolandaftertheSecondWorldWar,many
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realpropertiesandfunctioningenterprises(includingtheirrealestateassets)were“nationalized”(or“communalized”).However,currently,therearenospecificreprivatisationlawsinforceinPolandtodealwiththerestitutionmattersandclaims.Asaresult,thelegalstatusofnationalizedpropertiesisquiteoftensubjecttouncertainty.Underspecificconditions,formerownersortheirsuccessorsmayapplytocivilcourtsandinitiateproceedingsaimedattherestitutionofsuchrealestate.Asthecurrentownerbenefitsfromthelandandmortgageregister’spubliccredibilitywarranty,theoutcomeofsuchclaimwillprimarilydependontheapparentgoodfaithofthecurrentandpreviousowneratthetimetheyacquiredtheproperty.Nevertheless,thisissueneedstobesubjecttoanalysisduringtheduediligence.
InWarsaw,onthebasisofthespecial“Warsawdecree“onlandownershipof1945,theCityofWarsawgainedownershiprightstothemajorpartofrealestateinthecity.However,subjecttospecificconditions,formerownersoftherealestateweregrantedtherighttoapplyforobtainingusufructrightstorealestateorcompensation.Currently,suchapplicationswhichwerenotresolvedorwereresolvedincontraventionofthelawmaybethebaseforsuccessfulclaimsforreestablishingtherightsofthepreviousownersortheirsuccessors.Inconsequence,itisessentialduringtheduediligencetoinvestigatewhetheranysuchproceedingsarependingwithrespecttothetargetpropertylocatedinWarsaw.
AfterthejudgementoftheConstitutionalTribunaldated19July2016,theAct
onamendmentoftheActonPropertyManagementandtheFamilyandGuardianshipCodecameintoforceon17September2016.ThisactprovideslimitationsofrestitutionofownershipofrealestatenationalizedundertheWarsawdecreeortransferringclaimsforreestablishingtherightsforsuch.
Accordingtothenewact,incasewhentherealestateinWarsawise.g.assignedorusedforpublicpurposes,theCapitalCityofWarsawmayrefusetoestablishtherightofperpetualusufructtoapreviousownerofthisrealestate.
AnewprovisionisgrantingtheStateTreasuryandtheCapitalCityofWarsawrightofpre-emptionintheeventofthesaleofrightsandclaimsarisingfromtheWarsawdecreeandclaimsfortheestablishmentofperpetualusufructtothepreviousownerofrealestatelocatedinWarsaw.Thepre-emptionrightalsoappliesincaseofsaleofperpetualusufructrightestablishedbythewayofsatisfyingrightsandclaimsarisingfromtheWarsawdecree.
Asaresult,thenewregulationshouldbetakeintoconsiderationduringtheinvestmentprocess.
Fees – holding the real estate
Zoning feeZoningfee(“OpłataAdiacencka”)isachargewhichmayoccurwithregardtotheincreaseofthevalueoftherealpropertyresultingfrom:
• divisionoftheproperty;
• mergingandsubsequentlydividingtheproperty;
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• theconstructionofinfrastructurewiththeuseofpublicfunds(placingwaterpipes,sewagepipes,heatingsystems,electricitygasandtelecommunicationsfacilities).
Theamountofthefeedependsontheamountoftheincreaseintheproperty’svalue and is usually established based onanopinionofanindependentexpertdetermininghowmuchthevalueofpropertyhasincreasedby.
Theamountoffeeshallnotbehigherthan50%(withrespecttothedivisionfollowingamergerandtheconstructionofinfrastructurewiththeuseofpublicfunds)andnothigherthan30%(withrespecttoadivision)oftheincreaseinvalueoftheproperty.
Additionally,adoptionofthelocalspatialdevelopmentplanmayalsoleadtoanincreaseinrealestatemarketvalue,e.g.whenaforestrylandoranagriculturallandisreclassifiedinthelocalspatialdevelopmentplanintopublicroads,itsvalueusuallyincreases.Insuchcasesthezoningfee(“RentaPlanistyczna”)maybeestablishedasapercentage(nothigherthan30%)oftheincreaseinvalueofthelandcalculatedasatthedateofthetransferofthegivenrealestate.
Thepercentageforcalculationofthezoningfeeshouldbeprovidedforinthelocalspatialdevelopmentplan.Thezoningfeeispayablebythevendorinthecaseofatransferofthepropertywithin5yearsfromthedaywhenthelocalspatialdevelopmentplancameintoforce.
Exclusionfromagriculturalproduction fee
Entrepreneursareofteninterestedinchangingthepurposeofuseoftheagriculturalandforestlandinordertodevelopthelandandrealizeaninvestment.Exclusionfromagriculturalproductionissubjecttoaninitialfeeandsubsequentannualpayments.Thevalueofsuchpaymentsdependsonthe:
• areaofthelandsubjecttoexclusion;
• qualityoftheland(classofsoil);
• marketvalueofthelandsubjecttoexclusion.
Itshouldbenotedthatifthelandexcludedfromagriculturalproductionissold,theobligation to pay the annual fees passes to thepurchaser.
Environmental issues
IntroductionPolishenvironmentallawaffectstheconductofeconomicactivityformostbusinessentities.Oneofthemostimportantrequirementsimposedbytheenvironmentallawistherequirementtoobtainpermitsrelatedtotherulesofhavinganimpactupontheenvironment.Itisusuallyexaminedduringtheduediligencewhethertheseller(orthetargetcompany)fulfillstheenvironmentallawrequirements.
PermitrequirementsEnvironmentalpermitscanbebasicallydividedintotwogroups.Thefirstoneincludespermissionobtainedinthecourseoftheinvestmentprocessandthesecond
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groupincludespermissionrelatedtotheuseoftheproperty.
IncertaincircumstancesPolishenvironmentallawimposesanobligationtoobtainanintegratedpermit,whichincludesanumberofpermitsgoverningtheuseoftheenvironment.Theobligationtoobtainintegratedpermitrelatesto,interalia,thefollowingbranchesofindustry:metallurgyandsteelindustry,themineralindustryandthechemicalindustry.
Besides,itisimportanttotakeintoaccountthepermissiblelevelofnoise.Permissionisrequiredonlyifthenoiselevelexceedsthenoiselimits,whichshouldbeevaluatedtakingintoaccounttheprovisionsofthelocalplan.
LiabilityforcontaminatedlandUnderthePolishlawtherearetworegimesofliabilityforland(soil)contamination,dependingontheperiodfromwhichthecontaminationoriginates(withtheborderlinebeing30April2007).Acurrentholder(inparticularownerorperpetualusufructuary),revealedintheLandRegister,isliableforsoilcontaminationwhichoccurredpriorto30April2007ormaybeattributedtoactivitycompletedpriortothatdate,evenifsuchholderdidnotactuallycausethecontamination.
Partiestothesaleagreementcannotcontractuallyexcludetheabovementionedadministrativeliabilityofthepurchaserforclean-upofcontaminatedlandsowhenapotentialinvestorintendstobuyaproperty(especiallyonethatwasusedforindustrialpurposes)adetailedstudyonpollutionofthelandisrequired.
Tosecurepurchaser’sinterest,thesellerofcontaminatedlandmayagreetoreimbursethepurchaserwithexpendituresbornefortheclean-up.
Thesituationisdifferentfor“new”landcontamination,i.e.anysoildamage,whichoccurredafter30April2007orcouldbeattributedtoanactivitycompletedafterthatdate.Anentityusingtheenvironment(i.e.anentitywhohasrelevantpermitstooperateandusetheenvironment)isliableforanysuchdamage.
EnvironmentalimpactassessmentAccordingtothesection2.5.1wheretheenvironmentaldecisionandenvironmentalimpactassessmentwheredescribed,insomecases–especiallyforlargeinvestmentsanenvironmentalimpactassessmentproceedingmayberequired.
2.9.2. Financial due diligenceNotmanyinvestorsperformduediligencewhencompletingarealestatetransaction.Oftentheinvestor’sowninternalproceduresrequireduediligencetodeterminewhetherornotthetransactionisinthebestinterestoftheinvestor.
Althoughfortransactionsofasmallerscalethismaynotbeagoodwaytoevaluateadeal,mostinvestorsunderstandthevalueofexpertoutsourcedfinancialduediligenceservices.Thisringsespeciallytruewhentakingintoaccountlargertime-sensitivetransactions(auctionprocessesforexample).
Althoughsomeinvestorschoosetoforegoduediligencewhenacquiringnewassets,
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theyshouldunderstandthatfinancialduediligencecanindicatehowtheacquiredassetswillaffectmetricssuchasrevenueandnetoperatingincome.Inaddition,duediligenceisabletodiscoverunforeseenproblemssuchasdiscrepanciesbetweentheamountpaidforrentasdescribedinleaseagreementsvs.theactualamountbeingpaidpertheaccountingbooks.
Abuyerusuallymakesuseoffinancialduediligencetoassistinidentifyingmajorissuesconcerningatransaction:
• thevalueoftheproperty’sNOItakingintoaccounttheexistingleaseportfolio
• anyprovisionsintheleasethataffecttheNOIadversely(forexample,discountsonrentforanygivenperiodoftimeorforimprovementsmadebylessee)?
• bookkeepinginusebeingadequateforthebusiness,andhowdoesitlooksnexttotheinvestor’sbookkeepingprocedures
• lesseeeverbeinglatewiththerent,orittakinglongertocollectrent;
• chargesmadebythelesseebeingenoughtocoverthecostsofmaintainingthebuilding;andanyservicechargesnotsettledforanyreason
Analyzing financial issuesTheitemslistedbelowshouldbeconsideredwhenseekingtoresolvethepreviouslymentionedissuesconcerningfinancialduediligence:
• thefinancialfiguresbeingviable:canthefiguresbetracedbacktoitsoriginreliably;
• criticalbookkeepingproceduresbeingappliedconsistentlyandappropriately;
• theinfluenceofthebookkeepingproceduresonthefinancialfigures;
• assuringthatthecreationandlevelofmanagementinformationisaccurateandadequateforthebusinessbeingconsidered;
• evaluatingthecontractualobligationsthebusinesshasandtheirinfluenceonprofitabilityandcashflow;
• evaluatingcriticalproblemsinfluencingearningsposition;
• recognitionoftheneedforcostrechargesincurredandfocusonareasforimprovement;
• recognizingthe“normal”workingcapitalandcashflowtidesofthebusinessandprobablefundingneedsdowntheline;
• makingsureconstructionscostsareproperlyreflectedinthebookkeepingrecords;
• recognizingthenetassetbaseforacquisition;addressingpossiblebalancesheetvaluationdiscrepancies;makingsureeverythinghasbeenadequatelyaddressedinevaluatingtheunderlyingearnings;
• comparingtherentrollagainsttherentalagreementsandbookkeepingrecords;
• comparingtheservicechargesincurredagainstthebookkeepingrecords;and
• goingoverrentalagreementstoidentifybalancesheetliabilities.
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2.9.3. Tax due diligenceTaxduediligence,ingeneral,focusesonassessingmaterialtaxriskspertainingtoassetsorsharesbyreviewingthetaxpositionofthetargetcompany.Byidentifyingtaxrisksduringduediligenceconductedbeforethetransaction,theinvestormayseekprotectionorindemnificationfromtheseller.
Fromataxperspective,itisalsoimportanttoensurethattheappropriatetaxstructureisused,whichusuallyinvolvesapre–transactionstudyandthepreparationofthetransactionstructureinaccordancewiththePolishandinternationaltaxregulations.Inaddition,itcanalsoincludeanassessmentofthetaximplicationsofafutureexitscenario.
Acquisition of assetsInthecaseofanassetdealdeemedtobetheacquisitionofbusinessasagoingconcernoraviablepartofthatbusiness,theacquirermaybeheldliablefortheoutstandingtaxliabilitiesoftheseller.Thisliabilityisexcludediftheacquirercouldnothavebecomeawareoftheseller’staxarrearsdespiteactingwithduediligenceinattemptingtoidentifysuchtaxarrears.Performingataxduediligencereviewisthusawaytolimitorexcludesuchliability.
Thisliabilityisinpracticeofa’subordinated’nature,asevenifaformaldecisiondeclaringthattheacquirerisliablefortheseller’staxarrearsisissued,theclaimagainsttheacquirermaycrystallizeonlyiftheenforcementprocedureagainstthesellerisineffective(andtaxclaimsagainstthesellerarenotsatisfied).
Accordingtothetaxregulationstheacquirer(withtheseller’sconsent)orthesellermaysubmittothetaxauthoritiesaformalrequestforacertificatewhichlistsallthetaxliabilitieswhicharetransferabletotheacquirer.Theacquireristhenliableonlyuptothevalueofthetaxliabilitiespresentedinthecertificate.
Inthecaseofasaleofsingleassets(notconstitutingagoingconcern),theacquirershouldnotbeliablefortheoutstandingtaxarrearsoftheseller.However,ifthetransactionisreclassifiedintoasaleofagoingconcern,thebuyermightthenbeheldliablefortheseller’sundisclosedtaxliabilities.
Acquisition of sharesInthecaseofasharedeal,allthepotentialoutstandingliabilitiesthatarenotstatuebarredremainwiththeacquiredcompany.Asaconsequence,theacquirerfacesthepossibilityofincurringaneconomiclossonthetransactionifundisclosedtaxliabilitiesbecomeapparentafterwards.Taxduediligenceisthereforeconductedtoallowtheacquirertoassessandminimizethisrisk.
Generally,theperiodoflimitationfortaxliabilitiesis5taxyearsfollowingtheyearinwhichthetaxispayable.Inpracticethismeansthatfromtheperspectiveof2017thereisstillataxriskinrelationspecificallytoatarget’scorporateincometaxpaymentsfor2011–2016,andtoothertaxliabilities,ingeneral,for2012–2016.
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Tax issues analyzedThescopeofataxduediligencereviewdependsonthestructureoftheplannedtransaction.
Inthecaseofanassetdeal,thescopeofduediligencedependsonthesubjectofthetransactionandtheextenttowhichtheacquirermaybeliablefortheseller’staxliabilities.
Inthecaseofasharedeal,astheacquirerfacesthefullimpactofanytaxliabilitiesassumed,fullduediligenceisusuallyconducted.
Thetaxduediligenceincaseofasharedealusuallycoversthefollowingareas:
• reviewoftaxreturnsforperiodspreviouslyfiledandreviewoftaxcalculationsforperiodsthatarenotyetfiledwiththetaxauthorities;
• reviewoftheresultsofpasttaxauditstodetecttaxrisksforperiodsthatarestillopenfortaxauditsbythetaxauthorities;
• reviewofanyobtainedtaxrulings;
• reviewofanylossescarriedforward,taxcreditsandspecialtaxprivilegestoidentifyrelatedtaxrisksforunauditedperiodsandtoassesswhethersuchtaxbenefitswillbeavailableposttransaction;
• reviewofwithholdingtaxproceduresandexemptionsavailable;
• reviewofsignificanthistoricalreorganizationsandone-offtransactionsandtheirimpactonthetaxaccounts;
• reviewofintercompanytransactionsandpresenttransferpricingpolicyinthecompany;
aswellasanexaminationofareastypicalforarealestatecompany,suchas:
• theexistingdebtfinancingstructure(e.g.debtpushdownschemes),thincapitalizationandotherpendingrestrictionsonthetaxdeductibilityofinterestpaymentsonthedebt;
• anylargedifferencesbetweenbookandtaxbasisofassets,analysisofthedeferredtaxcalculations,inparticularidentificationofanydeferredtaxliability,e.g.fromaccruedforeignexchangegains;
• rulesforcapitalexpenditurerecognitionandtheimpactofforeignexchangedifferencesontheinitialvalueoffixedassetsfortaxdepreciationpurposes;
• policiesforthetaxdepreciationofassets,includingareviewofcostsegregationschemes;
• cashincentivesofferedtolesseessuchasarentfreeperiodorstep-uprentandtheirimpactonthetaxaccounts;
• treatmentoftheinvestmentcostsincurredbylessees(leaseholdimprovements)whentheleaseexpires;
• taxrecognitionofmanagementchargespayablebyspecialpurposevehiclestoservicingcompanieswithinthegroup;
• anystep-upinthevalueoftherealestateperformed;
• reviewofinputVATrefundsintheinvestmentphase;and
• policiesforrealestatetax.
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Areviewofthesaleandpurchaseagreement(SPA)fortheacquisitionofarealestatetargetusuallycoversthefollowingtaxpoints:
• reviewofthetaxdefinitionsintheSPA,andofthetaxrepresentationsandwarranties;
• reviewofthetaxindemnityclausesintheSPA;and
• analysisoftheSPAfromtheperspectiveofotherprotectionavailableagainsttaxexposures.
2.9.4. The use of due diligence results when negotiating
Afterthewholeprocessofduediligence,theinvestorgetsageneralfinancialandtaxriskoverview,whichmakesuptheoriginoftheinformationfornegotiationswiththesellerandassistsinadjustingthefinancialmodelforvaluation.
ThiscanbeusedtogetadecreaseinpriceinordertoalleviatepossibletaxliabilitiesandcanbeusedwhenwritingwarrantiesanddamagesintheSPA.
Theresultsmaydirectlyaffectthecompositionofthetransaction,forexample,transformingasharedealtoanassetdeal;theymayalsobeusedforpost-acquisitiontaxplanning.
Alongwiththetaxandfinancialduediligenceresults,thelegalduediligencereviewshouldassistthebuyerindeterminingwhetherornottocompletethetransaction,andifso,inwhatform.Duediligenceinvestigationsletthebuyer’slegalteamconstructtheconditionsofthedealsothatthebuyerisaffordedwithanadequateamountofcomfortandprotection.Thelegalteamwillthenbeinapositiontoaddressspecificproblemsbyaskingforfurtherexplanationsand/orpromisesorwarrantiesfromtheseller.ThelegalteamcanalsoevaluatewhetherornotsuchpromisesorwarrantiesneedtobecoveredbyanindemnityclauseorotherlegallanguageallowedunderthePolishlaw.
Whentakentogether,thefinancial,taxandlegalduediligenceresultsareaverystrongtoolwhichcanveryeasilyhaveaninfluenceonthefinalresultofnegotiations,and,inparticular,howmuchthebuyerwillultimatelypay.
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Accounting and auditing
3.1. Introduction to the accounting frameworkinPoland
PolishaccountingisregulatedbytheAccountingActof29September1994(theAccountingAct).TheMinisterofFinancehasalsoissuedseveralregulationswhichcoverspecificaccountingareassuchasfinancialinstruments,consolidation,accountingprinciplesforbanks,insurancecompanies,investmentfundsandpensionfunds.Since1994,theAccountingActhasundergonesignificantchangestobringPolishaccountingregulationsclosertotheInternationalFinancialReportingStandards(IFRS).However,thedifferencesbetweentheAccountingActandIFRS,mainlyfollowingIFRSdevelopmentsinlastdecade,continuetoexistasnotedinSection3.7below.Thefollowinginformationappliestofinancialstatementspreparedfortheperiodsbeginningonorafter1January2017.
InordertohelpimplementtheAccountingAct,thePolishAccountingStandardsCommittee(‘theCommittee’)preparesandissuesNationalAccountingStandards(KSR).Asat1January2017,tenNationalAccountingStandardshadbeenissuedinregardtodifferenttopicsincludingcashflowstatement,leasing,impairmentofassets,concessionaccounting,recognitionandpresentationofchangesinaccountingpolicy,estimates,andcorrectionoferrorsandpostbalancesheetevents.
TheCommitteehasalsoissuedseveralpositionpapers(notreferredtoasstandards)inregardtoe.g.accountingforemissionrights,inventorycount,inventoryvaluation,greencertificates,financialstatementsofhousingcooperativesandsomeaspectsofbookkeeping.IntheareasnotregulatedbytheAccountingActorNationalAccountingStandards,referencemaybemadetoIFRSs.NationalAccountingStandardsandtheCommittee’spositionpapersareavailableonthewebsiteoftheMinistryofFinance.
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Accounting and auditing
TheAccountingActpermitsorrequiressomePolishentitiestoapplyIFRSasadoptedbytheEUastheirprimarybasisofaccounting,ratherthanapplyingthe
accountingprinciplesoftheAccountingAct.Thoseregulationsaresummarisedinthefollowingtable:
Standalone financial
statements
Consolidated financial
statements
1.EntitieslistedonaregulatedmarketinPolandorotherEuropeanEconomicArea(EEA)country.
Choice Required
2.Banks(otherthanthoseincluded inpoints1,3,4and5). Notpermitted Required
3.EntitiesthatappliedforapermissiontolistonregulatedmarketinPolandorotherEuropeanEconomicArea(EEA)country.
Choice Choice
4.EntitiesthatarepartofagroupwheretheparentpreparesconsolidatedfinancialstatementsforstatutorypurposesinaccordancewithIFRSasadoptedbyEU.
Choice Choice
5.BranchesofaforeignentrepreneursthatprepareseparatefinancialstatementsforstatutorypurposesinaccordancewithIFRSasadopted by EU.
Choice n/a
6.Otherentities. Notpermitted Notpermitted
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3.2. Accounting records
TheprovisionsoftheAccountingActandrelatedregulationsareapplicableto,amongothers,companiesandpartnershipsthathavetheirregisteredofficeorplaceofmanagementinPoland.ForthoseentitiesthatapplyIFRSastheprimarybasisofaccountinginsteadofPolishprinciples,thefollowingsectionsoftheAccountingActstillapply:
• Chapter2onbookkeeping
• Chapter3oninventorycount
• Chapter6Aonreportonpaymentsmadetogovernment
• Chapter7onauditing,filingwiththeappropriatecourtregister,providingaccesstoandpublicationoffinancialstatements
• Chapter8ondataprotection
• Chapter9oncriminalliability
• Chapter10onspecialandinterimprovisionsand
• Article49inregardtodirectors’report.
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Accounting and auditing
Eachentityisobligedtomaintainitsaccountingbooksandotherdocumentationwhich,inparticular,comprises:
• Adescriptionoftheentity’saccountingprinciples
• Rulesforkeepingsubsidiaryledgersandtheirlinktogeneralledgeraccounts.
Accountingrecordsshouldbekept,andfinancialstatementsdrawnup,inthePolishlanguageandpresentedinthePolishcurrency.
It should be noted that the violation of the AccountingActrequirementsbyapersonresponsiblefordrawingupthefinancialstatements(usuallytheManagementBoardandSupervisoryBoard)mayberecognisedasacriminaloffence,whichispunishablebyimprisonmentforatermnotexceedingtwoyears,byafine,orboth.
Theregulations,summarisedin Chapters 3.3.- 3.7 below, apply to all entities in general. Certain types of entities such as banks,insurers,orinvestmentsfundsmightbegovernedbyspecificregulationsinrelationtothemeasurementandimpairmentofassets(suchasfinancialinstruments)orfinancialstatements.Furthermore,thereareexemptionsandsimplificationsprovidedforsmallandmicroentitieswhichareexplained in Chapter 3.8.
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3.3. Major principles in regard to recognition and measurementof assets and liabilities
TheAccountingActrequirescompaniestorecogniseandpresentthetransactionsinthefinancialstatements,inaccordancewiththeireconomicsubstance.
EntitiesmayelecttodepartfromaregulationoftheAccountingAct,andadoptitsownaccountingpolicy,ifthatregulationresultsinpresentationofthefinancialpositionandperformancenotbeingtrueandfair.Thejustificationforsuchdepartureanditsimpactonthefinancialinformationshouldbedisclosed.
Anassetisrecognisedifitisprobablethatthefutureeconomicbenefitsthatareattributabletotheassetwillflowtothecompany.
Intangible assetsIntangibleassetsarerecordedinitiallyattheirpurchasepriceandthenareamortisedovertheirusefullivesorwrittendownforimpairment.Thegoodwillanddevelopmentcostsshallbeamortizedovertheir
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economicusefullifeor,whentheeconomiclifecannotbereliablydetermined,overtheperiodnotexceeding5years.
Property,plantandequipmentItemsofproperty,plantandequipmentaremeasuredatacquisitionorproductioncost,lessaccumulateddepreciationandimpairment.Landismeasuredatacquisitioncostlessimpairment.
Tangibleassetsmayberevaluedinaccordancewithseparateregulations.However,thelastrevaluationwasallowedon1January1995,basedonadecreeissuedbytheMinistryofFinance.
Theresultofrevaluationofafixedassetisreflectedintherevaluationreserve.Afterthefixedassetisdisposed,theamountremainingintherevaluationreserveistransferredtothereservecapital.Thecostsincurredonanassetalreadyinuse,suchasrepairs,overhaulsoroperatingfees,areexpensedasincurred.
However,thecoststhatincreasetheexpectedfutureeconomicbenefitsofagivenfixedassetbeyondtheoriginalexpectedbenefits,arecapitalisedandincreasethecarryingamountoftheasset.
Tangibleassets,exceptforland,aredepreciatedonastraight-lineorothersystematicbasisovertheassets’estimatedusefullives,orifshorteroverthetermofright.Borrowingcosts(interest)whichrelatetotheconstruction,adaptation,assemblyorimprovementofatangibleassetorintangibleassetarecapitalisedaspartoftheinitialcostoftheasset,wherethoseborrowingsweretakenoutforthat
purpose.Foreignexchangegains/lossesonsuchborrowingsarealsocapitalised.
InvestmentpropertyThedefinitionofinvestmentpropertyincludesproperties,whicharenotusedbytheentityforitsownpurposes,butwhichareheldforthepurposeofgeneratingprofitsthroughcapitalappreciationand/orproceedsfromrental.Investmentpropertyiscarriedatapurchasepricelessdepreciationandimpairmentwrite-offs(costmodel)oratitsfairvalue(fairvaluemodel).Eachentityhasapolicychoiceforthevaluationmodelused.
FairvaluemodelIfthefairvaluemodelisselected,thechangesinthefairvalueofinvestmentpropertyarerecognizedintheincomestatementasotheroperatingcostsorotheroperatingincome(beforetheamendmentstotheActwhichcameintoforceon1January2009changesintheinvestmentpropertyfairvaluewererecognizedthroughequity).
CostmodelIfthecostmodelisapplied,investmentpropertyisrecognizedandsubsequentlymeasuredatacquisitionorconstructioncost,lessaccumulateddepreciationandaccumulatedimpairmentwrite-offs.Landisvaluedatitsacquisitioncostreducedbyimpairmentwrite-offs.Investmentproperties,exceptforland,aredepreciatedonastraight-lineorothersystematicbasisovertheinvestments’estimatedusefullives.
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Borrowingcostswhichrelatetotheconstruction,adaptation,assemblyorimprovementofaninvestmentpropertyarecapitalizedaspartofthecostoftheasset,wherethoseborrowingshavebeendrawdownforthatspecificpurposethroughtothedateofthecompletionoftheconstructionorimprovement.
FinancialinstrumentsFinancialinstrumentsareinitiallyrecognisedatacquisitioncost(price),beingthefairvalueoftheconsiderationgiven.Thetransactioncostsareincludedintheinitial value.
Afterinitialrecognition,financialinstruments(includingderivativesandembeddedderivatives)areclassifiedintooneofthefollowingfourcategoriesandmeasuredasfollows:
• Investmentsheldtomaturity–atamortisedcost,calculatedusingtheeffectiveinterestrate
• Originatedloansandreceivables–atamortisedcost,calculatedusingtheeffectiveinterestrate
• Heldfortradinginvestments–atfairvaluewithanyunrealisedgains/lossesrecordedintheprofitandlossaccount
• Availableforsaleinvestments-measuredatfairvaluewithunrealised
gains/lossesrecognisedintheprofitandlossaccountorintherevaluationreserveinequityuntiltheinvestmentissoldorimpairedatwhichtimethecumulativegain/lossisincludedintheprofitandlossaccount–thepolicytobeselected.
Inseparatefinancialstatementsofaparententity,investmentsinsubsidiaries,associatesorjointventuresarecarriedatcost,equityaccounted,oratfairvalue.Ifcarriedatfairvalue,allchangesarerecognisedintherevaluationreserveinequity.
Thefairvalueoffinancialinstrumentstradedonanactivemarketismeasuredbasedonthatmarket’slistedpricesatthebalancesheetdate.Ifthereisnosuchalistedmarketprice,thefairvalueisestimatedbasedonthelistedmarketpriceofsimilarinstrumentsorontheexpectedcashflows.
Hedge transactionsTransactionsinvolvingderivativeinstrumentstohedgeafinancialriskareclassifiedasthreetypesofhedges–cashflowhedges,fairvaluehedgesandahedgeofanetinvestmentinaforeignsubsidiary.Hedgeaccountingappliesaspresentedintable.
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InventoriesInventoryismeasuredatlowerofcostandnetrealisablevalue.Capitalisationoffinancialcostsintheinventoryispermittediftheproductionprocessrequiresanecessarylengthyperiodofpreparations.
Foreign currency transactionsTransactionsdenominatedinaforeigncurrency(i.e.notPolishZloty)aretranslatedintoPolishZlotysattheactualexchangerateapplicableatthedateofthetransactionor,iftheactualrateisnotknown,attheratepublishedbytheNationalBankofPoland.
Atthebalancesheetdate,assetsandliabilitiesdenominatedinforeigncurrencies(otherthansharesinsubsidiariesandassociatescarriedusingequitymethod)arere-translatedattheexchangeratepublishedbytheNationalBankofPoland.
Foreignexchangedifferencesarisingonrevaluationaregenerallyrecognisedasfinancialincomeorfinancialexpense.For
certaintypesoflong-terminvestmentsdenominatedinforeigncurrenciesgainsarerecognisedintherevaluationreserve.
Foreignexchangedifferencesrelatingtoliabilitiesfinancingassetsunderconstructionformpartofthecostofthoseassets.
EquityIssuedinstrumentsareclassifiedasequityorliabilitybasedonthetermsandthedefinitionsofliabilityandequity.Additionalcapitalcontributions–regardlessofthetermsofredemptionareclassifiedasequity.Thesharecapitalpresentedinthebalancesheetshouldbeequaltotheamountregisteredintheregistrationcourtandbasedontheshareholders’resolution.
Deferred taxDeferredtaxisrecognised,usingtheliabilitymethod,onalltemporarydifferencesatthebalancesheetdatebetweenthetaxbasesofassetsand
Cash Flow Hedges Fair Value Hedges
Hedge of a net investments in a foreign subsidiary
Hedgeditemrecognised
Inaccordancewithotherstandards.
Atfairvalue,withallchangesrecognisedintheincomestatement.
Inaccordancewithotherstandards.
Hedginginstrumentrecognised
Atfairvalue,witheffectivepartofallchangesinequity.
Atfairvalue,withallchangesrecognisedintheincomestatement.
Atfairvalue,witheffectivepartofallchangesinequity.
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liabilitiesandtheircarryingamountsforfinancialreportingpurposes.Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences.Deferredtaxassetsarerecognisedforalldeductibletemporarydifferencesandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailable,againstwhichthedeductibletemporarydifferencesandunusedtaxlossescanbeutilised.
Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthat,accordingtoprovisionsenactedbythebalancesheetdate,willapplyintheperiodwhentheassetisrealisedortheliabilityissettled.TheIncomeTaxesStandardrequiresthatadditionaltaxcreditsgiventocompaniesoperatinginSpecialEconomicZonesarerecognisedasgovernmentgrantsi.e.givingrisetoadeferredincomeanddeferredtaxasset.Suchdeferredincomeistobeamortisedovertheusefullifeoftheasset.
LeasesAleaseisclassifiedasafinanceleaseifatleastoneofthefollowingsevenconditionsismet:
• Thelegaltitleistransferreduponleaseexpiry
• Theassetmaybepurchasedbythelesseeatapricelowerthanthemarketvalueuponleaseexpiry
• Theleasetermislongerthan75%oftheeconomicusefullifeoftheleasedasset
• Thesumofthediscountedminimumleasepaymentsishigherthan90%ofthemarketvalueoftheleasedassetasattheleaseinception
• Theleasecanbeextendedonmorefavourableterms
• Ifcancelled,thelesseebearsallcancellationcosts
• Theassetisadaptedtothespecificneeds of the lessee.
BusinesscombinationsBusinesscombinationsnotundercommoncontrolareaccountedforusingthepurchasemethod.However,thepoolingofinterests’methodmightstillbeusedforlegalmergertransactionsundercommoncontrol.
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3.4. Financial statements
FinancialstatementsmustbepreparedinthePolishlanguageandexpressedinthePolishcurrency.Financialstatementsconsistof:
• Abalancesheet
• Anincomestatement
• Astatementofcashflows
• Astatementofchangesinequity
• Notestothefinancialstatements(splitintoanintroductionandadditionalnotes).
Acashflowstatementandastatementofchangesinequityareonlyrequiredbyentitieswhosefinancialstatementsaresubjecttoastatutoryaudit.
Forsomespecialisedtypesofentitiesadditionalexceptionsorrequirementsmightapplyinrelationtoprimaryfinancialstatementssuchasforexampleasummaryofinvestmentsfortheinvestmentfundsandalternativeinvestmentcompanies.
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Theformatofthebalancesheet,incomestatement,statementofcashflows,statementofchangesinequity,andthecontentsofnotestothefinancialstatementsforentitiespreparingtheirfinancialstatementsinaccordancewithPolishGAAParedeterminedbytheAccountingAct.CompanieslistedontheWarsawStockExchangewhenpreparingthefinancialstatementsinaccordancewithPolishGAAPareguidedbyspecificregulationsforpublicissuers.ThisincludesreconciliationbetweentheresultsreportedinaccordancewithPolishaccountingprinciplesandthosethatwouldhavebeenmetifIFRSasadoptedbytheEUhadbeenapplied.
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3.5. Financial reporting, publication and audit requirements
Financial reportingAllentitiesgovernedbytheAccountingActareobligedtopreparetheirstandaloneandconsolidatedfinancialstatements(thelatteronesonlyifcriteriaapply)foreachfinancialyear.Thefinancialyearneednotbethecalendaryear.Listedcompaniesareadditionallyobligedtopublishsemi-annualandquarterlyreports.Anentitymustalsopreparefinancialstatementsasatthedateofthecloseofaccountingrecordsandasaresultofothereventsleadingtotheterminationoftheactivitiesofanentity,forexample,thecloseofbusiness(liquidationdate).
Thestandaloneandconsolidatedfinancialstatementsshouldbepreparedwithinthreemonthsafterthebalancesheetdateandapprovedwithinsixmonthsafterthebalancesheetdate.
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Directors’ reportSpecificentities,suchasforexamplejoint-stockcompanies,limitedliabilitycompanies,selectedpartnerships,mutualinsurancecompanies,co-operatives,state-ownedcompanies,investmentfundsandinvestmentcompaniesprepare,inadditiontothefinancialstatements,afinancialreviewbymanagement–themanagementreport(theDirector’sreport).Thescopeofthereportisdefinedinlegalregulationsandincludestopicssuchas:
• Descriptionofeventsthatsignificantlyimpactupontheentity’sperformanceandthatoccurredduringthereportedperiodandafteritsclosingdatetillthedatethefinancialstatementsareapproved
• Predicteddevelopmentoftheentity
• Majorachievementsintheresearchanddevelopmentarea
• Actualandplannedfinancialsituation,includingfinancialratios
• Detailsabouttransactionsinownshares
• Informationonbranches(businessunits)
• Financialriskmanagementobjectivesandmethods
• Keyfinancialandnonfinancialefficiencymetricsinrelationstooperationsaswellasinformationonemploymentandnaturalenvironment
• Informationontheapplicationofcorporategovernancerules(onlypubliccompanies).
TheReportonPaymentstothePublicAdministrationTheenterprisesoperatingintheminingindustryorloggingthevirginforestsandsatisfyingthecriteriaprovidedintheAccountingActhavetoprepareanadditionalreportonpaymentstothegovernmenttogetherwiththefinancialstatements.Thereportpresentsthetotalpaymentstothegovernmentsofacertaincountryanalysedbythelevelofpublicadministration,typeofpayment,andcertainproject,ifapplicable.
Statementofnon-financialinformationThelistedentitiesthatexceedthegiventhresholdsarealsorequiredtopresentastatementandaconsolidatedstatementofnon-financialinformation.Thisstatementincludesamongothers:
• Descriptionofthebusinessmodel;
• Keynon-financialperformanceratios;
• Descriptionofsocial,environment,humanrightsandanti-corruptionpolicies,theassociatedrisksandtheeffectsofapplicationofthosepolicies.
Thatstatementmaybepublishedontheentity’swebpages.
PublicationrequirementsManagementisrequiredtofiletheannualfinancialstatementstotheregistrationcourttogetherwiththefollowingdocuments:
• Auditor’sopinion,ifthestatementsweresubjecttoanaudit
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• Shareholders’resolutionontheapprovalofthefinancialstatementsanddistributionofprofitorcoverageofloss
• Directors’report(ifapplicable)
• Thereportonpaymentstothepublicadministration(ifapplicable).
Ifnotapprovedwithin6monthsafterbalancesheetdate,additionalfillingisrequiredfromtheentitieswhichhavenotmanagedtoapprovetheirfinancialstatementsintheprescribeddates.
ListedcompaniesarealsorequiredtofiletheirfinancialstatementswiththePolishFinancialSupervisionAuthorityincludinginterim(quarterlyandsemi-annual)reporting.
AuditrequirementsPolishstatutoryauditrequirementsapplytoallannualconsolidatedfinancialstatementsandtotheannualstandalonefinancialstatementsofthefollowingentitiesthatoperateasagoingconcern:
• Banks,insurancecompanies,reinsurancecompanies,pensionfunds,investmentfunds(includingalternative,closed,openandspecialisedfunds),investmentfundmanagementcompanies,joint-stockcompaniesandpubliccompanies,paymentinstitutions,brokeragehousesandfirms
• Otherentitiesthatmeetatleasttwoofthefollowingthreethresholdsinthefinancialyearprecedingthefinancialyearforwhichthefinancialstatementsweredrawnup:
• Annualaverageemployment(equivalentof50individualsemployedfull-time)
• Total assets as at the end of the financialyear(thePolishZlotyequivalentofEUR2.5millionorgreater)
• Netsalesincludingfinancialincomeforthefinancialyear(thePolishZlotyequivalentofEUR5millionorgreater
Thestatutoryauditrequirementsalsoapplytoentitiesaftermergerfortheyearwhenthemergeroccurred.
AllstatutoryIFRSfinancialstatementsaresubjecttoauditrequirements.
Therearealsoadditionalrequirementsinrelationtoauditorreviewofinterimfinancialstatementsofpubliccompaniesandinvestmentfunds.
Auditsaregovernedbytherelevantlegalrequirementsinforcewhichinclude:
• Chapter7oftheAccountingAct
• AuditorsAct
• NationalauditingstandardsissuedbytheNationalCouncilofStatutoryAuditors
• Regulation(EU)No537/2014oftheEuropeanParliamentonthecouncilonspecificrequirementsregardingstatutoryauditofpublic-interestentities
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3.6. Consolidation
ConsolidationrequirementsAcapitalgroupisagroupwhichcomprisesaholdingcompanyanditssubsidiaries.
AccordingtotheAccountingAct,aholdingcompanyisacompanythatcontrolsanotherentity.
Acapitalgroupdrawsupitsconsolidatedfinancialstatementsonthebasisofstandalonefinancialstatementsofentitiesthatbelongtothegroup.Groupswhich,intheprecedingandcurrentfinancialyears,didnotexceedatleasttwooutofthreeofthefollowingthresholdsbeforeintragroupeliminations:
• annualaverageemployment–equivalentof250individualsemployedinfulltime
• totalassetsofallgroupentities–PLN38.4million
• totalsalesandfinancialincomeofallgroupentities–PLN76.8million
Orafterintragroupeliminations:
• annualaverageemployment–equivalentof250individualsemployedinfulltime
• totalassetsofallgroupentities–PLN32million
• totalrevenueofallgroupentities–PLN64million
areexemptedfromdrawinguptheconsolidatedfinancialstatements.
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Asubsidiaryisexcludedfromconsolidationif:• Thesharesinsuchentitywereacquired,
purchasedorotherwiseobtainedforthesolepurposeofsubsequentresalewithinoneyearfromthedateofacquisition
• Thereareseverelongtermrestrictionsontheexerciseofcontrolovertheentitywhichpreventfreedisposalofitsassets,includingnetprofitgeneratedbythisentityorwhichpreventexerciseofcontroloverthebodiesmanagingtheentity
• Itisimpossibletogettheinformationnecessaryforpreparationofaconsolidatedfinancialstatementwithoutdelayincurringunreasonablyhighcost(appliesinexceptionalcasesonly).
Asubsidiaryneednotbeincludedintheconsolidatedfinancialstatementsiftheamountsstatedinthatentity’sfinancialstatementsareimmaterialinrelationtotheholdingcompany’sfinancialstatements.
ConsolidatedfinancialstatementsConsolidatedfinancialstatementscomprise:• Aconsolidatedbalancesheet• Aconsolidatedincomestatement• Aconsolidatedstatementofcashflows• Aconsolidatedstatementofchangesin
equity• Notestotheconsolidatedfinancial
statements(splitintoanintroductionandadditionalnotes).
ConsolidatedfinancialstatementsshouldbeaccompaniedbyaGroupDirectors’report
preparedbytheManagementBoardoftheholdingcompany.GroupDirectors’reportcanbepreparedtogetherwithaDirectors’reportoftheholdingentityasasinglereport.
Consolidatedfinancialstatementsshouldbepreparedatthesamebalancesheetdateandforthesamefinancialyearasthefinancialstatementsoftheholdingcompany.Ifthisdateisnotthesameforallentitieswithinthegroup,thenconsolidationmaycoverfinancialstatementsdrawnupforatwelvemonthperioddifferenttothefinancialyear,ifthebalancesheetdateofthosefinancialstatementsisearlierbynomorethanthreemonthsofthebalancesheetdateadoptedbythegroup.Companiesincludedintheconsolidationshouldadoptconsistentaccountingpoliciesandconsistentmethodsofpreparationoffinancialstatements.Iftheaccountingpoliciesofconsolidatedentitiesdifferfromthoseappliedforconsolidation,thenappropriateadjustmentsmustbecarriedoutattheconsolidationlevel.
Methods to include entities inconsolidatedfinancialstatementsAsubsidiary(seeConsolidationrequirements)isconsolidatedusingthefullconsolidationmethod.Jointlycontrolledentitiesareconsolidatedusingaproportionalconsolidationmethodoraccountedforusinganequitymethod.Associatesareaccountedforusingtheequitymethod.Whentheassociatepreparesitsconsolidatedfinancialstatements,theequitymethodappliestothenetconsolidatedassetsoftheassociate.
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3.7. Principal differences between Polish Accounting Regulations and International Financial Reporting Standards
ThemaindifferencesbetweenPolishAccountingRegulations(PAR)andInternationalFinancialReportingStandards(IFRS)effectiveasof1January2017arepresentedinthefollowingtable.
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Description PAR IFRS
Functionalcurrency
Functionalcurrencyconceptdoesnotunderliethepreparationofthefinancialstatements
Functionalcurrencyconceptunderliesthepreparationofthefinancialstatements.
PropertyPlantandEquipment
Componentsofproperty,plantandequipmentareneitherspecificallymentionednordefined.Consequently,overhaulsgiverisetoaprovisionaccountedforonacumulativebasis.
Componentaccountingisrequired.Moreover,accountingforoverhaulsfollowscomponentaccountinganddoesnotresultinrecognitionofprovisions.
Fixedassets Fixedassetsmayberevaluedonlyonthebasisofseparateregulationstoavaluenotexceedingthefairvalue.
Fixedassetsmayberevaluedtotheirfairvalue.
Non-currentassetsordisposalgroupsheldforsale
Thereisalackofrequirementsconcerningthevaluationofassetsanddisposalgroupsheldforsale.Depreciationisrequiredforassetsanddisposalgroupsheldforsale.Separatepresentationandspecificdisclosuresarenotrequired.
Measurementatthelowerofcarryingamountandfairvaluelesscoststosell.Non-currentassetsordisposalgroupsthatareclassifiedasheldforsalearenotdepreciated.Presentationinseparatelineofthestatementoffinancialposition.
Inventory CompaniesmaychoosetheLIFOformulaforthedeterminationofthevalueofsoldinventory.
TheuseofLIFOformulaisexplicitlynotpermitted.
Capitalisationofborrowingcosts
Allborrowingcosts,arisingonfinancingoftangibleandintangibleassets,incurredintheperiodofconstruction,arecapitalisedaspartoftheassets’costs.
FXgains/lossesoncapexinvoicesarecapitalised.
Achoiceisgiventocapitaliseborrowingcostsintoinventorywhichtakesconsiderabletimetocomplete.
Capitalisationofborrowingcostsrequiredonspecificandgeneralborrowingstofinancetheconstructionofindividualqualifyingassets.
FXgains/lossesarealsoincludedaspartoftheborrowingcosts,totheextenttheyrepresentanadjustmenttotheinterestcharge.
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Description PAR IFRS
Investmentproperties
Assetsheldunderanoperatingleasecannotbeclassifiedasinvestmentproperty.Nospecificmeasurementformulasarementioned/allowed.
Assetsheldunderanoperatingleasecanbeclassifiedasinvestmentpropertyandaccountedforasafinancelease.Thefairvaluemodelmustbeappliedinsuchcases.LIFOformulaisnotallowed.
Intangible assets Revaluationtofairvalueisnotpermitted.Allintangibleassetsareamortised.
Revaluationtofairvalueispermittedonlyifthereisanactivemarketinwhichitispossibletoreliablydeterminefairvalue.Intangibleassetsaresplitintothosewithafinitelife–amortised–andthosewithanindefinitelife–notamortisedandsubjecttoanannualimpairmenttest.
Impairmentofassets
Assessedannuallyifthereareindicatorsthattheassets(includinggoodwillandintangibles)maybeimpaired.Assetswritedowntosellingvalueor,ifthatisnotavailable,tofairvalue.
Assessedannuallyifthereareindicatorsthatassetsmaybeimpaired(includinggoodwillandintangibles).Ifindicationsexist,writeassetsdowntothehigheroffairvaluelesscoststosellandvalueinuse.Eveniftherearenoindicators,goodwill,indefinitelifeintangible assets and intangible assetsnotyetinusearesubjecttoan annual test.
Hyperinflation Noadjustmentsforhyperinflationarerequired.
Duringtheperiodofhyperinflation,assetsandliabilitiesarerestatedtoreflectthechangesinthegeneralpriceindex.
BusinessCombinations
Accountedforasanacquisitionintransactionsthatarenotlegalmergersundercommoncontrol.Legalmergersamongentitiesundercommoncontrolmightbeaccountedforusingthe‘poolingofinterests’method.Transactioncostsincreasetheconsiderationpaidforbusinesscombination.Anyresultondecreaseorincreaseofminorityinterestsisrecognisedasfinanceincomeorcosts.
Accountedforasanacquisitioninallcases.CombinationsandlegalmergersamongentitiesundercommoncontrolrequiredevelopingaccountingpolicyinaccordancewithIAS8.Transactioncostsarerecognisedinprofitorloss.Decreaseorincreaseinnon-controllingInterestsisaccountedforwithinequitywithnoimpactonprofitorloss.
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Description PAR IFRS
Goodwillandadjustmentstofairvalueonacquisitionofsubsidiary
Goodwillonacquisitionisthedifferencebetweenthepurchasepriceandthefairvalueofallassetsandliabilitiesacquired.Changes
intheinitialfairvaluesofacquiredassetsandliabilitieswhichareidentifiedduringthefinancialyearinwhichtheacquisitiontookplaceshouldadjustgoodwill.
Goodwillisamortisedovertheeconomicusefullifeor,iftheeconomicusefullifeisnotreliablydeterminable,thenoveraperiodnotexceeding5years.
Negativegoodwill:
• Relatingtofuturelossesacquiredasdeferredandamortisedovertheperiodof the loss
• Otherwise,uptothevalueofthedepreciableassetsisdeferredandamortisedoverthedepreciablelife
• Balanceisrecognisedasincome
• Notallowedinregardtomeasurementofintangibles.
Goodwillonacquisitionistheexcessof(a)over(b)bellow:
(a) theaggregateof:
(i) theconsiderationtransferred,whichgenerallyrequiresacquisition-datefairvalue;
(ii) theamountofanynon-controllinginterestintheacquiree;and
(iii)inabusinesscombinationachievedinstages,theacquisitiondatefairvalueoftheacquirer’spreviouslyheldequityinterestsintheacquiree
(b) thenetoftheacquisition-dateamountsoftheidentifiableassetsacquiredandtheliabilitiesassumed.
Changesintheinitialfairvaluesofacquiredassetsandliabilitiesifonlyprovisionallyassessedatthedateofacquisition,whichareidentifiedwithin12monthsoftheacquisition,areadjustedagainstgoodwill.Goodwillisnotamortised,butsubjecttoayearlyimpairmenttest.Gainonbargainpurchaseisrecognisedasincome.
Investmentsinsubsidiaries,associatesandjointventuresinseparatestandalone accountsoftheparent
Choiceofpolicybetween:
• Cost• Equityaccounting• Fairvaluewithallchanges
recognizeddirectlyinequity
Choiceofpolicybetween:
• Cost• Equityaccounting• Fairvaluewithallchanges
recogniseddirectlyinothercomprehensiveincome
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Description PAR IFRS
Financialinstruments
Thefollowingcategoriesoffinancialinstrumentsareavailable:• Loansandreceivablesrestricted
tothosearisingfromprovidingfundstoanotherentity
• Availableforsalefinancialassetsaremeasuredatfairvaluewithachoiceofpolicytorecognisechangesintheincomestatementorequity.Anyimpairmentrecognisedintheincomestatementmaybereversedintheincomestatementatalaterdate
• Heldfortradinginstrumentsarethoseacquiredforthepurposeofgeneratingprofitsfromsaleinashortperiodoftime
• Heldformaturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitythatan entity has the positive intention andabilitytoholdtomaturity
• Otherfinancialliabilities.
Thefollowingcategoriesoffinancialinstrumentsareavailable:• Loansandreceivablesinclude
thosearisingfromsaleofgoodsandmayincludebalancesacquiredinsomecases
• Availableforsalefinancialassetsarevaluedatfairvaluewithchangesrecognisedinequity.Anyimpairmentbelowcostisrecognisedintheincomestatementandforequityinstrumentsmaynotbereversedthroughtheincomestatement
• Financialassetsorfinancialliabilitiesatfairvaluethroughprofitandlossconsistof:
• Heldfortrading• Otherassetsorliabilities
designatedatinceptionandmeetingspecificconditions
• Heldformaturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitythatan entity has the positive intention andabilitytoholdtomaturity
• Otherfinancialliabilities.
Hedging Cashflowhedgesincludeallfirmcommitments.Thebalanceinequityisincludedinthecarryingvalueoftheacquiredasset/liability.
Cashflowhedgesincludefirmcommitmentsonlyrelatingtoforeignexchangerisk–allothercommitmentsarefairvaluehedges.
Thebalanceinequityremainsinequityuntiltheunderlyingtransactioneffectstheincomestatement.
Ifthefirmcommitmentwasforanon-financialassetorliability,thereisachoiceofpolicytoadjustthecarryingvalueoftheasset/liabilityortokeepthebalance.
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Description PAR IFRS
Investmenttaxcredits
Investmenttaxcreditsusedgiverisetoadeferredtaxassetandatthesametimearerecognisedasagovernmentgranttobeamortisedovertheusefullifeoftheasset(perstandardissuedbyAccountingStandardsCommittee).
Unusedinvestmenttaxcreditsgiverisetoadeferredtaxassetandaffectthetaxchargeintheyeargranted.
Share–basedpayments
Thereisalackofrequirementsconcerningshare-basedpaymentsaccounting.Thepracticeisnottoaccountforequity-settled’transactionsandtorecogniseaprovisionforcash-settledtransactions.
Share-basedpaymentstransactionsincludingtransactionswithemployeesorotherpartiestobesettledincash,otherassetsorequityinstrumentsoftheentityarerecognisedgenerallygivingrisetoexpensesintheentitiesfinancialstatements.
InanymattersnotregulatedbytheAccountingLawortheDecreesanentitymayapplyNationalAccountingStandardsissuedbytheAccountingStandardsCommittee.Intheabsenceofrelevantnationalregulations,theentitymayapplyInternationalFinancialReportingStandards.
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3.8. Selected Aspects of Accounting for Real Estate under International Financial Reporting Standards
IntroductionNowadays,anumberofrealestateentitiesapplyIFRSfortheiraccountingandreportingpurposes.CompaniesreportingunderInternationalFinancialReportingStandards(IFRS)continuetofaceasteadyflowofnewstandardsandinterpretations.ThevolumeofchangestoIFRSissignificantandislikelytocontinueintheforeseeablefuture.Thenatureofthechangesrangesfromsignificantamendmentsoffundamentalprinciplestosomeminorchangesincludedintheannualimprovementsprocess.Theywillaffectmanydifferentareasofaccountingofrealestateentitiessuchasthepresentationoffinancialstatements,financialinstruments,leases.Someofthechangeshaveimplicationsthatgobeyondmattersofaccounting,astheymayimpactbusinessdecisions,suchasthedesignofjointarrangementsorthestructuringoftransactions.Thechallengeforpreparerswillbetogainanunderstandingofwhatliesahead.
BelowweconcentrateontheimplicationsoftheIFRS13,15,16and17fortherealestate
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IFRS13doesnotprescribewhichvaluationtechniquemustbeusedinaparticularcircumstance.Thevaluationtechniqueusedtomeasurefairvalueshouldbeappropriateforthecircumstances,andoneforwhichsufficientdataisavailable.Valuationtechniquesthataretypicallyusedincludethemarketapproach,theincomeapproachandthecostapproach.Themarketapproachusespricesandotherrelevantinformationgeneratedbymarkettransactionsinvolvingidenticalorcomparableassets.Inincomeapproach,thevaluationisbasedonestimatedfutureincomeandprofitorcashflows.Thecostapproachreflectstheamountthatcurrentlywouldberequiredtoreplacetheservicecapacityofanasset(oftenreferredtoascurrentreplacementcost).
RealestateentitiesmaybeaffectedbyIFRS13invariousaspectsoftheirbusinesswhen:
• Measuringpropertyinterestsatfairvalue
• Testingpropertyinterestsforimpairment
• Determiningthefairvalueofidentifiableassetsandliabilitiesaspartofthepurchasepriceallocationappliedinabusinesscombination
• Measuringaninterestinarealestatejointventureorassociateatfairvalue
• Compilinganddisclosinginformationonthefairvaluesofpropertyinterests,includingbutnotlimitedtosignificantassumptions,adjustmentstounobservableinputsandqualitativeandquantitativesensitivityanalysis.
Regardlessofwhethervaluationsareperformedexternallyorinternally,
andconstructionindustries,whichhaverecentlybroughtsomesignificantchanged.
IFRS 13 Fair value measurements–implicationsforthe real estate sectorIFRS13wasissuedbytheInternationalAccountingstandardsBoardinMay2011andstartedtobeeffectiveforannualperiodsbeginningonorafter1January2013.IFRS13describeshowtomeasurefairvalueunderIFRSwhenitisrequiredorpermittedbyIFRS.Thestandarddoesnotchangewhenanentityisrequiredtousefairvalue,butprovidesaframeworkforsituationswhereanotherstandardrequiresorpermitsfairvaluemeasurements.
IFRS13definesfairvalueasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdateundercurrentmarketconditions(i.e.anexitprice)regardlessofwhetherthatpriceisdirectlyobservableorestimatedusinganothervaluationtechnique.
Thefairvaluemeasurementassumesthatmarketparticipantshavesufficientknowledgeandawarenessoftheassetoraliabilitythatwouldbeusualandcustomaryinsuchamarkettransaction.Thedefinitionemphasizesthatthefairvalueshouldbebasedonmarketmeasurements,maximizingtheuseofobservablemarketinputs,suchasquotedprices.Iftheobservablemarketinputsarenotavailable,othervaluationtechniquesshould be applied.
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managementmustunderstandthemethodologiesandassumptionsusedinthevaluationsanddeterminewhethertheassumptionsarereasonableandconsistentwiththerequirementsofIFRS13.
IFRS13requiresanentitytomaximizetheuseofrelevantobservableinputsandminimizetheuseofunobservableinputs.IFRS13alsoincludesafairvaluehierarchybasedontheinputsusedtodeterminefairvalueasfollows:
• Level1–quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
• Level2–inputsotherthanquotedmarketpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectlyorindirectly.
• Level3–unobservableinputs(valuationtechniquesthatdonotmakeuseofobservableinputs).
ManyoftheIFRS13disclosuresarerequiredforeachclassofassets(andliabilities).IFRS13requirestheseclassesofassets(andliabilities)bedeterminedbasedon:
(a) thenature,characteristicsandrisksoftheassetorliability;and
(b) thelevelofthefairvaluehierarchywithinwhichthefairvaluemeasurementiscategorized.
Thedeterminationoftheappropriateclassofassetswillrequiresignificantjudgement.Atoneendofthespectrum,thepropertiesinanoperatingsegment(asdefinedbyIFRS8OperatingSegments)maybeaclassofassetsforthepurposeofthedisclosuresrequiredbyIFRS13.This
maybethecaseevenifthereisalargenumberofpropertiesinthesegment,ifthepropertieshavethesameriskprofile(e.g.,thesegmentcomprisesresidentialpropertiesincountrieswithpropertymarketsofsimilarcharacteristics).Attheotherendofthespectrum,IFRS13disclosuresmayberequiredforindividualpropertiesorsmallgroupsofpropertiesiftheindividualpropertiesorgroupsofpropertieshavedifferentriskprofiles(e.g.,arealestateentitywithtwoproperties–anofficebuildinginadevelopedcountryandashoppingcentreinadevelopingcountry).
Upcomingstandards:IFRS9,IFRS 15 and IFRS 16 – brief summary
FinancialInstruments(IFRS9)Thenewfinancialinstrumentsstandardintroduceschangestotheaccountingforcreditlosses,includingtherelateddisclosures.Thenewfinancialinstrumentsstandardalsointroduceschangestohowfinancialassetsaremeasuredonanongoingbasistoalignwiththeasset’scashflowcharacteristicsandthebusinessmodelinwhichtheassetisheld.
Thenewstandardwasdevelopedinresponsetoconcernsofmanyinvestorsandotherstakeholders,bothduringandaftertheglobalfinancialcrisis,thatthereneededtobemoretimelyrecognitionofexpectedcreditlossesforloansandotherfinancialinstruments.Inmeasuringexpectedcreditlossesunderthenewstandard,issuerswillberequiredtousereasonableandsupportableinformationthatisavailabletothemwithoutunduecostoreffort,
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includingnotonlypasteventsandcurrentconditionsbutalsoforecastsoffutureeconomicconditions.
RevenuefromContractswithCustomers(IFRS15)Thenewrevenuestandardprovidesclearerandmoredetailedprinciplesforrevenuerecognitionanddisclosureinaframeworkthatisdesignedtoimprovecomparabilityofrevenueamountsoverarangeofindustries,companies,andgeographicalboundaries.Thestandardcansignificantlychangeanissuer’stimingforitsrecognitionofrevenue,amongotherchanges.
Revenueisoftennotonlyakeyperformancemeasureinitsownrightbutalsothestartingpointforotherperformancemeasures,suchasoperatingincome,netincome,andearningspershare;keyanalyticalratiossuchasmargins,returnonequity,andreturnonassets;andvaluationmetrics,suchasrevenuemultiplesandprice-to-earningsratios.Asaresult,thenewrevenuestandardhasthepotentialtochangenotonlyanissuer’stopline,butalsoitsbottomlineandinvestoranalysesthatdependonthefinancialstatements.
Leases(IFRS16)CompanieswillneedtochangecertainleaseaccountingpracticeswhenimplementingIFRS16Leases,thenewleasesstandardissuedbytheInternationalAccountingStandardsBoard(IASB).IFRS16significantlychangestheaccountingforleasesbylesseesandcouldhavefar-reachingimplicationsforE&Centities’financesandoperations.Forexample,IFRS16mayrequiresomeentitiestorecognizeassetsandliabilitiesforleasesofconstruction
equipmentandofficespacetheycurrentlyaccountforasoperatingleases.
Lessoraccountingissubstantiallyunchangedfromcurrentaccounting.AswithIAS17Leases,IFRS16requireslessorstoclassifytheirleasesintotwotypes:financeandoperatingleases.Leaseclassificationdetermineshowandwhenalessorrecognizesleaserevenueandwhatassetsalessorrecords.Theprofitorlossrecognitionpatternforlessorsisnotexpectedtochange.Thiswillbeareliefformanyentities,because,basedontheIASB’sdiscussionsduringtheprojectdeliberations,lessorswereconcernedabouttheextentofthechangesinlessoraccounting.
IFRS16requireslesseestorecognizemostleasesontheirbalancesheetsasleaseliabilitieswithcorrespondingright-of-useassets.Lesseesapplyasinglemodelformostleases.Generally,theprofitorlossrecognitionpatternwillchangeasinterestanddepreciationexpenseisrecognizedseparatelyinthestatementofprofitorloss(similartotoday’sfinanceleaseaccounting).However,lesseescanmakeaccountingpolicyelectionstoapplyaccountingsimilartoIAS17’soperatingleaseaccountingto‘short-term’leasesandleasesof‘low-value’assets.
IFRS16iseffectiveforannualperiodsbeginningonorafter1January2019.Earlyapplicationispermittedprovidedthatthenewrevenuestandard,IFRS15RevenuefromContractswithCustomers,hasbeenorisappliedatthesamedateasIFRS16.LesseesmustapplyIFRS16usingeitherafullretrospectiveoramodifiedretrospectiveapproach.
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3.9.Exemptionsandsimplificationsapplicable for smallandmicroentities
DefinitionsIn2015,anewdefinitionofasmallenterprisewasintroducedtotheAccountingActinadditiontothedefinitionofamicroenterprise.Microandsmallenterprisesarelegalentitiesandthebranchesofforeigncompanies(exceptfororganisationalunitsoperatinginaccordancewiththeBankingLawActandtheregulationsontradinginsecurities,oninvestmentfunds,oninsuranceandreinsuranceactivities,oncreditunions,ontheorganisationandoperationofpensionfundsoronpublicbenefitorganisations)which,intheprecedingandcurrentfinancialyears,didnotexceedatleasttwoofthefollowingthresholds,providedthatrespectiveresolutionhasbeentakenbytheentity’sbodyresponsibleforapprovingthefinancialstatements:
Micro Small
total assets PLN 1.5 million
PLN 17 million
totalrevenues PLN3million
PLN34million
annualaverageemploymentlevel(individuals in full timeequivalent)
10 50
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Moreover,tradeunions,employers’organisations,chambersofcommerce,andrepresentativeofficesofforeigncompaniesareconsideredmicroentitiesonaconditiontheydonotconductbusinessactivities.
Ifthestatutoryauditrequirementisaconsequenceofcompany’ssizeratherthanotherfactorsthenitshouldbenotedthatsomeofsmallentitiesorentitiesthatenjoyexemptionsinmeasurementofassetsandliabilitiesasdescribedbelowmightbesubjecttostatutoryauditasthresholdstoqualifyforsuchsimplificationsandexemptionsarehigherthantheseforthestatutoryauditrequirement.
Microentitiesareprohibitedfrommeasuringassetsandliabilitiesatfairvalueandatamortisedcost.
Irrespectivelyfromthedecisionofwhetherthecompanyisasmall,oramicro,entityandappliestherespectivesimplifiedfinancialstatementstemplate,thecompaniesthat,intheprecedingfinancialyears,didnotexceedatleasttwooftheabove-mentionedthresholds,mayapplythefollowingexemptions.
However,ifsuchanentitydidnottakearespectiveresolutiontoapplythefinancialstatementstemplatesapplicabletosmallandmicroentities,itshouldapplythenormalfinancialstatementstemplates.
FinancialinstrumentsCompaniesthatsatisfythosecriteriamayelecttomeasurethefinancialinstrumentsinasimplifiedwayasfollows:
• Short-terminvestments–atthelowerofcostormarketvalue,atfairvalueor
atamortisedcost(ifamaturitydateisknown)withgains/lossesrecognisedintheprofitandlossaccount
• Long-terminvestments–atacquisitioncostlessimpairmentoratfairvaluewithgains/lossesrecognisedintherevaluationreserveinequityorintheprofitandlossaccount(ifthecurrentvaluationislowerthanoriginal).Ifamaturitydateisknown,longterminvestmentsmightbestatedatamortisedcost.
Deferred taxThosecompaniesmayelectnottorecognisedeferredtax.
LeasesThosecompaniesareallowedtoapplytaxregulationsinordertorecogniseandclassifyleases.
FinancialstatementsSmallandmicroentitiespreparesimplifiedfinancialstatementsinaccordancetotherelevanttemplateprovidedasanattachmenttotheAccountingAct.
RevenuesandprofitsMicroentitiesarerequiredtoincreaserespectivelytherevenuesorexpensesinthesubsequentfinancialyearaftertheapprovaloffinancialstatements,bythedifferencebetweentherevenuesandexpensesdeterminedinthecurrentfinancialyear’sincomestatement.
Apositivedifferencemaybeaccountedforasanequityincrease.
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Cash-flowstatementandstatementofchangesinequityMicroandsmallenterprisesareexemptedfrompreparationstatementofchangesinequityandcashflowstatement.
Directors’ reportSmallentitiesarerequiredtoprepareasimplifiedDirectors’report,oratleastdisclosetheminimumadditionalinformationrequiredbytheAccountingAct.
MicroentitiesarenotrequiredtoprepareaDirectors’reportiftheypresentsupplementaryinformationtothebalancesheet,asrequiredbytheAccountingAct.
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Contact
REAL ESTATE GROUP
AnnaKicińska
+48225577542
AnnaKicińskaisaPartnerandLeaderforCSERegionoftheEYRealEstateAdvisoryGroupresponsibleforrealestateTransactionSupport,StrategicAdvisoryandRealEstateM&A.Shehasovernineteenyearsofrealestateexperienceinvaluation,transactionsupport,marketanalysis,andcorporaterealestatemanagement.SheisacertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS)andCertifiedCommercialInvestmentMember(CCIM).
Anna Andrzejewska
+48225577543
AnnaAndrzejewskaisaSeniorManagerintheRealEstateAdvisoryGroup.Shespecializesinstrategicadvisoryconsultancyintherealestatesector,especiallyinthepreparationandimplementationofthestrategyofcorporateportfoliodevelopmentandmanagementaswellasininvestmentprocessmanagement.ShegraduatedfromtheUniversityofŁódźwithMaster’sdegreeinFinanceandBankingandspecializationinInvestmentsandRealEstate.Shecompletedapost-graduateSchoolofRealEstateValuationatWarsawSchoolofTechnology.Sheisacertifiedpropertymanager.
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PawełNowakowski
+48225576616
PawełNowakowskiisaManagerintheRealEstateAdvisoryGroup.GraduateoftheWarsawSchoolofEconomics,PawełobtainedaMasterdegreeineconomics(specialization:enterprisemanagementandRealEstate).Pawełgainedmarketexperienceworkingforseveralglobalrealestatecompaniesandstrategicconsultancyfirm.Hehasconductednumerousvaluationsforinternal,investmentandloansecuritypurposes,embracingbothsingleassetaswellasportfolioofoffice,retailwarehouseandhotelproperties.HeiscertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS).
+48225576645
DominikWojdatisaManagerintheRealEstateAdvisoryGroup.Hehasbroadexperienceinprovidingbothdevelopersandinvestorswithmarket,highest&bestuseandfeasibilitystudiesforcommercialaswellasresidentialproperties.Dominikalsoconductedvaluationsforaccounting,investmentandloansecuritypurposes.HegraduatedfromFacultyofGeographyandRegionalStudiesatUniversityofWarsaw.Hecompletedapost-graduatepropertymanagementstudiesatWarsawSchoolofTechnologyandbecameacertifiedpropertymanager.DominikisCertifiedCommercialInvestmentMember(CCIM).
KatarzynaLubaś
+48225576706
KatarzynaLubaśisaMarketingandBusinessDevelopmentCoordinatorintheRealEstateAdvisoryGroup.SheisresponsibleforPRandnewbusinessdevelopmentactivities,marketresearchandinvestorrelations.
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ASSURANCE SERVICES
ŁukaszJarzynka
+48225578429
ŁukaszisanExecutiveDirectorinWarsawOfficeandEYRealEstateGroupAuditLeaderinPolandandCSERegion.Łukaszhasover11yearsofexperienceinauditandisPolishCharteredAccountant.Hegainedcomprehensiveexperienceinauditingbothlargeandmultinationalgroups,aswellassmallerprivateclients,IPO/SPOtransactionsandauditoflistedcompanies,withfocusontherealestatemarket.Łukaszisco-authorof“Therealstateofrealestate”book–TheRealEstateGuidepublishedbyEY.
MariuszKędzierski
+48225576242
MariuszisanexperiencedManagerinAssuranceDepartmentandmemberoftheRealEstateGroupatEY’sWarsawoffice.Mariuszhasover8yearsofexperienceinauditandisatfinalstageofgainingPolishCharteredAccountantqualifications(10/10examspassed,duringlastapplicationphase).Mariuszspecializesinauditsofclientsfromrealestatemarket(realestategroups/funds,listedresidentialandrealestatedevelopers).MariuszhasalsoexperienceinIPOauditsofrealestategroups.
HubertRogoziń[email protected]
+48225778471
HubertisaManagerwithinEYAssuranceandAdvisoryBusinessServicespractice.HehasaMasterDegreeinFinanceandBankingWarsawSchoolofEconomics,Poland;MemberofAssociationofCharteredCertifiedAccountants;InthefinalstageofqualificationsforPolishCertifiedAuditor;MemberofEYPolandRealEstateGroup.HubertgainedexperiencedurignauditsandreviewsofcapitalgroupsreportingunderUSGAAP,InternationalFinancialReportingStandardsandPolishAccountingStandards,includingpubliclylistedcompanies.
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ACCOUNTING ADVISORY AND TECHNICAL DESK SERVICES
Anna [email protected]
+48225577936
AnnaleadsFinancialAccountingAdvisoryServicesinPoland.Shehas22yearsofprofessionalexperienceasanauditorandaccountingexpert.SheisPolishCharteredAccountant,CertifiedInternalAuditor,memberofACCAandmemberofAccountingStandardsCommitteeinPoland(appointedbytheMinisterofFinance).SheisinvolvedasIFRSsubjectmatterexpertduringauditsofmultinationalgroups,listedcompaniesaswellassmallerprivateclientsoperatingonrealestatemarket.SheparticipatedinnumerousIPOs,mergersandacquisitionswithaccountingadvisoryservices.
Robert [email protected]
+48225577158
RobertisaSeniorManagerinTechnicalDeskatEY’sWarsawoffice.RobertholdsprofessionalACCAcertificatesince2007.Heaccumulatedmorethan25yearsofcomprehensiveworkingexperienceincludinghigh-andmiddle-managementpositionsinfinanceandaccountingdepartmentsofinternationalcompanies.ForseveralyearsheledandprovidedinputtotheEuropeanIFRSendorsementprocessesinparticularrelatedtoleases,revenuerecognitionandfinancialinstruments.InEYheprovidestechnicaladviceonapplicationoftheaccountingactandIFRSsandIFRStechnicalreviewoffinancialstatements.
TAX SERVICES
TomaszOżdziński
+48225576922
TomaszOżdzińskiistheheadoftheTaxRealEstateGroupofEYinPolandandamemberofEY’sTransactionTax(M&A)Team.HeisagraduateoftheFacultyofLawandAdministrationoftheUniversityofAdamMickiewiczinPoznańandanExecutiveProgrammeinRealEstateattheSolvayBrusselsSchoolofEconomics&ManagementatUniversitéLibredeBruxelles.Tomaszisacertifiedtaxadvisorandhastwodecadesofexperienceinmanaginglarge,complexprojects,includinginparticulartransactionservicesandtaxoptimizations,undertakenbothlocallyandinternationally.
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Sebastian Ickiewicz
+48225577524
SebastianisanExecutiveDirectorinInternationalTaxationGroupandTaxRealEstateGroupatEY’sWrocławoffice.Heisacharteredtaxadvisorandhas14yearsofexperienceintaxadvisory.Sebastian’smanagedandsupervisednumeroustaxbuy-sideorvendorduediligenceprojects,taxstructuringprojectsandpost-closingreorganisationsandoptimisations(mergers,de-mergers,disposalsofassets,etc.).HewasinvolvedinthebiggesttransactionalprojectsonthePolishmarketforcorporateclientsandinvestmentfunds,especiallyintherealestateandtelecommunicationssector.
Anna Pleskowicz
+48225577904
AnnaPleskowiczisaSeniorManagerinInternationalTaxServicesGroupandTaxRealEstateGroupatEY’sWarsawoffice.ShehasbeenwithEYsince2004.Sheisacertifiedtaxadvisor.Herskillsincludeadvisingonglobalrestructurings,internationaltaxstructuringandplanning(corporateissues,financingetc.),providingtaxadvisoryservicesondomestictaxlaw.In2008AnnaworkedasPolishTaxDeskinNewYork.Annaisaco-authorofthebook“TaxationoftheRealEstateMarket”andco-authorofthebook„Internationaltaxplanning”,anauthorofvariouspressarticlesrelatingtotaxissues.
MichałSawicki
+48225577026
MichalSawickiisaSeniorManagerinTaxRealEstateGroupatEY’sWarsawoffice.HehasbeenwithEYsince2007.Heisacertifiedtaxadvisor.Hisskillsincludeadvisingonglobalrestructurings,transactionsupportandstructuring,taxaccounting.Hewasinvolvedinprojectsconcerningtaxissuesinrelationtotheprocessofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios,internationaltaxstructuring.Michalisanauthorofvariousarticlesrelatingtotaxaspectsofinvestingontherealestatemarketandco-authorofthebook“TaxationoftheRealEstateMarket”.
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Daniel Banach
+48225577815
DanielisaTransactionTaxManagerandmemberofTaxRealEstateGroupatEY’sWarsawoffice.HeisacharteredtaxadvisorandACCAmemberwithnearly8-yearexperienceintaxadvisory.Hisprofessionalexperienceincludesbothbuy-sideandsell-sideadvisoryforcorporatesandprivateequity.Headvisedduringleveragedrealestateacquisitions,divestmentsandmultinationaltaxstructuringprojects.Danielalsoadvisedontaxefficientexitstrategiesforrealestatecompaniesaswellasdebt-pushdownstructures.Hehasalsoconsiderableexperienceinrefinancinganddebtrestructuringprojectsconductedinaninternationalenvironment.Danielwasalecturerandtutoronmanytaxconferencesandmeetings.Heisalsoanauthorandco-authorofnumerousprofessionalpublicationsinpress.
MichałKoper
+48225577024
MichałKoperisaSeniorManagerwithinInternationalTaxServicesDivisionandRealEstateGroupofEYinWarsaw.HehasbeenwithEYsince2006.From2013to2015heheldapositionatErnst&YoungLLP’sInternationalTaxServicesgroupbasedinNewYorkwhereheledthePolishtaxdesk.HeisacertifiedPolishtaxadvisor.HisprofessionalskillsincludeadvisingontaxplanningforinternationalinvestmentsinPoland,taxeffectiveownershipstructuresandfinancingschemes,globalrestructurings,providingtaxadvisoryservicesondomestictaxlaw.Hewasinvolvedinprojectsconcerningtaxaspectsofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios.Michałisaco-authorofthebook“TaxationoftheRealEstateMarket”andauthorofvariousarticlesrelatingtotaxissues.
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MikołajBokowy
+48225577439
MikolajisaTransactionTaxManagerandmemberofTaxRealEstateGroupatEY’sWarsawoffice.Heisacharteredtaxadvisorandalegalcounselwithover7-yearexperienceintaxadvisory.Hisprofessionalexperienceincludes:numerousstructuringandtaxduediligenceprojects,day-to-daytaxadvisory,assistanceinre-financingschemes,implementationofthestep-upstructuresandrestructuringsofbusinesses(suchasmergers,spin-offs,etc.).Heassistedinmanyinvestment/dis-investmentprojectsforrealestateclientsandinvestmentfunds.
LEGAL SERVICES
Zuzanna Zakrzewska
+48225577816
Zuzannaisanadvocatewithfifteenyearsofexperienceinlegaladvisoryfordomesticandinternationalentitiesfromdifferentsectors.Shehasextensiveexperienceinprovidinglegalsupportanddaytodaylegaladvisestocompaniesparticularlyfromtherealestate,financialservicesandenergysector.ZuzannaspecializesinprovidinglegalassistancerelatedtothecorporatelawincludingrestructuringprocessesandM&Atransactions.Shehasadvisedinanumeroustransactionsinvolvingtheacquisitionofcompaniesandassetsrelatedtorealestatebothonthebuyersandsellersside.Zuzannaalsoadvisedclientsduringprocessesofexaminationoflegalstatusoftherealestateaswellasduringnegotiatingoftheleaseagreements.
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BarbaraChochołowska
+48225577592
BarbaraChochołowskaisalegalcounselwithelevenyearsofexperienceinworkingfordomesticandinternationalentitiesfromdifferentsectors.DuringyearsofpracticeBarbarahasworkedonavarietyofcomplexcorporateandrealestate-relateddealsinvolvingmulti-jurisdictionalandinternationalmatters.
TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Shehasstrongexperienceinprovidinglegalsupportrelatedtotherealestatemattersincludingtherealestateduediligenceandthetransactionsoftherealestateacquisitions(i.e.boththeassetandthesharedealtransactions).Shealsosupportsclientsindraftingandnegotiatingtheleaseagreementsandthemanagementcontractsofcommercialandindustrialspaces.
PiotrWoźniak
+48713751022
PiotrWoźniakisalegalcounselwithsixyearsofexperienceinrealestateandpropertydevelopmentlegalaspects.AgraduateoftheFacultyofLawattheUniversityofWrocław.PiotralsocompletedpostgraduatestudiesoncommercialcompanieslegalregulationsatUniversityofWrocławandpostgraduatestudiesonlegalaspectsofconstructionprocessattheWarsawSchoolofEconomics.BeforejoiningEYPiotrwasworkinginrealestatedepartmentsintwohighqualitylawfirmsinWarsaw.Piotrspecializesinrealestatetradinglaw,spatialplanningandlanddevelopmentlawandconstructionlaw.Piotradvisesclientsonmatterrelatingtopropertypurchase,locationofdevelopmentsandcontractingwitharchitectsandconstructioncompanies.Heisresponsibleforcomprehensiveadviceonpreparationstageofdevelopmentprojectsanddaytodayproblemsconnectedwithdevelopmentprocess.Hehasstrongexperienceinprovidinglegalsupportrelatedtocommercializationofshoppingcentersandofficespacelease.Piotrhasalsoadvisedininfrastructureprojectsi.e.windfarms,shellgasplatformsandgastransmissionnetworks.
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KatarzynaKłaczyńska
+48225577961
KatarzynaKłaczyńska,LL.M.,isanattorneyspecializinginenergyandenvironmentalmatters.Shehasadvisedonanumberofhigh-profileregulatoryprojects,includingactingasaleadingcounselforpowersectorcompaniesandthePolishgovernmentregardingclimatechangeregulationsanddevelopingadvocacystrategyconcerningrevisionofthecurrentEnvironmentalImpactAssessmentmodelonbehalfoftheBusinessAssociationofPolishPowerPlants.Shehasworkedonanumberofenvironmentalandregulatoryduediligenceprojectsforthevarietyofsectors.Sheisalsoexperiencedinenvironmentalaspectsofshalegasinvestments.
KatarzynaisamemberoftheNewYorkBar.ShegraduatedfromJagiellonianUniversityinPoland,andHarvardLawSchool,whereshewasgrantedGammonFellowshipforAcademicExcellence.
Magdalena Kasiarz-Lewandowska
+48225576207
MagdalenaKasiarz-LewandowskaisanadvocateandaSeniorAssociateinEYLawwithtenyearsofexperienceinadvisingonthesale,reorganizationandliquidationofcompanieswithinternationalcapital(conductingM&Atransactionsandlegalaudits),advisingontherestructuringofcapitalgroups,includingmergers,divisionsandtransformationsofcompanies,aswellascross-bordermergers.Sheadvisedinnumeroustransactionsonsharesandassetsrelatedtorealestatebothonthebuyersandsellersside.Shealsospecializesinprovidingtheongoinglegalassistanceinthescopeofcivillawandcompanylaw,includingpreparationandnegotiationofleaseandserviceagreements.
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Contact
Joanna Toruniewska
+48124243264
JoannaToruniewskaisalegalcounselwithmorethanfiveyearsofexperienceinadvisingfordomesticandinternationalentitiesfromdifferentsectors.TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Sheassistedtheentrepreneursintherealestatetransactions,includingduediligencebeforetherealestateacquisitions,preparingandnegotiatingdifferenttypesofrealestateagreements(i.e.saleandpurchaseagreements,leaseagreements)aswellasadvisingoninvestmentfinancing.Shealsorepresentedtheclientsbeforethecourtsduringthecasesregardingtherealestateissues.
178|Poland.Therealstateofrealestate
Poland.Therealstateofrealestate|179
180|Poland.Therealstateofrealestate
Appendix
Poland.Therealstateofrealestate|181
Withholding tax rates under Poland’s double tax treaties (payments from Poland)1
Dividends (%) Interest (%) Royalties (%)
Albania 5/10(d) 10 5Algeria(gg) 5/15(d) 0/10(k) 10Armenia 10 5 10
Australia 15 10 10
Austria 5/15(a) 0/5(k) 5
Azerbaijan 10 10 10
Bangladesh 10/15(a) 0/10(k) 10
Belarus 10/15(e) 10 0
Belgium 5/15(cc) 0/5(k) 5
Bosnia&Herzegovina 5/15(y) 10 10
Bulgaria 10 0/10(k) 5
Canada 5/15(a) 0/10(pp) 5/10(qq)
Chile 5/15(c) 15(dd) 5/15(h)(ee)
China 10 0/10(k) 7/10(h)
Croatia 5/15(d) 0/10(k) 10
Cyprus 0/5(oo) 0/50(k) 5
CzechRepublic 5 0/5(k) 10
Denmark 0/5/15(s) 0/5(k) 5
Egypt 12 0/12(k) 12
Ethiopia(gg) 10 10 10
Estonia 5/15(d) 0/10(k) 10
Finland 5/15(y) 0/5(k) 5
France 5/15(a) 0 0/10(p)
1Generallyeffective1January2017.
182|Poland.Therealstateofrealestate
Dividends (%) Interest (%) Royalties (%)
Georgia 10 0/8(k) 8
Germany 5/15(jj) 0/5(k) 5
Greece 19 10 10
Hungary 10 0/10(k) 10
Iceland 5/15(y) 0/10(k) 10
India 15 0/15(k) 20(bb)
Indonesia 10/15(c) 0/10(k) 15
Iran 7 0/10(k) 10
Ireland 0/15(kk) 0/10(k) 0/10(v)
Israel 5/10(b) 5 5/10(h)Italy 10 0/10(k) 10Japan 10 0/10(k) 0/10(i)
Jordan 10 0/10(k) 10
Kazakhstan 10/15(c) 0/10(k) 10
Korea(South) 5/10(a) 0/10(k) 5
Kuwait 0/5(z) 0/5(k) 15
Kyrgyzstan 10 0/10(k) 10
Latvia 5/15(d) 0/10(k) 10
Lebanon 5 0/5(k) 5
Lithuania 5/15(d) 0/10(k) 10
Luxembourg(ii) 0/15(oo) 0/5(k) 5
Macedonia 5/15(d) 0/10(k) 10
Malaysia 0 15 15
Malta 0/10(hh) 0/5(k) 5
Mexico 5/15(d) 0/10/15(k)(aa) 10
Moldova 5/15(d) 0/10(k) 10
Mongolia 10 0/10(k) 5
Morocco 7/15(d) 10 10
Netherlands 5/15(a) 0/5(k) 5
NewZealand 15 10 10
Nigeria(gg) 10 0/10(k) 10
Norway 0/15(hh) 0/5(k) 5
Pakistan 15(j) 0/20(k) 15/20(n)
Poland.Therealstateofrealestate|183
Dividends (%) Interest (%) Royalties (%)
Philippines 10/15(d) 0/10(k) 15
Portugal 10/15(o) 0/10(k) 10
Qatar 5 0/5(k) 5
Romania 5/15(d) 0/10(k) 10
RussianFederation 10 0/10(k) 10(w)
SaudiArabia 5 0/5(k) 10
Singapore 0/5/10(oo)(tt) 0/5/10(k) 2/5(h)
SlovakRepublic 5/10(c) 0/10(k) 5
Slovenia 5/15(d) 0/10(k) 10
SouthAfrica 5/15(d) 0/10(k) 10
Spain 5/15(d) 0 0/10(f)
SriLanka 15 0/10(k) 0/10(l)
Sweden 5/15(d) 0 5
Switzerland 0/15(ll) 0/5/10(mm) 0/5/10(nn)
Syria 10 0/10(k) 18
Tajikistan 5/15(d) 10 10
Thailand 19(t) 0/10/20(k)(m) 5/15(f)
Taiwan 10 0/10(k) 3/10(h)
Tunisia 5/10(d) 12 12
Turkey 10/15(d) 0/10(k) 10
Ukraine 5/15(d) 0/10(k) 10
UnitedArabEmirates 0/5(z) 0/5(k) 5
UnitedKingdom 0/10(ff) 0/5(k) 5
UnitedStates 5/15(g) 0 10
Uruguay(gg) 15 0/15(k) 15
Uzbekistan 5/15(c) 0/10(k) 10
Vietnam 10/15(d) 10 10/15(q)
Yugoslavia(u) 5/15(y) 10 10
Zambia(gg) 10/15(d) 10 10
Zimbabwe 10/15(d) 10 10
Nontreatycountries 19 20 20(x)
184|Poland.Therealstateofrealestate
(a) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast10%ofthepayer.
(b) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast15%ofthepayer.
(c) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast20%ofthepayer.
(d) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast25%ofthepayer.
(e) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsmorethan30%ofthepayer.
(f) Thelowerrateappliestoroyaltiespaidforcopyrights,amongotheritems;thehigherrateappliestoroyaltiesforpatents,trademarksandindustrial,commercialorscientificequipmentorinformation.
(g) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast10%ofthevotingsharesofthepayer.
(h) Thelowerrateappliestoroyaltiespaidfortheuseof,ortherighttouse,industrial,commercialorscientificequipment.
(i) Thelowerrateappliestoculturalroyalties.
(j) Thisrateappliesiftherecipientofthedividendsisacompanythatownsatleastone-thirdofthepayer.
(k) The0%rateappliestoamongotheritems,interestpaidtogovernmentunits,localauthoritiesandcentralbanks.Inthecaseofcertaincountries,theratealsoappliestobanks(thelistofexemptorpreferredrecipientsvariesbycountry).Therelevanttreatyshouldbeconsultedinallcases.
(l) The0%rateappliestoroyaltiespaidfor,amongotheritems,copyrights.The10%rateappliestoroyaltiespaidforpatents,trademarksandforindustrial,commercialorscientificequipmentorinformation.
(m) The20%rateappliesiftherecipientoftheinterestisnotafinancialorinsuranceinstitutionorgovernmentunit.
(n) Thelowerrateappliestoknow-how;thehigherrateappliestocopyrights,patentsandtrademarks.
(o) The10%rateappliesif,onthedateofthepaymentofdividends,therecipientofthedividendshasownedatleast25%ofthesharecapitalofthepayerforanuninterruptedperiodofatleasttwoyears.The15%rateappliestootherdividends.
(p) Thelowerrateappliestoroyaltiespaidforthecopyright,theuseofortherighttouseindustrial,commercialandscientificequipment,servicescomprisingscientificortechnicalstudies,researchandadvisory,supervisoryormanagementservices.Thetreatyshouldbecheckedinallcases.
(q) Thelowerrateappliestoknow-how,patentsandtrademarks.
(r) Thelowerrateappliestocertaindividendspaidtogovernmentunitsorcompanies.
(s) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast25%ofthecapitalofthepayerofthedividendsforatleastoneyearandifthedividendsaredeclaredwithinsuchholdingperiod.The5%rateappliestodividendspaidtopensionfundsorothersimilarinstitutionsoperatinginthefieldofpensionsystems.The15%rateappliestootherdividends.
Poland.Therealstateofrealestate|185
(t) BecausetherateunderthedomesticlawofPolandis19%,thetreatyrateof20%doesnotapply.
(u) ThetreatywiththeformerFederalRepublicofYugoslaviathatappliedtotheUnionofSerbiaandMontenegroshouldapplytotheRepublicsofMontenegroandSerbia.
(v) Thelowerrateappliestofeesfortechnicalservices.
(w) The10%ratealsoappliestofeesfortechnicalservices.
(x) The20%ratealsoappliestocertainservices(forexampleadvisory,accounting,marketresearch,legalassistance,advertising,managementandcontrol,dataprocessing,searchandselectionservices,guaranteesandpledgesandsimilarservices).
(y) Thelowerrateappliesifthebeneficialownerisacompany(otherthanapartnership)thatcontrolsdirectlyatleast25%ofthecapitalofthecompanypayingthedividends.
(z) Thelowerrateappliesiftheownerofthedividendsisthegovernmentoragovernmentinstitution.
(aa) The10%rateappliestointerestpaidtobanksandinsurancecompaniesandtointerestonbondsthatareregularlyandsubstantiallytraded.
(bb) BecausetherateunderthedomesticlawinPolandis20%,thetreatyrateof22.5%doesnotapply.
(cc) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownseitherofthefollowing:
• atleast25%ofthepayer• atleast10%ofthepayer,providedthevalueoftheinvestmentamountstoatleast€500,000orits
equivalent(dd) Thetreatyrateis15%foralltypesofinterest.However,underamost-favored-nationclausein
aprotocoltothetreaty,the15%rateisreplacedbyanymorebeneficialrateagreedtobyChileinatreatyenteredintowithanotherjurisdiction.Forexample,underChile’staxtreatywithSpain,a5%rateappliestocertaintypesofinterestpayments,includinginterestpaidtobanksorinsurancecompaniesorinterestderivedfrombondsorsecuritiesthatareregularlyandsubstantiallytradedonarecognizedsecuritiesmarket.
(ee) Thegeneraltreatyrateforroyaltiesis15%.However,underamost-favored-nationclauseinaprotocoltothetreaty,the15%rateisreplacedbyanymorebeneficialrateagreedtobyChileinatreatyenteredintowithanotherjurisdiction.Forexample,underChile’staxtreatywithSpain,thegeneralwithholdingtaxrateforroyaltiesis10%.
(ff) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsatleast10%ofthesharecapitalofthepayerofthedividendsforanuninterruptedperiodofatleasttwoyears.
(gg) Thetreatyhasnotyetenteredintoforce.
(hh) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsonthedateonwhichthedividendsarepaidandhasheldthecapitalorwillholdthecapitalforanuninterrupted24-monthperiodthatincludesthedateofpaymentofthedividends.
(ii) Thewithholdingtaxrateslistedinthetableareeffectivefrom1September2013.
(jj) Thelowerrateappliesiftherecipientofthedividendsisacompany(otherthanapartnership)thatownsdirectlyatleast10%ofthepayer.Certainlimitationstotheapplicationofthepreferentialratesmayapply.
(kk) Thelowerrateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast25%ofthevotingpowerofthepayer.UndertheIrelandtreaty,ifIrelandleviestaxatsourceondividends,the0%rateisreplacedbyarateof5%.
186|Poland.Therealstateofrealestate
(ll) The0%rateappliestodividendspaidtoacompany(otherthanapartnership)thatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsonthedatethedividendsarepaidandhasdonesoorwillhavedonesoforanuninterrupted24-months.The0%ratemayalsoapplytodividendspaidtocertainpensionsfunds.
(mm)The10%rateappliestointerestpaidbefore1July2013.Forinterestpaidonorafter1July2013,the5%rateappliesunlessanexemptionapplies.The0%rateappliestosuchinterestifanyofthefollowingconditionsissatisfied:
• thebeneficialowneroftheinterestisacompany(otherthanapartnership)thatholdsdirectlyatleast25%sharecapitalofthepayeroftheinterest.
• thepayeroftheinterestholdsdirectlyatleast25%ofthesharecapitalofthebeneficialowneroftheinterest.
• anEU/EEAcompanyholdsdirectlyatleast25%ofthesharecapitalofboththebeneficialowneroftheinterestandthepayeroftheinterest.
(nn) Forroyaltiespaidbefore1July2013,the10%rateappliesifSwitzerlandimposesinitslocalprovisionsawithholdingtaxonroyaltiespaidtononresidents.Otherwise,a0%applies.Forroyaltiespaidonorafter1July2013,a5%rateappliesunlessanexemptionapplies.The0%rateappliestosuchroyaltiesifanyofthefollowingconditionsissatisfied:
• thebeneficialowneroftheroyaltiesisacompany(otherthanapartnership)thatholdsdirectlyatleast25%ofthesharecapitalofthepayeroftheroyalties.
• thepayeroftheroyaltiesholdsdirectlyatleast25%ofthesharecapitalofthebeneficialowneroftheroyalties.
• anEU/EEAcompanyholdsdirectlyatleast25%ofthesharecapitalofboththebeneficialowneroftheroyaltiesandthepayeroftheroyalties.
Furthermore,ifPolandentersintoanagreementwithanEUorEEAcountrythatallowsittoapplyaratethatislowerthan5%,suchlowerratewillalsoapplytoroyaltiespaidbetweenPolandandSwitzerland.
(oo) Thelowerrateappliesifthebeneficialownerisacompany(otherthanapartnership)thatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsforanuninterruptedperiodof24months.
(pp) The0%rateappliesto:
• interestarisinginPolandandpaidtoaresidentofCanadawithrespectofaloanmade,guaranteedorinsuredbyExportDevelopmentCanada,oracreditextended,guaranteedorinsuredbyExportDevelopmentCanada,
• interestarisinginCanadaandpaidtoaresidentofPolandwithrespectofaloanmade,guaranteedorinsuredbyanexportfinancingorganizationthatiswhollyownedbytheStateofPoland,oracreditextended,guaranteedorinsuredbyanexportfinancingorganizationthatiswhollyownedbytheStateofPoland,
• interestarisinginPolandorCanadaandpaidtoaresidentoftheotherContractingStateinrespectofindebtednessarisingasaresultofthesalebyaresidentoftheotherContractingStateofanyequipment,merchandiseorservices(unlessthesaleofindebtednessisbetweenrelatedpartiesorwherethebeneficialowneroftheinterestisapersonotherthanthevendororapersonrelatedtothevendor).
(qq) Thelowerrateappliestocopyrightroyaltiesandsimilarpaymentswithrespectoftheproductionorreproductionofliterary,dramatic,musicalorartisticworkandroyaltiesfortheuseof,or
Poland.Therealstateofrealestate|187
therighttouse,anypatentorforinformationconcerningindustrial,commercialorscientificexperience(withsomeexceptions).
(rr) TheagreementwiththeSocialistFederalRepublicofYugoslaviashouldapplytoBosnia-Herzegovina.
(ss) The5%rateappliesiftherecipientisacompany(otherthanapartnership)thatholdsdirectlyatleast25%ofthecapitalofthecompanypayingthedividends.
(tt) The0%rateappliestodividendspaidtoGovernmentofSingaporeorGovernmentofPoland,whichincludes:
• MonetaryAuthorityofSingapore,• theGovernmentofSingaporeInvestmentCorporationPteLtd,• NationalBankofPoland,• BankGospodarstwaKrajowego,• astatutorybody,• anyinstitutionwhollyormainlyownedbytheGovernmentofSingaporeorbytheGovernment
ofPolandasmaybeagreedfromtimetotimebetweenthecompetentauthoritiesofContractingStates.
Notes
188|Poland.Therealstateofrealestate
Notes
Poland.Therealstateofrealestate|189
Notes
190|Poland.Therealstateofrealestate
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