Investing in Poland Selected tax aspects 6 November 2013 Tel Aviv, Israel POLISH-ISRAELI ECONOMY & BUSINESS FORUM

General overview

Introduction of Poland Basic triggers for investment: Access to new markets Optimize costs Last 10 years in the European Union: Creation of investor friendly tax regimes Various investment incentives schemes Tax free cash flows within European Union, in case of related entities; No customs barriers on movement of the goods. Benefits for investing: political stability, favorable macroeconomic indicators, growing markets, proximity to the customer base of “old” Europe, availability of highly skilled and inexpensive labour force Investing in Poland. Selected tax aspects

Favourable Tax Environment Many CE countries have sharply slashed their tax rates to attract foreign investment, this includes Poland. Significant CIT reductions are driving factors behind the relocation of manufacturing and service oriented business activities into this region. Corporate income tax in Poland is 19%. 2013 Poland Personal Tax 18% / 32% 1 Corporate Tax 19% VAT 23% VAT reduced rate 8% / 5% 2 The main taxes in Poland Corporate income tax Personal income tax Transaction tax VAT Real estate tax Excise duty 1 Income of up to PLN 85,528 is taxed at a rate of 18%, whereas above this amount the tax rate of 32% applies. 2 For example, the reduced 8% VAT rate applies to hotel services, books, newspapers and medicines. The reduced 5% rate applies to buildings supply. Investing in Poland. Selected tax aspects

Corporate income tax Tax losses carry forward If tax deductible costs exceed the amount of revenues, the difference constitutes a loss. Tax losses incurred in previous tax years may reduce a taxable income of a taxpayer. A loss may be carried forward for 5 years following the year in which it was incurred, however the amount deducted in a given year shall not exceed 50% of the loss value (i.e. the shortest period of a one-year loss settlement is 2 years) 2013 2014 2015 revenues 100 tax deductible costs 150 income - tax loss 50 revenues 200 tax deductible costs 150 income 50 tax loss from 2012 25 tax base revenues 150 tax deductible costs 125 income 25 tax loss from 2012 tax base This tax loss may be utilized up to 2018 (maximum ½ of the loss in one tax year). ½ of the tax loss from 2013 may be used to reduce the taxable income in 2014. Tax due to be calculated on PLN 25. The outstanding amount of tax loss from 2013 (PLN 25) may be used to reduce the tax base to PLN 0. Investing in Poland. Selected tax aspects

Availability of Investment Incentives Poland provides financial support to foreign investment one of the key tools used to attract foreign investments fiscal incentives in the form of tax relief or favorable trade provision. R&D tax incentives: deduct from their CIT base up to 50% of expenditure incurred for the acquisition of new technologies in the form of intangible assets. In the case of loss the tax benefit may be used during the subsequent 3 tax years 14 Special Economic Zone SEZ – territories of Poland in which business activities can be conducted on preferential terms. It has already attracted more than 1450 investments It should be noted that all forms of investment incentives constitute state aid and should be provided in line with European Union regulations. country EU Funds Government grants CIT reliefs R&D reliefs Other benefits Required cumulativeness Poland  YES Investing in Poland. Selected tax aspects

Special Economic Zones

Special Economic Zone incentives General rules (1/2) Major incentive = 100% CIT exemption on profits generated by a business located in the SEZ territory (in general income form production activities, trading activities are excluded from the exemption) In case of the new investment project relevant permit (so called SEZ permit) is necessary to benefit from the tax incentives available in the SEZ (public aid in the form of CIT exemption). SEZ permit might be obtained if implementing new investment within the SEZ territory – impossible to apply for the SEZ permit in relation to the projects already launched. SEZ functioning has been recently prolonged from December 31, 2020 to December 31, 2026, subject specific limit (so called state aid limit) CONDITIONS & REQUIREMENTS specified in the SEZ permit The SEZ permit specifies the investment conditions (needs to be fulfilled in order to secure the right to the tax exemption): minimum level of investment costs to be incurred until the date of investment completion (at least EUR 100k). minimum level of employment on the SEZ territory, which must be maintained during the specified period (in most cases for 5 years). This condition might be subject to negotiations with SEZ Management. Investing in Poland. Selected tax aspects

Special Economic Zone incentives General rules (2/2) Public aid limit (in the form of CIT exemption) = Value of eligible costs of investment project x Aid intensity Eligible costs – two year labor costs of new employees OR eligible investment expenditures (e.g. new fixed assets, modernization of existing assets, rental costs under specific conditions). Aid intensity – for large investors 50% 40% 30% Investing in Poland. Selected tax aspects

Special Economic Zone incentives (II) Forthcoming changes (1/2) Major change – lowered aid intensity (date of SEZ permit issuance is crucial) Examples for Śląsk and Opole region (eligible costs = EUR 10M) Until 1.07.2014 From 01.07.2014 to 31.12.2020 50% 50% 40% 30% 35% 25% 20% 15% until 01.08.2017; 10% from 01.08.2017 Tax exemption limit Śląsk region Opole region SEZ permit issued before 1.07.2014 EUR 4M EUR 5M SEZ permit issued after 1.07.2014 EUR 2,5M EUR 3,5M Investing in Poland. Selected tax aspects

Special Economic Zone incentives (III) Forthcoming changes (2/2) Ban on granting SEZ permits in relation to investment being transferred from other EU countries to Poland (so called delocalization criterion); More restrictive requirements concerning incentive effect (necessity of preparing very detailed argumentation confirming that project would not be implemented in Poland in case of public aid absence). New definition of „initial investment” - more restrictive regulations applicable for assessing whether a few investment project in fact does not constitute single investment large project artificially divided (same, lowered aid intensity might be applicable). Investing in Poland. Selected tax aspects

Why Poland?

Why here? Benefits from EU membership – open European market Low corporate tax rates, with limited taxation on new investment (e.g., special economic zones) – no income tax on production activity Lower employment / shipment costs – higher profitability Customs formalities abolished for the movement of goods inside the EU = production in the plant located in SEZ and sale to other countries of European Union with limited taxation Investing in Poland. Selected tax aspects

Contact Adam Wacławczyk Director / Tax Advisor no 10148 e-mail: awaclawczyk@deloittece.com Tel.: +48 (0) 12 394 43 30 Mobile: +48 695 668 437 Investing in Poland. Selected tax aspects

“Deloitte” is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, and tax services to selected clients. These firms are members of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee. Each member firm provides services in a particular geographic area and is subject to the laws and professional regulations of the particular country or countries in which it operates. DTTL does not itself provide services to clients. DTTL and DTTL member firm are separate and distinct legal entities, which cannot obligate the other entities. DTTL and each DTTL member firm are only liable for their own acts or omissions, and not those of each other. Each of the member firms operates under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names. Each DTTL member firm is structured differently in accordance with national laws, regulations, customary practice, and other factors, and may secure the provision of professional services in their territories through subsidiaries, affiliates, and/or other entities.   Deloitte Central Europe is a regional organization of entities organized under the umbrella of Deloitte Central Europe Holdings Limited, the member firm in Central Europe of Deloitte Touche Tohmatsu Limited. Services are provided by the subsidiaries and affiliates of Deloitte Central Europe Holdings Limited, which are separate and independent legal entities. The subsidiaries and affiliates of Deloitte Central Europe Holdings Limited are among the region’s leading professional services firms, providing services through more than 3,500 people in 41 offices in 17 countries. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 195,000 professionals are committed to becoming the standard of excellence. © 2013 Deloitte Poland 15