• Joint-stock companies will be able to apply for the status of a firm investing in real estate rentals.
  • Ones which acquire that status will take advantage of an 8,5% CIT rate.
  • However, such possibility is addressed only to “large” undertakings.

At the end of April, the Ministry of Finance referred for public consultations a draft Act on firms investing in real estate rentals. It is intended to put in place a comprehensive legal framework allowing, on one hand, to efficiently run business in the tenancy sector and, on the other, to attract investors to that market area. Those plans are to be realized by a combination of tax preferences with creation of a specific “brand” for firms investing in real estate rentals. This idea may prove an important step in the development and regularization of the real estate market in Poland.

Firm investing in real estate rentals

The basic assumption of the Act is to introduce in the Polish law the concept of a firm investing in real estate rentals. Although it seems, in the light of the civil law meaning of the term “firm,” that a more adequate expression would be “enterprise,” the nature of the proposed solutions seems very interesting. This status – according to the proposed draft Act – may be accorded only to joint-stock companies whose main object is rental of housing properties located in the territory of Poland. However, this is not the sole prerequisite envisaged by the draft’s designers. Altogether, such company must meet seven different conditions to acquire the status of a firm investing in real estate rentals. In the first place, the nominal capital of a company formed for an indefinite duration must be at least PLN 50 million and its stocks must be admitted to trading on the official stock quotations market. Besides, all stocks in the company must, without exception, be bearer shares, and the company may not issue privileged shares. Moreover, it will be necessary to define in the articles of association the type of rented properties as well as the criteria of selection of such properties and their valuation. A firm investing in real estate rentals is to be entered in a special register kept by the Polish Financial Supervision Authority and its management board must be composed of at least three members.

In addition, the draft’s designers specified the terms of operation of subsidiaries of firms investing in real estate rentals. According to the draft, these may only include joint-stock companies, limited liability companies or limited joint-stock partnerships, naturally, upon fulfilment of many additional criteria. One of the most important requirements is that at least 80% of the carrying amount of assets must take the form of residential properties. In any case, conducting business in the form proposed by the draft Act will open the possibility to use a number of tax preferences.

Incentive for investment – tax reductions and exemptions

In the first place, incomes of companies investing in real estate rentals generated directly or indirectly from rentals will be subject to an 8,5 % CIT rate. This rate will also relate to incomes on renting properties through a subsidiary or subsidiaries. Moreover, the draft provides for a new CIT exemption of incomes (proceeds) generated by firms investing in real estate rentals or their subsidiaries. However, the precise scope of the exemption was shaped differently for the firms themselves and differently for their subsidiaries. Joint-stock companies investing in real estate rentals are to be exempt in respect of four income types: on renting residential properties; on selling residential properties; on selling shares (stocks) in their subsidiaries and on dividends and other proceeds from their share in the subsidiaries’ profits.

Another regime was provided for the CIT exemption on incomes generated by such subsidiaries. In this case, the exemption will refer to incomes earned from renting residential properties and from their sale. However, the exemption will relate only to a part of the income expended on the payment of dividend to the firm investing in residential properties or on the purchase of residential properties. It should be added that the designers envisaged as well a tax preference in the PIT regime. Exemption from that tax will cover incomes (proceeds) earned by taxpayers from their share in the profit of firms investing in real estate rentals.

Preferences only for big players

It is obvious that in the light of the requirements for a joint-stock company willing to apply for the status of a firm investing in real estate rentals, the proposed piece of legislation is addressed primarily to “large” undertakings. Most definitely, it is a very interesting offer for such entities, which really can stimulate investors’ activeness in the area of real estate rentals. Besides, the designers seem to have high hopes in the Act and in the establishment of a certain “brand” relating to firms engaging in real estate rentals. This is evidenced not only by the steep requirements imposed on entities willing to conduct such activities but also the protection afforded to the name itself. In this context, it is noteworthy that unlawful use of the name “firm investing in real estate rentals” or its abbreviation (F.I.N.N.) is to be threatened with fine up to one million PLN or imprisonment up to two years. In terms of Polish standards, such solutions must be considered severe.

At present, we are at a very early stage of the intergovernmental legislative process, and there will still be time for the final evaluation of the draft. One can expect it to attract much interest in the property market – and, as is frequently the case, result in a high number of comments submitted. It will soon turn out if these expectations are correct since on 15 May the deadline passed for the interested parties to submit comments to the draft.