Taxation of income of individuals from real estate INTERNATIONAL EXECUTIVE SERVICES TAX Mateusz Kobyliński, Director 17 February 2010

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 Taxation of income from sale of real estate Taxation of sale of real estate (not associated with conducted business activity): 3 taxation systems!  Acquisition before end of 2006  Acquisition between 1 January 2007 and 31 December 2008  Acquisition from 1 January 2009 onwards

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 Taxation of income from sale of real estate  Acquisition before end of 2006  10% tax on proceeds from sale  Costs of transaction deductible (NOT costs of acquisition)  reportable within 14 days of sale using form PIT-23  exemptions: - sale of property acquired as gift or inheritance - declaration of using funds to acquire other property in Poland within 2 years (statement!)

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 Taxation of income from sale of real estate  Acquisition between 1 January 2007 and 31 December 2008  19% tax on income (costs of acquisition and construction/renovation deductible)  reportable in annual tax return (PIT-36, PIT-36L or PIT-38)  ‘meldunek’ relief  ‘meldunek’ (registration for permanent stay) for a period of at least 12 months prior to sale  filing of statement confirming meeting conditions for exemption within 14 days of sale  exemption applicable to both spouses

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Taxation of income from sale of real estate  Acquisition from 1 January 2009 onwards  19% tax on income (costs deductible)  reportable in annual tax return (PIT-39)  exemptions: - declaration of using funds to satisfy housing needs within 2 years

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Taxation of income from sale of real estate All 3 systems: Revenue/income is taxable only if property is sold within 5 years from the end of the year during which it was acquired

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 Taxation of income from sale of real estate Housing needs (1) (from 2009):  expenses borne in association with acquiring, among others:  another residential building or flat,  land (share or rights to perpetual usufruct) connected with a residential building or flat  co-operative rights to accommodation facility (spółdzielcze własnościowe prawo)  land for construction of accommodation facility (rights to perpetual usufruct of such land),  construction/reconstruction of accommodation facility  located in an EU member state or other state within the EEA or Switzerland

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 Taxation of income from sale of real estate Housing needs (2) (from 2009):  expenses borne in connection with repayment of loans:  for repayment of loans (refinancing mortgage loans) or  loans for the repayment of loans for the repayment of loans for housing purposes taken out prior to the sale of the property, - in a bank or building society with its seat in an EU member state, a state within the EEA or Switzerland.

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 Taxation of income from sale of real estate  Housing needs (3) (from 2009): - exemptions – article 21 items 28, 29 and 30 of the PIT Act - if income is expended for housing needs outside Poland, there must exist a legal basis provided for by a double tax treaty or other ratified international agreement to which Poland is a party for obtaining by the Polish tax authority tax information from the tax authority of the other state - not for recreation purposes!

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 Taxation of income from sale of real estate  PIT-39 (from 2009) - new ADDITIONAL annual tax return declaration form - to be used only with respect to income from the sale of property acquired from 1 January 2009 onwards  Exempt income (from 2009) - proportional to the ratio of housing expenses to revenue from sale of property - proportional to the ratio of housing expenses to revenue from sale of property

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 Taxation of income from sale of real estate  Exempt income (from 2009) Example: revenue from sale of property = associated costs= income from sale= subsequent housing expenses=

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 Taxation of income from sale of real estate  Exempt income (from 2009): income x expenses income x expenses exempt income = revenue from sale revenue from salethus: x x exempt income = = taxable income = taxable income = 5 000

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Mortgage interest relief Extension of mortgage interest relief (acquired rights): Extension of mortgage interest relief (acquired rights):  interest on refinancing loan i.e. loan taken out to repay a mortgage loan  interest on subsequent refinancing loan i.e. loan taken out to repay a mortgage loan or refinancing loan  applies to loans taken out in banks or building societies in EU member states, the EEA or Switzerland

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14 New regulations on rental Types of rental (from a source of income perspective): rental conducted in the course of business activity rental as a separate source of income

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 New regulations on rental Occassional rental – a legally defined category introduced on 28 January 2010 on the basis of the act on amending of the act of tenants’ protection rights (...)

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 New regulations on rental Article 19a section 1: An agreement for occassional rental is an agreement for the rental of an accommodation facility serving to fulfil housing needs, the owner of which, being an individual, does not carry on activity in the field of rental of property, concluded for a defined period of not more than 10 years.

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17 New regulations on rental Article 19a section 2: Obligatory enclosures to agreement on occassional rental: Obligatory enclosures to agreement on occassional rental: 1) statement of the tenant, in the form of a notarial deed wherein the tenant is obliged to vacate the accommodation facility and return it to the landlord within the deadline stated in the landlord’s request; 1) statement of the tenant, in the form of a notarial deed wherein the tenant is obliged to vacate the accommodation facility and return it to the landlord within the deadline stated in the landlord’s request; 2) the tenant’s written indication of another accommodation facility wherein trhey may dwell if they are requested to vacate the rented property; 3) statement of the owner or holder of a legal title to the other property expressing their permission for the tenant and individuals living with them to dwell in the ‘other property’; upon the landlord’s request, the signature should have a notary attestation. 3) statement of the owner or holder of a legal title to the other property expressing their permission for the tenant and individuals living with them to dwell in the ‘other property’; upon the landlord’s request, the signature should have a notary attestation.

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18 © 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved New regulations on rental Article 19b: Additional conditions for ‘occassional rental’: The owner of the property reports the conclusion of an agreement for occassional rental to the head of the tax office relevant for the place of residence of the owner within 14 days of commencing rental of the property. Upon request of the tenant, the owner is obliged to present proof of the aforementioned reporting. Failure to meet the above obligations eliminates the possibility to apply the rules for vacating of the property by the tenant upon the landlord’s request (including articles 19c and 19d).

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19 © 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved New rules on rental Important amendment to the act on lump sum taxation of certain types of income derived by individuals (applicable from 1 January 2010): previously: the lump sum tax on registered revenue is 8,5 percent of revenue mentioned in article 6 section 1a, up to an amount being the equivalent of EUR 4000; the tax on the excess above this amount is 20 percent of revenue. presently: the lump sum tax on registered revenue is 8,5 percent of revenue mentioned in article 6 section 1a.

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20 Need assistance? Mateusz Kobyliński Director International Executive Services direct line:(+48 22) secretary:(+48 22) KPMG Tax M.Michna sp.k. Chłodna 51, XVI floor Warsaw Poland