Polish Holding Company (PHC) is a solution introduced in 2022 that allows dividends and capital gains to be exempt from taxation.
Starting from 1 January, 2023, the PHC formula became much more attractive. Thanks to the implemented regulatory changes, the PHC regime will be available to a wider range of CIT payers.
Benefits of PHC - tax preferences
Total exemption from dividend taxation from 2023
One of the key benefits of the PHC regime is the exemption from taxation of 100% of dividend income received from a subsidiary.
The above exemption will also apply to dividends received by Polish holding companies from non-EU/EEA/Swiss entities (however, this cannot be a tax-haven entity).
Full CIT exemption of the disposal of shares in a subsidiary
PHC’s income from the disposal of shares of a subsidiary to an unrelated party for consideration is exempt from taxation.
The exemption does not apply to the disposal of shares of a subsidiary with 50% of assets being real estate located in Poland or rights thereto.
What entities may be covered by the PHC regime?
To become a holding company an entity must fulfil all of the following conditions jointly:
- it must be a limited liability company (sp. z o.o.), joint-stock company (S.A.) or simple joint-stock company (PSA) ) not belonging to a tax capital group,
- it must hold directly at least 10% of shares of the subsidiary,
- it may not apply special economic zone exemptions (currently the exemption includes special economic zone and dividend exemptions),
- it must be engaged in a genuine business activity,
- its shareholder may not be a tax-haven entity.
A subsidiary may be a company which:
- does not belong to a tax capital group,
- has a legal personality (foreign subsidiary),
- is not incorporated in a tax haven (foreign subsidiary),
- does not meet the conditions for qualification as a CFC (foreign subsidiary) in the year of payment of dividends or in any of the 3 fiscal years preceding that year unless the subsidiary is engaged in substantial genuine business activity in EU / EEA country.
The aforementioned conditions set for PHC and the subsidiary should be met for an uninterrupted period of at least 2 years calculated on the day preceding revenues from dividends or capital gains.
So far Polish tax authorities stated that the above period should start at the earliest on the date of entry into force of the PHC regulations, i.e. on 1 January 2022. Therefore, 2024 would be the first year, in which the holding company can apply the exemptions provided for under the PHC model.
According to the latest standpoint, the above period may start earlier than the date of entry into force of the PHC regulations. It has not yet been resolved whether the above interpretation should also be applied to the income from the sale of shares/dividend income received before 1 January, 2023.
However, it is worth to determine whether the application of exemptions under PHC is possible in the current capital structure or to consider potential changes in 2023.
Why does it pay to consider PHC?
Alternative to foreign holding companies
- PHC reduces the risk of tax preferences being challenged under anti-avoidance rules.
- PHC eliminates the risk of the applicability of CFC rules.
- PHC reduces the cost of day-to-day operations compared to a foreign holding company.
- PHC facilitates compliance with the genuine business activity condition.