The Polish Real Estate Guide 2018

The Polish Real
Estate Guide
2018 Edition
Poland
The real state of real estate
Content
Preface 01
1 Legal and tax

2
Polish Real aspects of investing
Estate Market 02 in real estate 42
1.1 Poland in a Nutshell 3 2.1 Legal background 52

1.2 Office Market Snapshot 9 2.2 Investment vehicles and structures 58
1.3 Retail Market Snapshot 15 2.3 Real estate financing 77
1.4 Warehouse Market Snapshot 23 2.4 Acquisition of real estate -
1.5 Hotel Market Snapshot 28 asset deal and share deal 92
1.6 Residential Market Snapshot 32 2.5 Development and construction 112
1.7 Investment Market Snapshot 38 2.6 Operation and exploitation 126
2.7 Exiting the investment 136
2.8 Sale and lease back 137
2.9 Due diligence as part
of the acquisition process 139
Accounting
3 4
and auditing 152 Contact 168
3.1 Introduction to the accounting
framework in Poland 153
3.2 Accounting records 155
3.3 Financial statements 156
3.4 Financial reporting, publication
and audit requirements 157
3.5 Consolidation 169
3.6 Hot topics in accounting with
potential implications for real estate
industry – IFRS 16 (Leases ) 163
Preface
This guide to the Polish real estate market was
prepared by EY, a global leader in assurance,
tax, transaction, advisory and legal services.
It aims to provide its readers with a broad
view of the market and the current investment
climate, as well as legal and tax information,
in a practical format to help you make
informed investment decisions. Our combined
market expertise in this market has enabled
us to produce what we hope will become an
indispensable reference tool on the state of the
Polish real estate market.
In conjunction with the views contained in this
guide, it is recommended to seek up-to-date and
detailed information on the commercial climate
at the time of considering your investment,
as this can change at any time. Unless stated
otherwise, this guide reflects information valid
as at January 2018.
1
Polish Real
Estate Market
1.1
Poland in a Nutshell
Poland is the most developed, diversified and mature economy across Central
and Eastern Europe. Poland holds the leading position in the CEE region in terms
of GDP (around €450 billion in 2016). The Polish economy is larger than the
combined economies of the Czech Republic, Hungary, Slovakia, Lithuania and
Latvia.
Population EU funds
38.4m €82.5bn
The largest population The largest beneficiary
across the CEE markets of EU funding
Inflow of FDI Top BPO/SSC/R&D

location
$13.9bn 1,078 centres

Poland has joined the group employing 244,000 people
of the top 20 FDI receivers
in the world
Poland. The real state of real estate | 3

The Polish economy is one of the most sustainable ones within the EU with positive
mid-term outlook. Poland was the only country within the EU to avoid recession over
2008-2010 and has been outpacing EU-average GDP growth for many years.
GDP growth in 2016 The cumulative growth
2.7% vs. Euro

Zone 0.6%
of the Polish
economy exceeded 60%
One of the fastest GDP over the last 10 years vs. 14%
growth rates in the EU across Europe
While Warsaw continues to be the country’s key business centre, Poland has
many strong regional clusters. Cities such as Cracow, Wrocław, Łódź, Tri-
City (Gdańsk, Gdynia, Sopot), Poznań and the Katowice conurbation have
developed business-friendly environment and have attracted many foreign
investors.
748k
2.0% - 2.9%
1,158
93k
TRI-CITY
540k
1.4% 694k 1.7m
1,208 6.4% 2.0%
127k 1,000 1,364
79k 270k
POZNAŃ
WARSAW
ŁÓDŹ
WROCŁAW 767k
638k 2.8%
2.2% KATOWICE 1,232
1,234 297k 169k
130k 2.2% KRAKÓW
1,238
120k
Population(1) Unemployment Monthly No. of students(3)

rate(1) salaries(2)
(1) as of December 2017

(2) as of November 2017
(3) as of 2016 for voivodeship Poland. The real state of real estate 5
Poland ranks high in terms of investment attractiveness among manufacturing
companies as well as business service providers, which has been confirmed by
a number of rankings as well as investment placements. Kraków has become
Europe’s best place for BPO/SSC and the sector has been steadily growing by
20% per annum.
Investor confidence has been confirmed by the following facts:
Poland holds 2nd position in EY’s European Attractiveness

Survey 2017 in terms of the number of jobs created relating to
2 FDI, and 5th position in terms of the number of FDI projects.
Poland may become a beneficiary of BREXIT, attracting financial

institutions and other business services that are considering a move
away from London. JP Morgan Chase announced plans to move its
operational centre to Warsaw.
Kraków is the top city for Business Process Outsourcing, Shared

Service Centres, Information, Communication and Research &
1 Development, holding no. 1 position in Europe in Tholons’ Top 100
Outsourcing Destinations 2016.
Google has opened three R&D centres in Poland

(Wrocław, Kraków and Warsaw).
E-commerce giants such as Zalando and Amazon, as well as

large retailers such as H&M, have put Poland high on the agenda,
operating 2-3 distribution centres each.
Poland’s student population of 1.5 million drew companies

such as Samsung Electronics, Delphi Automotive, BSH, Sanofi,
GE Engineering Design Center, ABB, Intel, Google, Unilever to open
their R&D centres in the country.
6 Poland. The real state of real estate

Poland’s real estate market is second to none within the CEE region in terms of
size, range and investor confidence. It offers yields more attractive than those
found on Western Europe markets, while maintaining a low risk profile and
relatively high liquidity.
Net prime yields in selected European cities, 2017
Amsterdam
3.5%
2.8%
4.8%
Stockholm
3.6%
London 3.7%
3.7% 5.2%
2.1%
3.7% Warsaw
5.1%
5.0%
6.6%
Paris
3.1%
2.8%
4.7%
Madrid Milan
3.6% 3.8% Office
3.3% 3.3% Retail
5.6% 5.7% Warehouse
Poland. The real state of real estate 7

Poland is also the largest CEE market (excluding Russia) in terms of volume of
modern real estate stock. The pipeline supply remains high, supported by strong
occupier demand.
Property
12.5m m2
market Warehouse
13.8m m2
9.5m m 2
Retail
Office
Investment market
No.
Capital
1 destination
in CEE
in terms of volume invested in real

estate in Central Europe with a
record €5bn allocated in 2017

1.2
Office Market Snapshot
Review
At the end of 2017 the total stock of modern office space in Warsaw and 6 largest
agglomerations reached 9.5m m2. Warsaw dominates the office market with the
most development, letting and investment activity. Yet, regional cities also play an
important role, serving primarily as Business Process Outsourcing (BPO)/Shared
Services Centre (SSC)/Research&Development (R&D) centres.
Office Market Share 2017

.5%
10
ów
ak
Kr
8 .5%
aw
ocl
Wr
Warsaw 56% Tri-City 7%
Kat
ow ice
5%
Po
zn
ań
5%
Łó
dź
Oth
4%
er 4
%

Encouraged by favourable financing conditions, positive economic performance and
good prospects, all of the sector stakeholders are bullish about the future of the
office market in Poland. In view of stable vacancy levels and rental rates, developers
are commencing new projects, occupiers are expanding, while investors are eying up
and pursuing opportunities not only in the capital, but also in the regional markets.
Prime rental
Pipeline Vacancy range
Stock (m2) supply (m2) rate (€/m2/month)
Warsaw 5.3m 750,000 12% 20-23
Kraków 1.1m 295,000 9.8% 14-15
Wroclaw 895,000 160,000 8.2% 14-15
Tri-City 680,000 135,000 7.0% 13-14
Łódź 490,000 130,000 6.5% 11.5-12.5
Katowice 480,000 50,000 11.0% 12.5-13.5
Poznań 450,000 40,000 11.5% 12-13

Trends
Poland’s real estate market is second to none within

the CEE region in terms of size, range and investor
confidence. It offers yields much more attractive
than those found on Western Europe markets, while
maintaining low risk profile and relatively high liquidity.
Office rents remain stable despite strong occupier demand and positive
economic outlook.
In view of extensive pipeline supply in Warsaw and across most of the regional
cities, rents and overall vacancy will most likely remain flat in the short- and
mid-term horizon.
Differentiation in terms of quality, rents and availability depending on

maturity continues. In some cases change of function becomes reality.
When considering age of the stock, there is a clear difference between new and
older generation office buildings. Many mature office schemes are struggling
with structural vacancy and hard pressure on rents. Unless modernization is
conducted in a timely manner and proper repositioning is carried out, some
mature buildings may face changing its function into residential or hotel.
Occupiers focus on quality, efficiency, flexibility and accessibility of space.
As office space has become an important HR tool and is still one of the highest
components of operational costs, occupiers pay much attention to functionality,
attractiveness and cost-effectiveness of their premises. New office buildings are
not only green, but they are also accommodating and create a pleasant working
environment. Additionally, they are equipped with hi-tech solutions and artificial
intelligence that stimulates creativity and effectiveness.

Focus on cities
Stock by zone (m2)
Warsaw
Vacancy
City Centre Prime rental range
(m2/month)
1,195,000
9.3%
North €18-19 Central Business District
106,000 835,000
3.5% 9%
€14.25-14.75 €22.5-23.5
Upper South (Mokotów)

1,350,000
17%
West €13.5-14.5
226,000
11% East
€14.25-14.75 220,000
7.5%
€13.5-14.5
Jerozolimskie Corridor
680,000
9%
€14.00-14.50
South East
(Ursynów/Wilanów)
127,000
South West 6%
(Żwirki i Wigury)
€14.25-14.75
300,000 Lower South
(Puławska)
23.2%
200,000
€14.00-14.50
8.5%
€13.00-14.00

Supply of office space
across the city stands at Total letting activity
5.3m m . 2
Almost in 2017 reached a high
750,000 m2 of office level of615,000
space is currently under m, 2
up by 11% year
construction. on year. 12-month
gross take-up, stands
at 825,000 m2. Lease
renewals accounted
for ca. 28% of total
Letting activity in the take-up, whereas the
CBD and City Centre volume of pre-leases
accounted for 45% totalled 67,200 m2

or 17% of volume of
of total volume.
letting activity.
The vacancy rate decreased to 12%, which is 3.4 pp

lower when compared to 2016. The highest vacancy
rate was recorded along the Żwirki i Wigury
corridor (23.2%) , mostly due to high
availability of office space in the second phase of Business
Garden. The lowest rate of 3.5% was seen in the North
zone, which is one of the smallest in terms of office
supply.
Prime rents in schemes located in the CBD range from

€21.00 per m2/month up to €20-23 per m2/month for
top floors in tower buildings. Prime rents in Upper South
range between €13.50 and 14.50 per m2/month.

Forecast for Warsaw
Prime rents are

forecasted to remain
stable, while the gap
between secondary
older buildings and best-
The Wola district will
With large volume of in-class schemes will
continue to attract the
supply, the vacancy widen.
majority of occupiers at the
rate may rise to 15% expense of Służewiec which
by end of 2018, is facing structural vacancy
despite strong with possible conversion
occupier demand. of function in the mid-term
horizon.
1.3
Retail Market Snapshot
Review
Average purchasing power per
Modern Retail Stock inhabitant Poland / Warsaw
13.8m m2 €6,710 /
€12,472
per inhabitant
Average density per
1,000 inhabitants Vacancy rate New supply (2017)
278 m2 4.5% 395,000 m2
Under Prime rent Prime rent in major

construction in Warsaw agglomerations
475,000 €110-130 €40-60

m2 m2/month m2/month

ew retail schemes delivered to the market in 2017
N
totalled 395,000 m2 and the aggregate modern retail
stock reached 13.8m m2. With 88% shopping centres
have the largest market share, followed by retail parks
(10%) and outlet centres (2%).
Additional 475,000 m2 is currently under
construction due for delivery by end of 2020.
Modern retail stock by type
0%
s1
park
tail
Re
Shopping centres 88% Outlet centres 2%

The bulk of new supply, with large retail schemes currently under construction,
is located in key markets. Further development of the modern retail sector
will continue in medium and small-size cities, however the type of new retail
accommodation will be mainly driven by convenience and leisure element.
Shopping centre stock by size of the city, 2007 vs. 2017
8 largest Medium-size
Small cities
agglomerations cities
2007 62% 24% 16%
2017 54% 27% 19%
While the average density rate for Poland stood at 278 m2 / 1,000 inhabitants
at the end of the year, there are major differences among individual cities. Some
of them are clearly reaching a saturation point with density rates over 750 m2 /
1,000 inhabitants.
Retail density and annual purchasing power in major agglomerations

Retail density
Po law
(m2/1,000 inhabitants)
an
c
ro
800
zn
W
700
Kr
Tr w
Łó
ak
i-C
d
600
ź
ity
w
io
sa
at
om e
gl wic
ar
er
W
Ag ato
500
Sz
K
cz
Annual purchasing
ec
in
400 power
(€/inhabitant)
300
6,000 7,000 8,000 9,000 10,000 11,000 12,000

Retailers show strong demand for prime retail locations,
while in many cases restructuring their networks in
secondary and tertiary locations. Interest in secondary
assets is clearly shaped by local retail sector fundamentals.
Rents in top shopping centres continue to increase

across the cities. There is also a large gap between
prime rental levels in Warsaw (€110-130 per m2/month)
and other major markets (€50-60 m2/month). Rent
differences are also prominent when comparing rents
in shopping centres in secondary and tertiary markets.
Clearly, the schemes that put emphasis on repositioning,
and succeeded in completing it on time, enjoy an
advantageous position now.
Poland is on the radar of retail newcomers. In 2017

approx. 30 brands entered the market, including Hamleys,
Zarina, Love Republic, Newbie, Max Premium Burgers,
Maxi-Cosi, Freya and Tedi, to name a few. The lack of
availability of units suitable in size in prime locations is the
main entry barrier for many international retailers.
Polish brands are successfully expanding abroad with

Reserved and CCC leading the way.

Trends & Forecast
The gap between primary and secondary markets and schemes widens
with prime assets achieving steady rental growth.
Considering that the modern retail market in Poland is over 25 years old, the
retail offer is extremely diversified both in terms of location, type and size
of retail accommodation as well as quality. Furthermore, retailers have now
become picky and are revising their expansion strategies as not to cannibalize
themselves. There are also substantial differences across different groups of
cities in terms of purchasing power. All of these arguments are reflected in the
widening rental gap between primary and secondary schemes with top centres
maintaining rental growth.
The era of large-scale schemes will soon be over.
As the market in many cities is reaching maturity in terms of density, there

are only a few large-scale schemes left to be developed. The bulk pipeline,
scheduled for delivery after 2020, is located in medium and small-sized
cities, and in terms of volume, the retail market is now focusing on quality not
quantity.
The wave of modernisations, respositionings and extensions continues.
Even for well-performing schemes with a strong position on the market, it is

absolutely necessary to constantly monitor the market trends and adopt to the
quickly changing spending patterns and consumer behaviour. Over the past few
years many centres (approx. 35-40% of the stock) have undergone repositioning
and/or extensions in order to stay ahead of the game, and this trend is set to
continue.

Place making, expansion of food offer and leisuretainment is in.
Shopping centres have become a place for social interaction, where people
not only shop, but also spend their leisure time on eating out, playing sports
and entertainment. This trend is clearly visible across all of the types of retail
accommodation with some of the space reconfigured into different functions
(enlargement of foodcourts and catering offer, new meeting places, etc.)
Retailers and landlords work hard on staying connected.
Never before have retail chains and landlords had to adjust so frequently to
changing consumer habits to stay connected with their customers. In order to
be ahead of competition, they have to embrace the power of Big Data, Internet
of Things and Artificial Intelligence. As e-commerce market is developing
rapidly, omnichannel strategies have also become a common practice in Poland.
This trend is set to continue and will evolve fast along with development of new
technologies.
Retail is playing an important part in mixed-use schemes.
Large agglomerations, especially Warsaw, provide the opportunity to develop

multi-functional complexes, where retail forms an important axis. By combining
commercial functions such as retail, office, entertainment and culture to form
one unit, mixed-use schemes create a unique and recognizable place on the map
of the city. These kinds of schemes can be considered similar to high street retail
which constitutes only a supplement to the traditional shopping centres, and
cannot be considered to be their competition. Examples of mixed-use schemes
include Manufaktura in Łódź, Stary Browar in Poznań and Warsaw’s ArtN, FC
Powiśle, Hala Koszyki and Koneser.

The surge in the growth of convenience store numbers is a derivative of
changing consumer habits.
The era of large-scale hypermarkets is over, as confirmed by downsizing and

restructuring of large hypermarket networks across Poland. Supermarkets,
discounters and delicatessen stores are now the key providers for FMCG as
consumers value convenience the most.
The ban on Sunday shopping will have a number of side effects on the
overall economy as well as investors’ pricing expectations.
The introduction of the ban on Sunday shopping might have a negative impact
on the economy. It may reduce the level of income to the state budget, decrease
sales in retail and in other sectors connected with the servicing of the retail
market.
1.4
Warehouse Market Snapshot
Review
Total modern warehouse New warehouse supply

stock delivered in 2017
12.5m m2 2m m2
Overall vacancy Pipeline supply
rate in 2017
~6.00% 2.5m m2
Prime warehouse rent Average warehouse rent
€4.50-5.00 €2.50-3.00
m2 / month m2 / month
Map of logistic hubs with road infrastructure
TRI-CITY
1
OLSZTYN
SZCZECIN
4 BIAŁYSTOK
BYDGOSZCZ
TORUŃ
5
POZNAŃ
WARSAW
3
1
ŁÓDŹ
4
WROCŁAW LUBLIN
2 2
KATOWICE
KRAKÓW
4 RZESZÓW
3
Primary hubs: 2
1. Warsaw I & Warsaw II
2. Upper Silesia
3. Poznań
4. Central Poland
5. Lower Silesia
Secondary hubs: Major national roads

1. Tri-City
2. Lublin/Rzeszów Highways Expressways
3. Cracow
4. Szczecin Existing Existing
5. Bydgoszcz/Toruń Under construction Under construction
Planned Planned

The warehouse and industrial market, spurred by very good economic indicators
along with positive forecasts, has been performing extremely well over the
past few years. Another reason behind it is the development of transport
infrastructure, which enables faster movement of goods.
With 2m m2 completed in 2017, the total stock stood at 12.5m m2 by year-end.

There are 5 key warehouse clusters as well as 5 emerging ones. The bulk of
warehouse space is located within the Warsaw region (located within a 50 km
radius from the capital city), followed by the Upper Silesia and Poznań regions.
Warehouse stock by region
%
5.9
4%
2.
wI
Wa 1.5%
5%
8% cz
sz
rsa
rsa
2
1.
cz r 0.
g o %
in
2.6
Wa
wI
yd
Sz he
ec
/B n
gio
Ot
I
ń
ru Re %
To ów 2.9
r a k
eszów
K Rz
lin/
Lub %
n 3.6
i ty Regio
Tri-C
Upper
Silesia Lower
Siles ia 12.8
17.6% %
Ce land
Re nań
Po .0%
.7% n
nt
gio
13
z
ra
Po
l
14

evelopers, encouraged by continuously low vacancy rate fluctuating around 5-6%
D
and high level of prelets, maintain high level of construction activity, which at the
end of 2017 stood at 2.5m m2. Built-to-suit schemes constitute the bulk of new
supply.
Gross take-up in 2017 reached over 3m m2, which is similar to the level recorded
last year. Warsaw region and Central Poland regions attracted the bulk of letting
activity. The largest transactions include: Moto Profi renegotiation and expansion
totalling 44,300 m2 in Prologis Park Chorzów, Agito letting 33,100 m2 in P3 Błonie
and Grupa VIVE signing to occupy 26,300 m2 in Panattoni Park Kielce.
Logistics operators and e-commerce were the most active occupier sectors.
Despite high level of demand, the level of rents has been stable for the past years
- €4.5-5.0 m2/month for prime assets and €2.0-3.5 m2/month, all depending on
location and technical specification.
Rental levels by region (m2/month)
Warsaw I
Warsaw II
Upper Silesia
Poznań region
Central Poland
Lower SIlesia
Tri-City Region
Lublin/Rzeszów
Cracow Region
Toruń/Bydgoszcz
Szczecin
1.00 2.00 3.00 4.00 5.00 6.00 €/m2/month

Trends & Forecast
Prospects for warehouse and industrial market remain bright.
Poland’s central location, its size, improving transport infrastructure and

its economic performance, particularly in terms of production output, retail
sales and trade, are the undisputed fundamentals that stand behind a positive
forecast for the warehouse sector in the foreseeable future.
No changes are expected for vacancy and rental levels.
Large land banks secured by developers are the main reason behind stagnant
level of vacancy and rents. The situation is unlikely to change in the short- to
mid-term horizon.
Demand will be driven by the usual suspects.
No changes are expected to occur in terms of sectors which will be driving

take-up. Logistics operators, e-commerce and retail in general, as well as
manufacturing companies will constitute the bulk of demand.
Emerging locations gradually turn to an alternative to mature hubs, the

latter leading to labour shortages and risk of cost increase.
With very tight availability of labour force and low vacancy rates in established
warehouse hubs, more and more developers as well as occupiers are eyeing up
opportunities in new locations. Built-to-suit options in emerging regions such as
Bydgoszcz-Toruń, Lublin, Rzeszów are more cost-effective.

1.5
Hotel Market Snapshot
Over 30m of tourists Over 79m nights spent
6.3m
Over
foreign tourists in 2016
over 15.5m nights
spent by foreign visitors
Over 2,500 hotels 73%

Average hotel room
occupancy in Warsaw in 2016
Increasing occupancy rate of Increasing number of

hotel rooms by tourists staying at hotels by
2.5p.p. y/o/y 12.2% y/o/y

Review
Rapid growth of the hotel market in Poland is reflected by the increasing number
of new hotels, growing number of tourists, as well as the growing interest in the
Polish market from international hotel brands.
The key drivers for the development of hospitality business in Poland are:
economic growth, rising popularity of Poland as a holiday and MICE destination,
as well as the development of medical tourism in Poland. Another important
factor positively influencing the development of the hotel market in Poland is
the dynamic growth of the BPO/SSC sector.
The number of categorized hotels in Poland exceeds 2,500 and is growing year-
to-year. Kraków is the city with the highest number of hotels. However, when
considering the number of hotel rooms, Warsaw takes the lead with 28% more
hotel rooms than Kraków.
Number of hotels and hotel rooms

in main cities in Poland in 2016
160 14 000
140 12 000
120
10 000
No. of rooms
No. of hotels
100
80 00
80
60 00
60
40 00
40
20 20 00
0 0
Warsaw Kraków Tri-City
No. of hotels No. of rooms
The number of tourists staying at hotels in Poland in 2016 exceeded 19.6m,

which is an increase of 12.2% compared to the preceding year. The share of
Polish guests using hotel infrastructure is rising. Foreign tourists accounted for
26.8% of the total number of tourists staying at hotels, which is 0.1 p.p. less
than in 2015. The average hotel room occupancy in Poland in 2016 equalled
50.8% and was 2.5 p.p. higher than in 2015 (Central Statistical Office data).

As far as operating models are concerned, international hotel chains
entering the Polish market are mainly interested in management or
franchise agreements. Pure lease agreements are accepted only in the
case of prime locations in major cities and usually by hotel chains entering
the Polish market. Hotel chains that are the most active in terms of new
openings in Poland are: Orbis/Accor, Hilton Hotels & Resorts, Best Western
and Marriott Hotels & Resorts.
Major pipeline of hotels includes: 5 hotels by Accor Orbis (Warsaw,
Szczecin, 2x Lublin, Gdańsk); 7 hotels by Hilton Hotels & Resorts under
Hampton by Hilton brand (Warsaw, Łódź, Kalisz, Olsztyn, Oświęcim
and Poznań) and 1 Hilton Garden Inn in Szczecin; 8 hotels by Marriot
International under multiple brands.
Focus on Warsaw
Warsaw is the largest hotel market in Poland in terms of supply of hotel rooms.
It is also usually the first choice for the international brands entering the Polish
market.
According to data published by the Central Statistical Office, in 2016 there were
84 categorized hotels in Warsaw offering a total of nearly 12,975 rooms. Three
star hotels constituted 40% of all hotels in Warsaw and accounted for 31% of
hotel room supply. There were 12 five-star and 16 four-star hotels, accounting
for 14% and 19% of the total number of hotel rooms in Warsaw, respectively.
More than 9.6 million tourists visited Warsaw in 2016, including 3.2 million
using accommodation, which translates into 5.5 million nights spent by tourists
at hotels.
he average occupancy rate for hotels in Warsaw in 2016 reached nearly 73%,
T
with peak months being September (82%), June (82%), April (79%) and October
(79%). The highest hotel occupancy rate was noted in five-star hotels reaching
approximately 90%.
Warsaw is the largest event spot in Poland and one of the top MICE locations in
Central and Eastern Europe with over 25,000 events organized annually. In the
next two years (2018 and 2019) Warsaw will see the opening of two upscale
hotel schemes – Renaissance Marriott and Raffles Europejski.

Trends & Forecast
Increasing stock, prices and occupancy.
he positive trends on the market will continue due to positive macroeconomic

T
factors such as rising wages, low unemployment rate and increasing number
of foreign tourists visiting Poland. Currently investors are still attracted by the
Polish market thanks to the improving of major hotel indicators (occupancy,
ADR), and are willing to enter the market. Average room prices increased by
approximately 6% y/o/y.
Emerging global MICE destination.
The dynamically changing situation in the world, including the growing level of
terrorist threats in the cities of Western Europe, changes the stream of demand
towards Poland and Warsaw which are perceived as safe areas. Each terrorist
act has caused turmoil in the normal operating of the MICE industry, where
certain events had to be postponed or cancelled. The terrorist threats are
affecting both tourism and conference and congress market in Western Europe.
Due to the persisting state of emergency in countries suffering from terrorism,
the cost of providing security and meeting security requirements during large
events has increased drastically.

1.6
Residential Market Snapshot
Largest residential market

in Central and Eastern Europe Almost 90k
83%
apartments delivered
(with over owner in 2017
occupied housing stock)
Major trends:
rising
prices
rising
Record high sales in top 6 markets construction
72k
costs
units
and 17% increase y/o/y

developing
rental
market

Review
he Polish residential market is the largest in Central and Easter Europe,

T
however it still lags behind Western EU in terms of ownership structure (with
over 83% owner occupied housing stock), undeveloped institutional rental
market, age of housing stock and level of market saturation.
2017 has marked itself as an undisputed record breaker with over 89,817
residential units delivered to the market which, was 14.5% more than in the
previous year, and 128,484 building permits obtained, which was 20.48% more
comparing to 2016. In terms of new construction projects started, development
of 105,401 units was commenced, which means a 23.2% increase y/o/y.
Despite the unprecedented offer entering the six largest markets (Warsaw,
Kraków, Wrocław, Tri-City, Łódź and Poznań), 2017 was the first year since
2013 when demand surpassed supply, which resulted in a decrease of available
offer.
Decrease in the offer was followed by increase in the average offer prices, with
highest average increase of 15% noted in Tri-City, followed by Łódź (8.5%) and
Warsaw (8.4%). In addition to demand surpassing supply, other factors affecting
prices are the increase in construction cost and the change of offer structure
with decreasing share of popular segments and developing up-scale market.
The reasoning behind the booming market is the economic prosperity
manifested through the main economic indicators such as GDP growth, record
low unemployment rate, relative stability of prices (low stable inflation) and
rising wages.
Since January 2017 the maximum level (20%) of own contribution for
mortgages, as imposed by the Polish Supervision Authority, has been reached.
I nvestments in the residential market have been attracting private cash
investors that generate a large portion of the demand. The other driving factors
included the government-run Mieszkanie Dla Młodych (MDM) program and low
cost of debt.
The upscale market segment is increasing its share particularly in the large
developed markets of Warsaw, Kraków and Tri-City.

Focus on Warsaw
Warsaw’s residential market remains the most developed in Poland. The demand
is driven mainly by in-migration, the highest income level in Poland and the
lowest unemployment rate. Warsaw is also a popular location for shared service
centers and office investments. Both of them result in increased demand for
residential developments. Employment perspectives and major universities
located in Warsaw are a magnet for young people from other regions of the
country. The market reacts to the increased demand, which results in the
multifamily developments being the focal point for developers. The most
expensive flats of prime and super-prime segment with prices over PLN 15,000
per m2 are located in Śródmieście, Mokotów, Żoliborz, Ochota, Praga Południe
(Saska Kępa) and Praga Północ districts.
Price range per m2

PLN 10,000 - 15,000
PLN 8,000 - 10,000
PLN 8,000 - 10,000
Białołęka PLN 6,000 - 7,000
below PLN 6,000
Bielany
Targówek
Żoliborz Rembertów
Praga
Północ
Bemowo
Praga Południe Wesoła
Wola
Śródmieście
Ochota
Wawer
Ursus Mokotów
Włochy
Wilanów
Ursynów
source: EY market research

Trends & Forecast
End of subsidies from the MDM program – change of market structure,

decrease of demand and possible boost for the rental market.
The program has been influencing residential market significantly, in particular

as regards requirements of the program in terms of size and prices of
apartments. The abolition of the subsidies will influence the structure of the
market offer with less investments commenced in the popular segment. The
other market effect is the possible transfer of the potential demand for cheap,
subsidized apartments to the rental market.
“Mieszkanie +” program.
The “Mieszkanie +” program should not represent competition for the private
sector – this results from the requirements of the program aimed at those not
being able to afford buying or renting apartments on market terms.
Construction cost and land prices on a rise.
Due to the limited availability of labour force on the market, temporarily

supplemented with workers from Ukraine, and the higher minimum wage as
increased by the government, construction cost ultimately resulting from
higher labour cost is expected to continue to rise. The decreasing availability
of development land will also be driving up the average total development
cost.

Rising prices.
Increase of the average prices will be driven by continuously strong demand

surpassing supply, increasing development land prices, rising construction cost
and change of offer structure towards more upscale market segments.
Rental market development – organized and institutional

players to take over?
As regards the ownership structure in Poland, high returns generated by the

Polish rental market are encouraging more and more investors to develop
residential investments aimed at maximization of ROI from organized rental.
With possible increase of interest rates, demand for investment apartments
generated by private investors might decrease. The gap will be filled by
developers and investment funds. Additionally, when introduced, the REITs
legislation is expected to boost the growing potential of the Polish rental
market. High activity of BGK’s Rental Market Fund is observed with planned
20,000 rental units to be developed in 7 major cities, other private institutional
investors already present in the market are Bowfonds and Catella.

1.7
Investment Market Snapshot
Review
Volume of investment Volume of the Invested capital

transactions in 2017 largest transaction allocated in retail
in 2017
€5bn €1bn €2bn

Prime office yield Prime retail yield
5.10-5.20% 5.00-5.25%
Prime warehouse yield
6.50-6.75%
Despite some uncertainties connected with legal and tax regulations introduced
or to be implemented, which delayed some investment decisions, the volume
of investment transactions in 2017 reached € 5billion, representing a 11% y/y
increase. It was also one of the best results ever recorded, which gave Poland the
leading position in terms of capital allocation across the CEE region.
Annual Investment Value

€5.000
€4.500
€4.000
€3.500
€3.000
€2.500
€2.000
€1.500
€1.000
€500
€0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Capital invested
One record portfolio transaction stood out on the Polish investment market last
year, i.e. the purchase of the Apollo Rida retail portfolio by Griffin Real Estate for
approx. €1 bn. This is one of the key reasons behind strong market share of retail
in the overall investment volume.
Annual Investment Volume by Sector, 2017
19 %
Office use
31% eho
War
Hospitality 9%
41 %
Retail

Asian and South African investors have been strongly pursuing opportunities across
Poland, focusing on Warsaw as well as key regional markets. Still, there is an active
group of investors, willing to venture into secondary and tertiary markets with
higher return expectations.
Despite strong competition, prime yields remained relatively flat across the sectors
over the course of the past 12 months. For office, it was mainly a derivative of large
pipeline supply, even with sustainable strong demand. It should be noted that there
is still a substantial gap between prime yields in Poland and developed Western
Europe markets, thus making Poland attractive to investors looking to achieve
higher returns, while maintaining a relatively low risk profile.
Prime yields curve

10%
9.5%
9.0%
Office
8.5%
8.0%
7.5%
7.0% Retail
6.5%
6.0%
5.5% Warehouse
5.0%
4.5%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018f
Trends & Forecast
Poland will continue to be on the radar of investors. Still, transactions

might take longer in view of uncertain tax and legal regulations.
Given its size, market fundamentals, steady occupier demand as well as yields
higher by 2-3 bps as compared with developed Western Europe markets, Poland
will attract investors’ interest over the course of the coming quarters. Yet, the
pace at which transactions will be closing might decrease, as the implications of
the recently introduced tax changes and the ban on Sunday shopping are yet to
be assessed by investors.
Prime yields are most likely to remain stable across the sectors. Pricing on
non-primary assets will vary significantly and be set asset-by-asset.
The large pipeline supply and the changing tax and legal environment are
unlikely to significantly impact the level of prime yields which should remain
flat. The situation with secondary assets will be more complex and asset-specific
details will have to be considered when evaluating the price.
I n their search for opportunities, investors are eyeing up not only

primary, but also secondary markets.
In view of the insufficient supply of prime products in Warsaw, regional cities are
much sought after by investors as a destination for capital allocation. Tier-2 and
tier-3 cities have slightly higher risk profiles and a lower depth of the market,
however yields are 2-3 bps higher.
Hospitality sector is at the top of investors agenda.
Over the past few years the hotel sector has been booming in Poland as
confirmed by the growing number of tourists, increasing hotel occupancy rates
and development of hotel accommodation across the country. These trends
have been confirmed by the high number of investment transactions in the
hospitality sector. One can expect continuation of this trend in the future.

2
Legal and tax
aspects of
investing in
real estate
This Chapter considers the most important legal and tax issues arising during each of
the following five stages of a real estate investment:
$
Financing Acquisition Development
and construction
Operation Sale
and exploitation
The Chapter is arranged so that each of the above aspects is dealt with in a separate
section (2.3.-2.8.), considering legal implications first, followed by an assessment of
related important tax consequences.
The section 2.1. on the legal background (below) will introduce the reader to certain
concepts and terms that may not be commonplace in transactions elsewhere in Europe.
This should be read as a general introduction to the legal environment in Poland. The
chapter also contains section 2.2. on investment vehicles and structures presenting
information on the most common structures used in real estate investments in Poland.
Taken together, they form the basis for understanding the most relevant legal and tax
implications of investing in real estate in Poland.
Legal, financial and tax due diligence are also fundamental to any investment cycle
and given the importance of due diligence to any transaction, we discuss the relevant
procedures and key considerations in detail in section 2.9.

The beginning of the year 2018 has already brought many important
changes in the Polish legal system. Although the already adopted acts
are not significantly material from the real estate market perspective,
some draft amendments to existing legal acts and new regulations that
are yet to be introduced this year might have a crucial impact on the
real estate market in Poland.
Changes of the real estate law (adopted):

1. Act on the restriction on trade even go bankrupt which could result in
on Sundays – starting from March lower profits of the landlords.
2018 a ban on trade on Sundays in
2. New Water Law Act – newly
the commercial outlets will enter into
introduced provisions are quite similar
force. The ban was established mainly
to the current regulations, however
in order to restrict trade on Sundays
certain matters have a significant
in the large-format commercial
impact on the real estate market:
facilities and shopping centres. The
Act provides for certain exceptions • procedural simplifications in
(i.e. gas stations, trains and bus obtaining water permits,
stations, airports and hotels), where
• increase of costs related to
the trade will still be allowed. The ban
charges for water use,
will enter into force gradually, in 2018
on 2 out of 4 Sundays a month, in • expiry of the zoning decisions
2019 on 3 out of 4 Sundays a month, on the flood areas. Such expiry
and a comprehensive ban will enter of zoning decisions may have
into force from 2020. a significant impact on all
investments carried out in the
In consequence, the restrictions on
areas with medium (1%) and high
trade on Sundays may have a negative
(10%) flood risk or investments
impact on the turnover of the tenants,
located less than 50 m from anti-
what in consequence may lead to the
flood embankments,
higher number of redundancies of
the employees and to the increase • introduction of pre-emption right
of the unemployment rate in of the State Treasury in case of
general. What is more, the terms and the sale of real estate, where
conditions of the leases will have to water reservoirs are located.
be renegotiated, some tenants may

3. Changes in the Construction law may impede developers from
– changes introduced on 1 January complying with the standards set
2018 have a significant impact out in local spatial development
on the execution of construction plans or zoning conditions (in
investments. Dozens of different particular in case of construction
types of parameters that have to be of shopping centers).
taken into account while preparing
New provisions have to be taken
investment project were amended. For
into account by the designers and
example, in accordance with the newly
investors not only with regard
amended Act:
to the new investments. Certain
• a minimum area of an apartment investments in the preparatory
cannot be lower than 25 square phase of construction will have to
meters (previously the matter be redesigned. In accordance with
was not explicitly regulated the transitional provisions, new
and restrictions concerned regulations will not be applicable only
only minimum areas of certain to the investments, for which the
rooms), what may impede the application for building permit was
construction of small apartments, filed before 1 January 2018. Other
aparthotels and condo hotels, investments will have to be adapted to
etc., the new standards.
• construction of a building located 4. Changes for perpetual

1,5 m from the plot boundary usufructuaries – from 1 January
or directly at the boundary will 2018, in the event of a transfer of
be possible only if the local right of perpetual usufruct, the seller
spatial development plan allows will be obliged to pay annual fee for
it (previously such construction the whole year (even if transfer takes
was possible also on the basis place on 2 January). The payment is
of the zoning decision, and over due on 31 March and is made once a
half of all investments in Poland year for the whole year (previously
is carried out on the basis of the the fee was paid in proportion by the
zoning decision), seller and the purchaser in accordance
with the proportion of ownership of
• dimensions of the parking
property in a given year).
spaces will be extended, what

Planned changes of the real estate law in
2018:
1. Real Estate Investment Trusts carrying out investments on the basis
(REIT) – in accordance with the of zoning decisions. Carrying out
information made public, REITs are to investments in the areas not covered
operate only in the residential market, by the local spatial development
without the possibility to investment plans will be limited. Currently, due
in the commercial real estate. It is to small coverage of Poland with
possible that the scope of the Act will local spatial development plans, over
be extended to hotels, aparthotels, half of the investments in Poland is
retirement homes, dormitories, etc. carried out on the basis of the zoning
decisions. Entry into force of the
The real estate market was looking
planned changes will prevent most of
forward for introducing REITs regime
investments from being carrying out.
in Poland, however the scope of
previous drafts included also possible 3. Mitigation of requirements
investments in the commercial related to trade of agricultural land
properties. Economic reports revealed – entry into force on 30 April 2016 of
then indicated that adopting REIT’s the new Act restricted the freedom of
investing in the commercial assets trade of agricultural land in Poland.
would produce many beneficial effects The restrictions were imposed also on
for the economy, including decrease trade of other types of land, especially
of unemployment rate, increase investment areas, which due to very
of turnover on the Warsaw Stock broad definition of agricultural land
Exchange (GPW), GDP growth etc. Due and lack of coverage with local spatial
to the fact that adoption of the project development plan, were qualified as
in the current scope will not achieve agricultural lands. In accordance with
the abovementioned objectives, most the new draft act, planned changes
likely the REITs will not attract the are aimed at allowing broader trade of
potential investors. agricultural land and include following
propositions:
2. Investment Act – works are
conducted to introduce an act aiming • State Treasury will have a right
at improvement of the investment of pre-emption of shares of
process. However, the act will also commercial companies only if
establish certain restrictions on the total area of agricultural
carrying out investments. The biggest land owned by the company will
concerns raise planned restrictions on constitute at least 1 ha,

• the companies will be able to accounts is planned. The accounts
apply for consent to purchase service purchasers’ deposits, in such
land in the process of merger or a way that the payments made by
division of companies, subject to the purchasers are paid out to the
the fact that the consent will be developer upon completion of the
granted only to the agricultural given phase of works, after bank’s
companies, positive inspection conducted at the
construction site. It is planned to
• persons who are not individual
replace the open escrow accounts
farmers will be able to purchase
with closed escrow accounts. The
agricultural land in the process
purchasers’ payments would be
of execution or insolvency
paid out to the developer only after
proceedings (currently, e.g.
completion of the construction of the
agricultural land cannot be
building and transfer of the ownership
transferred to the banks in
of the apartment to the purchaser.
the process of execution or
The proposed changes will increase
insolvency proceedings).
the level of protection of purchasers
4. Development Act - Office of apartments, however may also
of Competition and Consumer contribute to increase of prices and
Protection (UOKiK) calls for adoption elimination of smaller developers
of legal provisions that will provide from the market, who do not have the
better protection for purchasers of sufficient own resources or will not
apartments from developers. What get financing for 100% of investment
is more, liquidation of open escrow costs.

Taxpayers in Poland face significant market and dragged many investors
changes in tax law as of 2018. The towards share deals.
amendments are generally in line with
We highlight below selected key
global and European trends aimed
changes which impact the real estate
at introducing measures against tax
market in 2018.
evasion and tax avoidance, i.e. actions
undertaken within the Base Erosion Investment structures
Profit Shifting (BEPS) initiative For many years the Polish real
by OECD, Multilateral Convention estate market has developed
to Implement Tax Treaty Related investment structures that were
Measures to Prevent BEPS (MLI), as widely used by investors. However,
well as works within the European the abolishment of well-grounded
Union, which resulted in developing investment fund structures for real
the Anti-Tax Avoidance Directive estate investments last year marked
(ATAD). a radical watershed. While legislation
that led to the significant limitations
There are also tax changes which
of the investment fund structure
originate from the local developments
was being drafted, at the same time
and in many cases they stretch even
the Polish government promised an
beyond measures recommended by
attractive alternative for the real
international bodies.
estate market, the REIT (Real Estate
On top of the statutory changes there Investment Trust) regime. Real
were also significant practical tax estate investors familiar with REIT
challenges, the main of which was regimes of other countries were in
a shift in tax authorities practice in the past not too often asking for a
refund of VAT on asset deals. Recent similar vehicle to expand into Poland.
cases where the tax authorities That was because investment funds
challenged the qualification of real offered a comparable – if not more
estate (mainly shopping centers, but efficient – vehicle for Polish real
also other asset classes) from an estate investments. These days are
asset deal performed on a standalone over now, the global real estate funds
basis into a sale of a going concern. community is still awaiting the new
As a result the buyers struggled or Polish REIT to become an option.
were even unable to collect input VAT Unfortunately, the works on REIT
paid on a transaction from the tax legislation have been postponed
office. Since challenge also applied to and there is no certainty about the
transactions whereby tax rulings were actual shape and timing of REIT
obtained upfront, it shook asset deals tax incentives to come into force in

Poland. they reduce the taxable income of the
acquired entity.
‘Income baskets’
Another limitation refers to a
A big novelty to Polish tax regime is
maximum arm’s length debt
introduction of ‘income baskets’ for
capacity of an entity, which should
corporate taxpayers, whereby capital
be estimated regardless of any group
gains or losses must be separated
guarantees or credit standing owed to
from operating income. While this
being part of a well-established capital
mechanism has been known to a
group. Any interest on debt exceeding
number of other jurisdictions, it is
such a maximum debt capacity would
only as of 1 January 2018 when
not be deductible for tax.
the Polish taxpayers have to follow
this rule. This brings additional This brief summary already shows
complexity to tax compliance that effective use of debt financing
but does not necessarily have a will become a real challenge. You will
huge impact on typical real estate find more details in the following part
investments, as e.g. gains from of this publication.
disposal of real property are still
classified as operating income. ‘Minimum levy’
A new development is also a
Deductibility of financing costs ‘minimum levy’ to be paid by the
Another change with very significant owners of commercial properties
impact on the industry is limitation of a considerable value (initial value
of financing costs deductibility. exceeding PLN 10 million). New levy
Under the new thin capitalization amounts to 0.42% of the property’s
regulations, the method to set the initial value exceeding PLN 10
maximum financing cost threshold million. However, as the new tax will
has been changed from debt-to-equity be offset against standard corporate
ratio to 30% of tax adjusted EBITDA. income tax, it should not have a major
impact on companies which generate
Another new restriction affects
taxable profits on an ongoing basis. In
leveraged buy-outs, which were
the case of less profitable companies
followed by consolidation of the
or those that are in a tax loss position,
debt-leveraged acquirer with an
it will mean an additional cost.
operating target. Such interest will
not be deductible now to the extend

Limited deductibility of intra-group Tax treaties changes
charges Last but not least, Poland signed
Another unwelcomed surprise has MLI, which will gradually modify
been limitation of tax deductibility bilateral tax treaties between Poland
of certain intra-group service and other countries. The scope
charges, such as for consulting or of change depends on optional
management services as well as for provisions selected by both parties to
licenses. The limit has been set at a tax treaty and the timing depends
PLN 3 million plus 5% of tax adjusted on the pace of ratification of MLI in
EBITDA per year. each country. Since changes may
In view of the above, purchase of affect already tested implications of
services from related parties may cross-border transactions, each such
require additional consideration. situation must be analyzed again as
the new circumstances develop.
VAT split payment
One more change that will come in
the near future is a VAT split payment
mechanism, under which the VAT
component of the price could be
transferred to a seller’s special bank
account, partially controlled by the
tax office. Cash from this account can
only be used for specific purposes, like
paying VAT to the tax office or settling
VAT from the purchase invoice. The
change is due to come into force as
of 1 July 2018 and it will be a buyer
who will voluntarily decide whether to
apply the mechanism or not.

2.1
Legal background
2.1.1. General remarks

In general, Polish real estate law safely conclude transactions adapted
provides quite clear and stable rules to their needs and expectations.
which allow potential investors to
Below we present key information
make well-founded decisions about
on real estate law in Poland which
entering into real estate transactions.
constitute the base for other
Additionally, there are measures and
comments in this chapter.
institutions which enable investors to
2.1.2. Legal titles to real estate

The most common legal titles to real limitations result from construction
estate in Poland are the freehold law and local spatial development
rights, i.e. the ownership right and the plans adopted by local authorities
perpetual usufruct right, obligation (municipalities).
rights, such as lease, lease with the
right to collect profits or leasing. Right of perpetual usufruct
Polish law also provides several Perpetual usufruct (użytkowanie
limited property rights such as wieczyste) is a right to use the real
easements or usufruct. estate which may be granted by the
State in relation to the land owned by
Ownership right
the State or a local authority. In either
Ownership (prawo własności) is the case the respective entity (the State
broadest right to real estate in Poland. or the local authority) remains the
As a rule, ownership comprises the owner of the land.
right to possess and use real estate
The perpetual usufruct right is similar
for an unlimited period of time and
to the ownership, however, there are
transfer or encumber the real estate.
several key differences:
The ownership right may be limited by
statutory law, principles of community • The perpetual usufruct right is
life and the socioeconomic purpose created for a defined purpose
of the right. The most common (developing a project or
conducting a specific activity)
2.1
set out in the contract. If the to third parties or encumbered (i.e.
perpetual usufructuary is in mortgage, easements). The holder of
breach of these provisions, this the perpetual usufruct right enjoys
may lead to an increase in the the right to use the real property and
annual fees or even termination to draw benefits from it, e.g. rental
of the contract by the common income.
court.
If the real estate transferred for
• The perpetual usufruct right is perpetual usufruct is a piece of
created for a specific term, in developed land, the buildings and
principle for a period of 99 years other constructions erected thereon
(not less than 40 years). are sold to the perpetual usufructuary
in addition to the establishment
The holder of the right may apply for
of the perpetual usufruct right.
extending the term of the perpetual
If the buildings are erected after
usufruct for a further period of 40 to
the perpetual usufruct right is
99 years following the lapse of the
established, they also become the
initial period (to be refused only in
perpetual usufructuary’s property.
case of important social interest).
Separate ownership of the buildings
• The perpetual usufructuary is due to the perpetual usufructuary
obliged to pay to the owner a is a right strictly connected with the
one-off initial fee which amounts right of perpetual usufruct and, in
from 15% to 25% of the total consequence, the buildings share the
market value of the land and then legal „lot” of the land. In particular,
an annual fee of up to 3% of the the ownership of buildings may
total market value of the land. be transferred only with the right
of perpetual usufruct. Once the
The rate of 3% is the basic rate
perpetual usufruct right expires, the
provided by the law; however, there
holder of the right is entitled to a
can be other rates (0.3%, 1%, 2%)
reimbursement corresponding to the
applied to the real estate assigned for
current market value of the buildings
specific purposes, strictly listed in the
and other improvements legally
legal provisions (e.g. 1% for residential
implemented on the land that is the
purpose).
subject of the perpetual usufruct
Once created, the perpetual usufruct right.
right can be inherited, transferred

Conversion of the perpetual usufruct
2.1 the force of law, into the ownership
into ownership in general requires right.
consent of an owner of a real estate
The owners of the premises in
(the State or a local authority) and is
buildings developed on the land
executed in a civil law sale agreement
held under perpetual usufruct right
(buyout). However, selected perpetual
will become a co-owners of the
usufructuaries (in particular
land, instead of holding shares in
natural persons), subject to certain
perpetual usufruct right. The owners
conditions, may demand perpetual
of premises will pay, up to 20 years
usufruct be converted into ownership
(or 33 years in case their premises are
in a simplified administrative
used for business activity), a special
procedure.
fee for conversion, in the amount
The conversion is subject to a fee of the last annual fee for perpetual
which is equal to the difference usufruct. According to the newest
between the value of ownership and statements of the government, it
the value of the perpetual usufruct is planned that this conversion of
right. perpetual usufruct into ownership
will become applicable on 1 January
In general, legal persons or
2019.
entrepreneurs are not entitled
to demand the conversion in the Leases
simplified administrative procedure
under judgment of the Constitutional Polish law distinguishes between
Tribunal (dated 10 March 2015). They two types of leases: lease (najem)
may only pursue the buyout under a and lease with the right to collect
standard sale agreement. profits(dzierżawa). Leases are used
mainly for commercial and residential
Polish government published a premises. Leases with the right to
draft of an act on the conversion collect profits are used especially for
of perpetual usufruct of developed industrial and agricultural property.
land for residential purposes into Under a lease agreement, the lessor
the ownership right. The draft undertakes to hand over the real
act envisages that the perpetual property for the lessee’s use for
usufruct right to the land developed a fixed or non-fixed term, and the
with residential buildings will be lessee undertakes to pay the lessor
transformed automatically, without an agreed rent. The contract for
necessity to file any applications, by lease with the right to collect profits,

2.1
however, provides for the lessee’s easement which may be established
additional right to collect profits from for the benefit of entrepreneurs being
the real estate. utility providers. A utility provider
may ask the land owner to establish
Easements an easement over his land in order to
Easements (służebności) over land install (and then operate and maintain)
are limited property rights which may e.g. electricity cables, installations
be granted over a piece of real estate serving to supply and to channel
(encumbered property) for the benefit liquids, gas, steam or other facilities.
of another piece of real estate (master If the real estate owner refuses, the
property). Depending on the content utility provider may demand that an
of an easement deed, the holder of easement be established in return for
the master property may be entitled an appropriate remuneration.
to a limited use of the encumbered It should be noted, however, that
property (active easement), or the easements are not always disclosed in
holder of the encumbered property the land and mortgage register.
may be restricted in the exercise of
his own rights for the benefit of the In consequence, the potential investor
master property (passive easement). should verify whether such rights are
not being executed by carrying out an
Polish law distinguishes between two on-site inspection, i.e. during a due
types of easements: diligence review.
• ground easements, which are
Usufruct
established for the benefit of the
owner or perpetual usufructuary Usufruct (użytkowanie) of real estate
of the land and are transferred is a limited property right which
together with the property allows its holder to use the real estate
(whether that encumbered or the and collect benefits similar to those
master property); to which the ownership holder is
entitled. The scope of the usufruct
• personal easements, which are
may be limited by specified profits
established for the benefit of
being excluded, or to a designated
a natural person and are non-
part of the real estate. Usufruct is
transferrable (nor can the right to
created by a contract. Usufruct is
exercise them be transferred).
non-transferable, strictly connected
The Civil Code also lists a separate with the usufructuary, so the right
category of easement, i.e. utility expires on the usufructuary’s death

(or liquidation, in the case of legal
2.1 nature is different. Usufruct, as a
entities). Moreover, a usufruct expires limited property right, is effective
if not exercised for ten years. erga omnes (it is effective in respect
of third parties) and lease with the
Usufruct is similar to lease with the
right to collect profits is effective only
right to collect profits, yet its legal
between the parties to an agreement.
2.1.3. Real property registers

There are two types of land registers Land and mortgage registers are
in Poland: the land and mortgage publicly available for review by
register (księga wieczysta), the main anybody (even those with no legal
purpose of which is to register titles interest) and may be also reviewed
and encumbrances over real estate on-line, via IT system.
and the land and buildings register
Entry of a right in the land and
(ewidencja gruntów i budynków), the
mortgage register is presumed to
main purpose of which is to describe
reflect the actual legal status of the
the physical features and the use of
real estate. Should there be any
the land and buildings.
inconsistency between the legal status
Land and Mortgage Register of real estate, the content of the
register prevails in favor of the person
Land and mortgage registers are who acted in such belief (rękojmia
kept by district courts and provide wiary publicznej ksiąg wieczystych). In
information on the legal status consequence, if a purchaser acquires
of real estate, e.g. the location of a property in good faith from a
parcels of land, the ownership status non-owner registered as owner, the
of land, encumbrances on the land, acquisition is valid and the true owner
mortgages. cannot argue to the contrary. His only
https://przegladarka-ekw.ms.gov.pl/eukw_prz/KsiegiWieczyste/wyszukiwanieKW?komunikaty=true&kontakt=true&okienkoSerwisowe=false

2.1
recourse is an indemnity claim against filled, but yet unexamined application
the vendor. In consequence, an to the register.
excerpt from the land and mortgage
register is the key document that Land and Buildings Register
should be obtained and analyzed The land and buildings register is kept
before a decision to acquire real by local authorities and is a uniform
estate is made. collection for the whole country of
The public credibility warranty does systematized, updated data on land,
not confer protection on gratuitous buildings and premises, their owners
dispositions or those made in favor and other natural persons and entities
of the acquirer in bad faith. It is also holding the land, buildings and
excluded by a mention in the land and premises.
mortgage register concerning e.g.

2.2
Investment vehicles and structures

Further to the Polish Commercial companies and limited partnership,
Companies Code of 15 September which will be presented below
2000 (hereinafter referred to as the as constituting legal forms most
Commercial Companies Code) the commonly used by the investors.
legal entities can be divided into two
There are two ways for an investor
groups: partnerships and companies.
to introduce the SPV into its capital
There are two main differences
structure: the SPV may be bought or
between them: (i) generally, partners
established by the foreign investor.
in a partnership take full responsibility
There are numerous service providers
for the partnership’s liabilities
offering the sale of established
(subsidiary responsibility) and (ii)
companies or partnerships (so-called
partnerships are not legal persons,
„shelf companies”), that can be used
however, they may acquire rights and
straight away. However, this is always
incur obligations.
more expensive than setting up a new
Investing in real property is generally entity.
carried through separate entities -
Apart from the legal forms mentioned
so called special purpose vehicles
above, a foreign investor may also
(SPV). Polish legal regulations do
operate in Poland and invest in real
not impose any specific legal form
property:
for such an entity. Consequently, an
entity organized in any form legally • directly through its branch;
accepted in Poland may serve as an
• by entering into a joint-venture.
SPV, however in practice these most
frequently operate as limited liability

2.2
Partnerships:
Partnership
limited by
shares
General
partnership
Professional
partnership
Limited
partnership
Companies: Limited
liability
company
Joint-stock
company

2.2
2.2.2. Limited liability company
A limited liability company (spółka z The features of the limited
ograniczoną odpowiedzialnością) is liability company are set out in the
commonly used as the SPV for real Commercial Companies Code, the
estate investments or development most important of them being:
projects.
it may be created by one or more persons for any purpose allowed by law
(it may not be formed solely by another single-shareholder limited liability
company)
liability of the shareholders is limited to their contribution to the share capital

of the company
the share capital of the company shall amount to the minimum of PLN 5,000
(ca. EUR 1,200) and is divided into shares of equal or non-equal nominal
value;
the share capital can be covered by a contribution in-kind
limited liability company is a legal person and as such, it is a party to specific

rights and obligations
it acts through its body, i.e. the management board; the members of the
management board, in general, are not liable for the company’s liabilities.
The Commercial Companies Code ownership of real estate and other

provides for an institution of a rights, incur obligations, sue and
„company in organization”. This be sued even before its registration
means, that a limited liability company with the registry court (which
set up by signing the articles of takes approximately 4 weeks since
association may acquire rights on application to relevant court was
its own behalf, including the right of filed).

2.2
It is also possible to register a limited in order to divide the investment risk
liability company with the registry between them. However, depending
court via the Internet, however this on the preferences of the investor
includes certain restrictions – limited and bearing in mind possible overall
possibility to form the contents of effectiveness, a simple one step
articles of association and exclusion structure may be enlarged and
of in-kind contribution. involve, for example, a holding
company, abroad or in Poland, which
The SPVs may be set up directly by
manages the investment holds the
the foreign investor, being the only
shares of the SPVs.
shareholder. It is possible to establish
several SPVs by the same shareholder
One step structure with A structure with

several SPVs, allowing a holding company,
diversification gathering several SPVs
Foreign Investor Foreign Investor
Hold Co
SPVs
SPVs
2.2.3 Partnerships
The main features of partnerships are • the assets of the partnership
the following: include any property contributed
to the partnership;
• partners act in the name of the
partnership; • there are no minimum capital
requirements (excluding the
• partners are responsible for the
partnership limited by shares in
liabilities of the partnership;
case of which the minimum share

capital amounts to PLN 50,000,
2.2 case of limited partnerships also
i.e. ca. EUR 12,000); various structures may be involved,
depending on the specific needs of
• although it is not classified as a
the investor. Most commonly however,
legal person, a partnership may
the limited liability company will
acquire rights on its own behalf,
possess a minority position in the
including the right of ownership
SPV and will be a 100% subsidiary of
of real estate and other rights,
the investor, nevertheless it may take
incur obligations, sue and be
specific functions in the SPV - e.g.
sued.
management duties.
• In recent years the number
of partnerships used for Partnership limited by shares
the purposes of investment A partnership limited by shares
structures significantly grew. (spółka komandytowo-akcyjna)
conducts a business enterprise under
Limited partnership
its own business name, where at
A limited partnership (spółka least one partner (general partner -
komandytowa) is a partnership of komplementariusz) bears unlimited
which at least one partner is liable to liability towards the creditors for
the creditors for the obligations of the obligations of the partnership and
partnership without limitation (the at least one partner is a shareholder
general partner - komplementariusz) (akcjonariusz).
and the liability of at least one partner
Partnership limited by shares is the
(the limited partner- komandytariusz)
only partnership in case of which
is limited to the value defined in the
there are minimum share capital
partnership agreement.
requirements, i.e. the share capital
As a consequence, rights and of at least PLN 50,000 (ca. EUR
obligations in the partnership should 12,000).
be split between two entities (limited
The specific features of this entity
partner and general partner). It is a
results in two kinds of involvement in
common practice that the investor
the partnership, the general partner
takes the role of the limited partner
represents the partnership and
in order to avoid the full liability,
takes subsidiary responsibility for
whereas an additional limited liability
the partnership’s obligations, while
company is established to serve
involvement of the shareholder is
as a general partner in the SPV. In
purely of a financial nature.

2.2
The partnership limited by shares is • profit-sharing occurs in groups
subject to some additional restrictions (separately shareholders and
provided for by the Commercial general partners).
Companies Code:
• in case of in-kind contributions

the auditor’s opinion is required,
Structure with limited partnership
Foreign Investor
(limited partner)
LLC
(general partner)
SPV

Tax features
2.2 their level (i.e. limited partnerships
are tax transparent).
In the case of partnerships, taxable
revenues and costs generated by Due to CIT law changes, from 1
the partnership are allocated to the January 2014 partnerships limited
partners (both limited and general) by shares are corporate income
and recognized for corporate income taxpayers. Partnerships pay other
tax purposes on an on-going basis at taxes, such as VAT, real estate tax,
Limited liability company Limited partnership
possesses legal personality YES NO
YES
can be established by
(NO if to be established by
a single shareholder/ NO
a LLC, which has only one
partner
shareholder itself)
can acquire real property YES YES

the shareholders/ partners
general partner – YES
are personally liable for the NO
limited partner – NO
company’s debt
5.000 PLN
minimal share capital NO
(ca. EUR 1,200)
management board obligatory NO
supervisory board voluntary* NO
Taxation of income (from 19%/15% 19%/15%

exploitation or sale of assets) at the company level at the level of the partners
19%
under certain conditions there
can be relief for shareholders
Taxation of the distribution who are legal persons (based in
of income to shareholders Poland or in the EU/ EEA). NO
/ partners Reduced rates for foreign
shareholders on the basis
of double taxation treaties
(depending on the treaty)

2.2
Limited liability company Limited partnership
0.5%
Civil law transaction tax on
NO on the value of the loan
shareholder / partner loans
payable by the partnership
YES
(at the level of the
partners)
further interest paid to the
partner being the lender
Applicability of thin
YES cannot be recognized as
capitalization rules
a tax deductible cost of
this partner (on the other
hand, interest received
constitutes taxable income
of this partner)
Ability to offset profits and YES

NO
losses from various projects profits and losses are
only in the case of establishing
(carried out in separate compensated at the level
a tax capital group
companies/ partnerships) of partners
19% 19%
Taxation in Poland of possible relief for foreign it is not clear whether
the sale of shares in the shareholders on the basis the same relief possible
company / partnership of double taxation treaties in the case of
(depending on the treaty) partnerships
and civil law transaction tax, and limited partnership in an investment

they may pay withholding taxes structure are as follows:
(e.g. withholding tax on interest and
• profit distributions are not
royalties as well as withholding tax on
taxed: there is only one level of
remuneration paid to individuals, as a
taxation;
tax remitter).
• limitation of liability vis-à-vis
The table compares the business
creditors for the limited partner
and taxation aspects of the limited
(who is liable only up to the
partnerships and limited liability
amount agreed by the partners in
companies:
the articles of association, called
The main advantages of using a the commendam sum);

•
2.2
the ability to offset profits and Nevertheless, the following points
losses on different projects should be considered when designing
conducted at the level of the the most efficient structure:
partners.
• interest payable in respect of any
A limited liability company can debt financing of the investment
be transformed into a limited should be fully tax deductible;
partnership, although such a process
• interest income should be
may attract taxation in Poland. A
reported as taxable income in
detailed analysis is required in each
a jurisdiction with a relatively
case.
modest tax rate;
Cross-border structure • the exploitation and operational

costs of the real estate should
Typically, foreign investments are be tax deductible to the largest
structured in such a way that the extent possible;
overall level of taxation of the
financing, exploitation, and potential • profits from the exploitation of
capital gain is kept as low as possible, real estate should be taxed at the
seeking to avoid double taxation. lowest rate possible;
International tax planning should • after-tax profits should be easily
determine the final structure of the distributed;
investment. Commonly, a structure
• Polish withholding tax should be
involving more than two jurisdictions
reduced as much as possible;
is used to optimize the overall tax
position. The tax treatment of all the • revenues from the future sale
relevant legal transactions involved of real estate or the shares of a
in a Polish real estate project differs company should be taxed at the
according to the other jurisdiction(s) lowest rate possible or should be
involved. The tax treaties concluded exempt from taxation;
by Poland should prevent double
• all strategies for the deferral of
taxation. Investigating the tax
the tax payment date should be
treaties and the applicable rules in
explored;
the different relevant jurisdictions
will help to determine what structure, • level of substance which can be
given the specific circumstances, maintained in a given jurisdiction.
should be arranged.

2.2
Addressing these points will help to Foreign Company”) rules, the cross
design and implement a tailor-made border investments should be
structure. each time carefully examined and
properly structured also from the
Additionally, bearing in mind the
business perspective to ensure their
general anti avoidance regulation
effectiveness from the tax point of
introduced to the Polish tax
view.
regulations and CFC („Controlled

2.2
2.2.4. Joint venture
Polish legal regulations do not provide The objectives for the creation of joint
any definition of a joint venture, ventures are:
nevertheless, it is a useful solution
• gaining access to new markets,
to combine entrepreneurs’ efforts in
achieving the common goal. • synergies,
The joint venture constitutes • risk diversification,

cooperation of two entities resulting
• achieving economies of scale,
in setting up a new company (the
investment on such basis is carried • gaining access to cheaper
through the given company, as sources of supply and cheaper
described before) or it may be only a financing,
very close cooperation between the
• joint development and sharing of
two entities, which allocate capital
technology,
for activities implemented jointly by
sharing costs and revenues under • overcoming barriers and
a joint venture contract, without administrative duties created
creating a separate business entity. by the country of one of the
partners.
2.2.5 Investment Fund - closed-end fund

The sole object of the investment to as FIZ).
fund’s activity is to invest the monies
FIZ is a legal person. The primary
acquired from the participants in
principle of the FIZ is the fixed
shares, securities, money market
number of participation titles
instruments and other property rights
(investment certificates) issued in
- including real property.
exchange for contributions made
The Act of 27 May 2004 on the by its participants (investment
Investment Funds differentiates certificate- holder). FIZ does not
in general between Open- End issue participation titles on every
Investment Fund and Closed- End demand of an investor as is the
Investment Fund (hereinafter referred case with the open-end investment

2.2
funds, but rather in discretionary investor makes an agreement with a
periods of time. In order to subscribe Management Company. Consequently,
for investment certificates, the the investor only holds investment
participant has to make a contribution certificates in the FIZ and through
to the FIZ. Generally, the participants this structure invests in particular
may contribute to the FIZ cash, shares property.
or real estate.
The Management Company fulfils two
The FIZ’s bodies are the Management primary functions: (i) at the beginning
Company, the Board of Investors - it acts as a founder of the FIZ,
(controlling body) and General (ii) when the FIZ is established and
Investor’s Meeting. registered - it becomes its governing
body (represents FIZ in transactions
The Management Company
with third parties).
(Towarzystwo Funduszy
Inwestycyjnych) is a legal entity In accordance with the Act on
separate from the Investment Fund. Investment Funds, the Management
According to the legal provisions Company shall be liable to the
only a joint-stock company with its participants in the FIZ for all the
registered office in Poland holding damage caused by the failure to
authorization to conduct the activities perform or improper performance of
related to creating investment funds its duties as regards the management
and managing them issued by the of the FIZ and its representation.
Polish Financial Supervision Authority
The above shows that the structure
(Komisja Nadzoru Finansowego), may
needed to implement FIZ is complex
be an investment fund management
and requires:
company. This means that the
Management Company carries out a) engaging a Management Company,
its activities on the basis of the
b) establishing an FIZ,
permit issued by the Polish Financial
Supervision Authority and under its c) e
stablishing the operating
supervision. companies, which may acquire the
real property.
A Management Company may be
formed by an investor, however, it is Establishing a FIZ structure has
common practice that already existing important advantages. First of all, it
Management Companies are engaged allows for additional financing for the
to take this role. In such a case an investments to be raised by selling

investment certificates. This may be
2.2 • interest on loans issued to tax
very useful in entering in larger, long- transparent entities and interest
term real property investments. on those entities’ other liabilities
towards the fund;
Until the end of 2016 the use of this
structure, if properly implemented, • interest on a share in tax
could have led to deferral, or even transparent entities;
exemption from taxation, of the
• donations/ gifts or other free or
operating and capital gains generated
partially free benefits from tax
from real estate, as FIZ was generally
transparent entities;
exempt from CIT in Poland.
• interest (discount) on securities
Similarly, a foreign investment fund
issued by tax transparent
established in the EU or EEA country
entities;
could be used (the Polish CIT law in
force from 1 January 2011 provides • transfer of securities issued by
for such a possibility explicitly). tax transparent entities or shares
in such entities;
Due to recent changes as of 1
January 2017, income of FIZ or a is no longer CIT exempt. Set-up of
foreign investment fund resulting the structure designed for real estate
from: holding which could benefit from the
CIT exemption is, therefore, even a
• a share in profit generated by tax
more complex exercise than before.
transparent entities;
Example of a FIZ structure
Management
Company
Foreign Investor
investment FIZ
certificates
SPVs

2.2
2.2.6 Real estate investment trusts
General remarks listed on the Warsaw Stock Exchange,

created for an indefinite period of
Real estate investment trust time. Its share capital must be at
(hereinafter referred to as REIT) least PLN 50 million. At least 70%
is a fund investing in commercial of its asset value must be comprised
real estate, guaranteeing a regular of real properties or shares in
dividend for investors. According other REITs or its special-purpose
to the European Public Real Estate vehicles, and consequently at least
Association, the average dividend 80% of its net sale revenues must
funds in Europe for the period 2010- be gained from the lease of at least
2015 amounted almost 5 percent. five real properties or the sale of real
Worldwide, REITs offer investors many properties.
advantages: high liquidity and rate
of return, exemption from corporate At least 90% of REIT’s profit must be
income tax and, finally, a regular paid out as annual dividends to its
dividend of up to 90-100 percent of shareholders - unless the shareholders
profit. decide to allocate it for re-investment
on the real estate market. Finally, a
However, so far, this form of REIT’s liabilities may not exceed 70%
investment has not been regulated by of its assets.
the Polish law.
The works on the REIT regulation
Two draft acts on Real estate were delayed and it should not be
investment funds have already been expected to come into force before
submitted to the legislation procedure 1 January 2019. Further work on
– in October 2016 and May 2017. the draft law, especially the scope
These were however not adopted. The of investment that REIT is eligible to
government is currently working on should be closely monitored by the
the third draft, which, according to investors.
initial information, will be limited to
investments in residential real estate, Tax remarks
with exclusion of commercial real
According to the bill, a REIT is exempt
estate, such as warehouses, shopping
from CIT on on-going income from
centers and office buildings.
the lease and sale of real estate as
According to the draft regulation, well as sale of shares of other REITs
a REIT must be a public company and so called real estate subsidiaries

(that must also meet certain criteria)
2.2 that meet criteria and are 95% held by
until distribution. Upon dividend REITs can also enjoy a tax exemption
distribution, such a dividend shall be on certain real estate related sources
taxed at 8.5%. Real estate subsidiaries of income.
2.2.7 Public-private partnership
General remarks hereinafter referred to as the Act

on Public-Private Partnership,
Public-private partnership (hereinafter
referred to as PPP) is one of the rising • the Act of 21 October 2016
forms of cooperation between public on Concession for Works and
authorities and the private sector. It Services, hereinafter referred to
allows for an increase in the efficiency as the Act on Concessions, which
of public services through the use of has replaced the previous Act of
private sector experience and for the 9 January 2009 on Concession
sharing of risk between public and for Works and Services.
private entities. The main similarities between the Act
PPP enables a mutual advantage on Public-Private Partnership and the
for the public and private sector - Act on Concessions are as follows:
for public entities it guarantees an • cooperation between a public and
additional source of capital and as private partner,
a consequence provides the public
sector - with funds to allocate for • private partners receive
other purposes. On the other hand, payments for the service
the public sector may provide to rendered,
private investors the long-term • constitute a special form of
certainty of cash flows from public tender agreements.
sources.
Recently, new amendments to the Act
In Polish law the legal framework for on Public-Private Partnership have
PPP is established by two acts that been proposed by the government,
regulate the cooperation between however the legislation procedure is
public entities and private partners: still in progress.
• the Act of 19 December 2008
on Public-Private Partnership,

Selection of the private
2.2 and proportionality. If the public
partner partner brings in real estate as its own
contribution, the provisions of the Act
The Act on Public-Private Partnership of August 21, 1997 on the Property
basically distinguishes two ways of Management (hereinafter referred to
selecting the private partner. The as the Act on Property Management)
ways of selection depend on the type must be taken into account.
of the private partner’s remuneration
and are as follows: Implementation of PPP
• If the remuneration of the Pursuant to the Act on Public-Private
private partner is represented Partnership public and private entities
by the right to exploit the work conclude an agreement under which
or services that are the subject the private partner commits itself to
of the contract or in that right implement the project at an agreed
together with payment selection remuneration and to cover in whole
of the private partner shall or in part the expenditures for project
be done applying the Act on implementation, or cover them
Concessions subject to provisions through a third party, while the public
of the Act on Public-Private entity commits itself to collaborate
Partnership. for the purpose of achievement of
the project goal, in particular by
• In other cases, the selection
making its own contribution. The PPP
of the private partner shall be
contract can also provide that for
done applying the provisions of
the purpose of its performance, the
the Act of January 29, 2004
public entity and the private partner
on Public Procurement Law
shall establish a company, a limited
(hereinafter referred to as Public
partnership or a partnership limited
Procurement Law) subject to
by shares.
provisions of the Act on Public-
Private Partnership. Financial restrictions
In cases where the Act on Concessions The total joint amount up to which
and Public Procurement Law do not bodies of government administration
apply, the selection of the private can contract financial liabilities on the
partner is made in a way that ensures basis of contracts of PPP in a given
the maintenance of fair and free year is specified in the Budget Act.
competition, as well as the principles
of equal treatment, transparency

2.2
However, as a rule, the financing performance of the concession. A
of a project from the State budget concession contract is concluding for
to the amount exceeding PLN 100 a limited period.
million requires a consent issued by
The concessionaire under the
the minister responsible for public
concession signed with the
finance. When issuing the consent the
concession-granting authority is
minister responsible for public finance
obliged to perform the subject of
shall consider the influence of the
concession for remuneration, which
planned budget expenditures on the
constitutes in case of:
safety of public finance.
• the concession for works -
The concession contract - exclusively the right to exploit the
legal basics works that are the subject of the
contract or in that right together
The Act on Concessions specifies the
with payment by concession-
rules and procedures for contracting
granting authority;
concessions for works or services and
the legal protection measures. • the concession for services -
exclusively the right to exploit
The duration of a concession contract
the services that are the subject
should take into account the recovery
of the contract or in that right
of the concessionaire’s expenditure
together with payment by
incurred with reference to the
concession-granting authority.
2.3
Real estate financing
2.3.1. Modes of financing the SPVs /

investments
The most important thing in starting a specific amount of money for a
investments, is to provide financing specific purpose and time, and the
for the SPVs, so they can operate and borrower agrees to use the credit for
develop real property. its intended purpose, and pay back
the amount of credit along with due
There are several methods of
reward in the form of bank interest.
financing the company, some funds
can be received from outside, but On the financial market there is a
some may come from the capital wide choice of bank credits and their
group - e.g. from the parent company. price depends on various factors
In many cases both solutions are as: duration, available collaterals,
possible. financial condition of the borrower.
Additionally, banks may charge
Loan and credit agreement the borrower with a different fees
By loan agreement a lender such as, for instance, a preparation
undertakes to transfer the ownership (origination) fee for all work
of a certain amount of money connected with the preparation of the
to a borrower, while a borrower credit, or a commitment fee for and
undertakes to return the same undrawn portion of the credit.
amount of money . Loans can be Banks also generally require certain
granted by any entity / person and collaterals for the credits. Among
may be relatively freely regulated by others, the most popular are:
the parties.
• mortgages;
A credit agreement is a specific
kind of external financing, which • share pledges;
is regulated by the Banking Law • asset and bank account pledges;
of 29 August 1997 and can be
granted only by banks. By a credit • powers of attorney to bank
agreement a bank agrees to provide accounts;

• security assignments of
2.3 debtor not being able to pay off his
receivables of the borrower; debt, the real property may be sold
in a public auction and thus, the bank
• notarial submissions to
may retrieve the whole amount of
execution;
debt.
• subordination agreements.
Shareholder’s loan
A mortgage is the common form of
security required by Polish banks A loan from shareholders has two
- especially required in real estate important advantages over the bank
financing transactions. loan. First, it is in general a cheaper
solution and what is more, it does not
Mortgage shall be defined as a right, bare the risk of enforcement in case
under which the lender (creditor) may of difficult financial situation of the
satisfy his claims from the property, borrower.
regardless who is the current owner
of the property, and with priority Bonds
over other personal creditors of
Bonds can be issued by a legal
the borrower, whose credits are not
entities, including legal entities from
secured with mortgage.
outside the territory of Poland if they
A mortgage becomes effective after conduct business activity or has been
entering in the Land and Mortgage established in order to issue bonds, a
Register. The entry takes effect at partnership limited by shares, credit
the date of filing, so even though the unions, local government units and
registration may take several months, financial institutions. Bonds can be
market practice is such that banks pay defined as securities that are issued in
out the amount series and certifies that the issuer is a
debtor of the bondholder and assumes
of the credit before the entry
an obligation towards the bondholder
takes effect but upon receipt
to provide specified benefits. Bonds
of confirmation of filing of the
may be either registered or bearer
application for registration of a
bonds.
mortgage in the Land and Mortgage
Register. The advantage of this form of
financing is the ability to fairly freely
A mortgage is a very secure solution
determine the benefits that are
for the bank, as in the case of the
associated with bonds.

The construction of the bonds
2.3 We would like to note, however, that
does not have to be limited to a the issuing of bonds creates additional
simple financial benefit in the form obligations for the bond issuer,
of repayment of the bonds plus related to providing data to assess
interest representing an income of the financial condition of that entity.
the bondholder. While issuing bonds, Additionally, if the issuer operates
the company is free to formulate for more than a year, it is required to
the gratification to be provided to provide financial statements prepared
bondholders, such as the possibility as at the balance sheet date, no
of participating in profits of the earlier than 15 months before the
company, or the conversion of bonds date of the publication of the terms
into shares. of issuing the bonds, along with the
auditor’s opinion.
The bonds may be distributed on
an open market (by way of a public Promissory notes
offering), in search for an outside
financing, or serve as a mode to In order to obtain financing SPVs may
transfer funds from another related issue promissory notes.
company. It should be noted that A promissory note may include a
there are several companies in the deferred payment date. It should
real estate sector listed on the Polish have a clearly defined due date, in
bonds’ open market. the form of a calendar date. There
In the case of SPVs which aim are exemptions from this rule - e.g.
to obtain financing from the an ‘a vista’ promissory note - which
shareholders, the gratification provides that the payment is made
(a mutual benefit) to the parent on demand from the payee or within
company as a bondholder will be of a certain period after the demand.
secondary importance. A practical Additionally, an ‘in blanco’ promissory
solution is that if the SPV generate note allows a payee to fill in (at its
future earnings from real property, own discretion) - the conditions of
bonds could entitle bondholders to such promissory note (e.g. date of
participate in the profit. payment) within the scope foreseen
by a mutual agreement.
Due to the high degree of freedom in
the framework of this instrument, it is The obligation from the promissory
very recommended as an optimal way note does not have to be accompanied
to bring the funds downwards. by any other legal relationship
that it secures. It means that the

2.3
holder has an unquestionable claim This process is associated with either
from promissory note, even if, for changes in articles of association
example, promissory note liability (a formal mode that requires filing
was not based on any other particular the changes in the articles of
obligations - such as loans. association with the National Court
Register) or an increase based on the
Similarly as in the case of the loan
current provisions of the articles of
agreement, the issuer of a promissory
association (informal mode). The aim
note becomes a debtor. With the use
is to change the capital structure of
of a promissory note, SPVs can easily
the company by defining the share
obtain funds from the parent company
capital at a higher than current level.
in a less formal, quicker way and
To cover the increase of the share
easily settle the debt in any suitable
capital, the funds may be paid in cash
timeframes.
or in-kind contributions can be made.
Increase of share capital The capital increase is a more
Raising capital is a common way of formal process in comparison to the
financing companies. It can be carried additional contributions (referred to
by increasing the nominal value of the below) and loans, but the advantage
shares existing or creating new ones; of this form of financing is the ability
both ways lead to an increase of the to contribute in various forms, such as
share capital. cash or in-kind.
2.3
A significant drawback of this method payments (additional contributions)
of financing SPVs is relatively difficult from the shareholders in a specific
process of withdrawing the invested amount paid by the shareholders in
capital. proportion to their shares. In fact,
it is worth noting that partnership
This is carried through the reduction
agreements can also oblige the
of share capital (Articles 263 - 265
partners to additional payments - such
of the Commercial Companies Code),
a solution is possible based on the
which involves again additional costs
freedom of contract principle.
(notification, registration) and is
time-consuming (e.g. includes three Payments of additional contributions
months for objection to the reduction in a limited liability company do not
that can be brought by creditors). affect the value of shares in the
share capital of the company, and
Additional contributions therefore the share capital of the
This method of financing is provided company remains unchanged after
by the Commercial Companies Code, the additional contributions. The
but it is applicable only to the limited payments increase the company’s
liability company. According to the own funds, which are thus quite freely
provisions, the articles of association allocated for the specific need, and
of the company may require the this is certainly beneficial for the SPV.
2.3
2.3.2. Tax implications
Equity financing versus debt differentiating factors when

considering the two form of financing
financing
the investments.
Below we present the main
Equity financing Debt financing

Capital injection Shareholder loans
Forms of
In-kind contribution Bonds
financing
Additional payments to share capital Other debt instruments
NO
Loans are generally subject to civil law

transaction tax at the level of 2% of the
loan principal. The tax must be paid
within 14 days of the date of the loan
NO
agreement, and the tax liability rests
Equity financing is generally subject to with the borrower; several exemptions
a 0.5% civil law transaction tax on share apply:
Receipt and capital increase.
• loans granted by shareholders to a
repayment Contributions to a reserve capital (share limited liability company or joint stock
subject to income premium) should not be subject to civil company;
taxation? law transaction tax. • loans granted by foreign entities
which are engaged in credit and
The tax must be paid within 14 days of
financing activities (such as group
the date of the agreement, and the tax
treasury companies);
liability rests with the company.
• loans recognized as an activity
subject to Polish or foreign VAT (e.g.
bank loans);
• bonds issuance is generally not
subject to civil law transaction tax.

2.3
Shares in the company give

Creditors have the right to interest, as
shareholders the right to control the
Rights a rule no control nor participation in
company and the right to financial
profits.
benefits from the company.
Dividend
Forms of
repatriation of Redemption of shares Interest
funds
Liquidation proceeds
NO
Deductibility of YES
payments for tax Interest on additional payments should
Subject to thin capitalization and other
purposes? also be treated as a non-tax deductible
interest limitation rules (see below)
cost
20%
19%
This rate may be reduced or eliminated
The 19% rate can be reduced or based on relevant tax treaty concluded
eliminated based on relevant tax by Poland, subject to providing a valid
treaty concluded by Poland, subject certificate of tax residence of the
to providing a valid certificate of tax interest beneficiary (most treaties
residence of the dividend beneficiary. require the recipient to be the beneficial
Withholding tax owner of interest received).
Poland has concluded many tax treaties
and there are just as many ways in Poland has concluded many tax treaties
which the Polish withholding tax can be and there are just as many ways in
reduced. which the Polish withholding tax can be
reduced.
(see the Appendix at the end of this
book for a list of withholding tax rates (see the Appendix at the end of this
under Poland’s various tax treaties) book for a list of withholding tax rates
under Poland’s various tax treaties)

2.3
YES
YES Interest Royalties Directive, subject to
EU Parent-Subsidiary Directive, subject conditions
to conditions: • interest is paid to a related EU / EEA
• the entity receiving the dividend is company which holds directly at least
taxed in another EU / EEA country 25% of shares of the paying company
(or in Switzerland) on its worldwide for an uninterrupted period of 2 years
income (and is not subject to tax (or the lender and the borrower have
exemption on its total income) and a common parent company which
directly holds 25% of shares in each
• has held or will hold at least 10% of them). The preferential rate should
(in the case of a company resident be also applicable in the case where
for tax purposes in Switzerland, at the period of two years of continuous
least 25%) of the shares in the Polish holding of shares lapses after the day
Applicability of company paying the dividend for at of interest payment,
exemptions under least two years; this condition can be
EU directives? met prospectively. If the condition • interest recipient is not subject to
to hold the amount of shares for an income tax exemption, applicable to
(see also all revenues regardless of the place
uninterrupted period of two years is
additional where they were acquired,
not satisfied, withholding tax (as a
remarks below)
rule at 19%) together with the penalty • the relevant DTT or another
interest for late payment will be due. international agreement (concluded
• the legal title for the holding must between countries of the payer and
be ownership rather than any other the recipient tax residency) stipulates
legal title. rights on Poland to demand tax
information from the tax authorities
• the double tax treaty or another of the country of residence of the
international agreement vests rights interest recipient.
on Poland to demand tax information
from the tax authorities of the The EU Interest-Royalty Directive rules
country of residence of the dividends’ only applies as long as the interest is set
owner or the country in which the at a market level. Consequently, any off-
dividend income is received market portion of interest can be subject
to withholding tax at the standard 20%
rate (instead of the treaty-reduced rate /
WHT exemption) in Poland.

Additional remarks
2.3 the above rule, it is considered that
a transaction or a legal action does
It is up to the company paying the
not reflect the economic reality if it is
dividend or interest to determine the
not performed for justified economic
applicable withholding tax rate. The
reasons, but results, in particular,
Polish withholding tax system is not
in transferring the ownership of
„a pay and refund system”. The Polish
shares of a dividend paying entity
company distributing the dividend or
or in earning revenue by that entity
paying out interest to non-residents
which is then paid as a dividend. As
can be held liable for mistakes, e.g.
there is no well-grounded practice
if it applies an incorrect tax rate. A
regarding actual application of similar
certificate issued by a foreign local
provisions, details of each structure
tax office confirming the tax residence
should be analyzed carefully to
of the foreign dividend / interest
determine and address potential
beneficiary must be obtained by the
issues with taxation of dividends.
Polish company in order to allow
application of the lower withholding Dividends paid between companies
tax rate or exemption. An additional which are resident in Poland for tax
requirement is that the Polish entity purposes are exempt from withholding
paying dividends / interest should tax provided that the dividend
also hold a written confirmation from recipient has held or will hold (on or
the recipient that the latter does not after the day when the dividend is
benefit from tax exemption on its received) at least 10% of shares in the
worldwide income, if the exemption is dividend paying company for at least
to apply. two years. If the above conditions are
not met, non-creditable withholding
Dividends paid (or received) as of 1
tax is levied on dividends at the rate
January 2016 would not benefit from
of 19%.
the EU Parent- Subsidiary Directive
based tax exemption if dividends Additionally, as of 1 January 2017,
are connected with an agreement, the Polish CIT Law introduces a
a transaction, or a legal action or definition of “beneficial owner”,
a series of related legal actions, which determines that the interest
where the main or one of the main recipient must be a a beneficial owner
purposes was benefitting from these of such interest in order to apply the
tax exemptions and such transactions exemption based on the EU Interest
or legal actions do not reflect the Royalty Directive.
economic reality. For the purpose of

Redemption of shares and
2.3 revenue of the paying entity. This
liquidation distributions applies respectively also to look
through entities. Liquidation proceeds
The redemption of shares and the are also likely to share this treatment,
return of equity to shareholders even though liquidation is not
are permitted under Polish law. The explicitly mentioned in this provision.
formal procedure is time-consuming
and usually takes several months. Tax deductibility of interest
Standard, voluntary redemption of paid on loans
shares is subject to the same tax Generally, interest on loans is
treatment as disposal of shares. It deductible for tax purposes when
means that as a rule such redemption actually paid or compounded (added
will be subject to tax in Poland, unless to the principal so that it constitutes a
relevant double tax treaty provides for basis for new interest calculation), i.e.
tax exemption. accrued interest may not be treated
Other than voluntary redemption as a tax deductible cost until it is
of shares (compulsory redemption actually paid or compounded.
of shares) is taxed in the same way In general, it should be possible to
as dividends and is subject to the treat the interest on loans drawn to
applicable withholding tax (taking acquire shares in a Polish company
into consideration the appropriate tax as tax deductible. Nevertheless, as of
treaty). 1 January 2018 interest deductible
Liquidation proceeds are subject to against operating profit of an acquired
the same tax treatment as dividend, entity (as a result of any „debt push
however, any withholding tax relief down” strategies) would not be
can only be sought under a relevant deductible. In lack of grandfathering
tax treaty (as of 1 January 2018 rules, also interest resulting from
domestic exemption would not apply “debt push down” reorganizations
to liquidation proceeds). performed before 1 January 2018
would be disallowed as of that date.
As of 1 January 2015 the Polish
CIT provisions explicitly state that It is important to note that interest
in case of in kind remuneration for accrued during the development of
settling the liability (e.g. upon shares real estate on the part of the loan
redemption or in kind dividend used to finance that development is
payment) the value of liability settled not directly deductible.
in such a way constitutes a taxable
The cost of such interest should
2.3 of transactions between related
be added to the initial value of the parties, taxpayers are required to
newly developed real estate (i.e. the prepare specific transfer pricing
new building) in order to increase documentation or risk paying a
the basis of its future depreciation 50% rate on any additional taxable
for tax purposes. However, this rule income assessed (please note that
applies only to real estate which is the starting 2017 there was a change to
company’s own fixed asset. It does the transfer pricing documentation
not apply to projects constructed for requirements increasing the reporting
resale (e.g. residential projects). In obligations substantially).
such cases, based on the practice of
Additionally, as of 1 January 2018 a
the Polish tax authorities interest may
new limitation has been introduced,
be treated as tax deductible under the
which fully disallows any interest
general rules (although the practice
on debt which exceeds maximum
was changing in this respect over the
amount of a taxpayer’s credit capacity
years).
acceptable by a third party creditor
Level of interest (so called “arm’s length credit
capacity”), however, without taking
The Polish tax authorities are usually into account any securities provided
interested in the conditions of loan by related entities or additional credit
agreements concluded between capacity resulting from a taxpayer’s
related parties. These conditions shareholding relations.
should be the same as, or comparable
to, the sort of financing conditions Restrictions on the tax
which non-related parties would agree deductibility of interest paid
upon, in accordance with „the arm’s
on loans
length principle”. Too high an interest
rate could lead to an adjustment of The Polish thin capitalization rules
the Polish borrower’s taxable income. have been significantly amended
as of 1 January 2015 and then
In addition, other conditions in
as of 1 January 2018. Therefore,
the loan agreement which are
based on the transitional provisions
unjustifiable or unfavorable to the
currently three different regimes
borrower could result in further tax
apply, depending on when loans were
adjustments. According to regulations
granted (funds made available to the
governing the documentation
borrower).

Loans granted before
2.3 • debt payable to direct
1 January 2015 shareholder(s) holding at least
25% of the voting rights in the
Thin capitalization rules restrict tax interest paying company; and
deductibility of interest on loans
granted by certain related entities: • debt payable to entities holding
at least 25% of the voting rights
• loans (credits) granted to the in the above mentioned direct
taxpaying company by its shareholders.
shareholder holding not less
than 25% of the voting rights in • in the case of „sister company”
the company or loans (credits) loans:
from shareholders holding jointly • debt payable to direct
not less than 25% of the voting shareholder(s) holding at least
rights in the company („mother 25% of the voting rights in the
company” loans); interest paying company; and
• loans (credits) granted to the • debt payable to entities holding
taxpaying company by another at least 25% of the voting rights
company, if the same shareholder in the above mentioned direct
holds not less than 25% of the shareholders; and
voting rights in each of these
• debt payable to the entity
companies („sister company”
granting the loan (credit).
loans);
In both cases „equity” includes the
where the debt to equity ratio (the
share capital stated in the company’s
ratio of the value of the debt payable
deed of association and equal to the
to certain entities to the value of the
nominal value of the shares issued,
share capital (see below for details)
excluding:
exceeds 3:1 at the date of the interest
payment. Interest on the loans • capital not paid in full;
(credits) exceeding the ratio is not tax
• capital converted from
deductible (the term „loans (credits)”
shareholder loans (credits) and/
also covers bonds and deposits).
or related interest;
For the purposes of the calculation
• capital formed by a contribution
of the debt to equity ratio, the debt
in kind, which is an intangible
includes:
asset not subject to depreciation
• in the case of „mother company” (e.g. goodwill).
loans:
Examples of how the old thin
2.3 Assumption:
capitalization rules work:
PREC ’s nominal share capital is : 50
Example 1 Debt limit is: 150
Corporate
Corporate Investor
50 Investor
50
Investment Company Investment Company 40
160
Polish Real Estate Polish Polish Real Estate

Company Company Company
100
Total loans: 200

Assumption:
Part of loans exceeding 50
Polish Real Estate Company ’s (PREC) threshold
Nominal share capital is: 50
Debt limit is: 150
Total loans: 200
Part of loans exceeding 50
threshold
= minimal 25% voting right relationship
= loans subject to thin-cap
Example 2 = loans qualifying for calculation
of debt limit

Example 3
2.3 Loans granted between
1 January 2015 and
Corporate 31 December 2017
Investor
40 These rules restrict deductibility of
interest on a broader range of loans
Investment Investment
Company A Company B than the rules in force until the end of
100 60 2014.
Polish Real Estate As of 1 January 2015, generally

Company
interest on all intra-group loans (also
those from indirectly related entities)
may be subject to deductibility
Assumption:
restriction.
PREC ’s nominal share capital is : 50 Under these thin capitalization rules,
Debt limit is: 150 if the value of debt owed to specified
For shareholder loan: related parties exceeds equity (net
assets) of the borrower (1:1 debt to
Total loans: 100
equity ratio), part (calculated based
Loans exceeding threshold 0 on a proportion) of interest paid on
Part of loans exceeding 50 a loan from a related party is not
threshold deductible for tax purposes.
For the purposes of these rules,
2.3 hold at least 25% of the voting
equity is determined on the last day rights in the borrower,
of the month preceding the month of
• loans granted by one company
interest payment without taking into
to another company if the same
account revaluation reserve and
entity holds directly or indirectly
subordinated loans. The value of
at least 25% of the voting rights
equity is further decreased by the
in both the lender and the
value of the share capital that was not
borrower.
actually transferred to this capital or
was covered with shareholder’s loans’ For general partners in a limited
receivables and intangibles that are joint-stock partnership, the conditions
not subject to amortization. concerning the minimum share (voting
rights) are fulfilled, regardless of the
Debt taken for the debt to equity
general partner’s share.
ratio calculation is decreased by
loans granted by the borrower to As of 1 January 2015 the taxpayers
the entities, loans from which would have also a right to opt for a new
be subject to thin capitalization alternative thin-capitalization
restrictions (only net debt is taken calculation method. If chosen by the
into account). taxpayer, the abovementioned method
applies to interest paid to both related
The definition of a loan covers any
and unrelated parties. The recognition
form of debt financing, including the
of such interest cost for tax purposes
issuance of bonds, credits and bank
is limited to the amount of the
and nonbank deposits. The definition
National Bank of Poland’s reference
does not cover derivatives.
rate plus 1.25 percentage point and
The thin-capitalization rules apply to the tax value of assets within the
interest on loans granted by Polish meaning of Accounting Act (excluding
and foreign qualified entities. They intangible assets).
cover the following loans:
The value of interest recognized for
• loans granted by an entity that tax purposes cannot be higher than
holds directly or indirectly at the value corresponding to 50% of the
least 25% of the voting rights in profit from operating activities (this
the borrower, condition does not concern, generally
speaking, banks and financial
• loans granted jointly by entities
institutions).
that jointly directly or indirectly

2.3
Interest not deducted in a given tax shifted the way debt financing
year can be deducted in the following should be modelled. Change from
consecutive 5 tax years. If a taxpayer a debt-to-equity and related party
decides to use this method it should only limitation into an EBITDA-based
be used for at least 3 consecutive tax threshold covering also third-party
years. debt requires a completely new
approach when investment financing
To be entitled to apply the above
is considered.
rules, taxpayers are generally obliged
to file relevant notification with the Foreign currency financing
tax authorities not later than till the
end of first month of their new tax As the foreign currency liabilities
year. are reported for accounting
purposes in PLN, foreign exchange
Loans granted as of 1 January differences (gains or losses) accrue
2018 in the accounting books of the
Polish company. Foreign exchange
Under the new provisions in force differences accrue also on loan
as of 1 January 2018, net financing liabilities in PLN denominated in
costs are limited to 30% of tax foreign currencies. These gains
adjusted EBITDA. The limitation also or losses are recognized for tax
applies to third-party (e.g. bank) purposes only when realized,
financing. Limitations apply if the net i.e. when the related liability is
financing costs exceed PLN 3m (ca. paid or set off (or when the due
EUR 714k) annually. Non-deductible interest is compounded). However,
costs can be carried forward for 5 audited companies can report
years. Loans granted before the foreign exchange gains or losses in
new law came into force should be accordance with accounting standards
grandfathered under the previous upon notifying the tax authorities,
rules but only through the end of provided that such reporting in
2018. accordance with accounting standards
The latest change of the thin- will continue for a period of at least
capitalization rules substantially three tax years.

and share deal 2.4
Acquisition of real estate - asset deal

As many other jurisdictions, Polish The buyer can then depreciate as
law provides different methods of much as the real market value of the
acquiring real estate by an investor, building for tax purposes. On the
among which an asset deal and other hand, if the shares are bought
a share deal are the two most at a higher price than the book value
commonly used. of the company’s assets, goodwill
paid in return for the shares can be
Both methods bear various legal
recognized for accounting purposes.
and tax consequences which have
Unfortunately, such goodwill cannot
to be considered in any given case
be amortized for tax purposes.
and therefore there is no generally
Furthermore, a company owning real
accepted rule when a share deal or
estate with a low book value has a
an asset deal shall be applicable. The
deferred tax exposure with respect
interests of the seller and the buyer,
to any future capital gains made on
the particulars of the case and the
the disposal of that real estate. Thus,
power of each party to negotiate have
the buyer of shares will most likely
to be considered while choosing one
try to negotiate a discount on the
of these two forms.
transaction price to eliminate this
In practice, if a share transaction is negative tax aspect.
properly structured, this can be the
The purpose of this chapter is to
most tax efficient disposal method
outline the main features of these two
to use. In a well-organized corporate
types of real estate transaction from
structure, taxes on capital gains can
be entirely avoided or in some cases both the legal and tax perspectives,
deferred. and to examine the consequences of
each structure.
From the buyer’s perspective, it is
usually more tax efficient to buy the
property directly than to buy shares
in a company holding the property.

2.4
2.4.2. Legal aspects
Methods of
acquiring real
estate by an
investor
Asset deal Share deal
Purchaser acquires Transaction involving

all or some of acquisition of shares
the assets of in a company as a
the company. result of which the
it is possible to buyer purchases
divide out certain the whole or a part
elements, such of the shares in the
as real estate and share capital of the
acquire only those companya (i.e. the
parts. target company)
Definition of a share deal and • A share deal is defined as a

asset deal transaction involving acquisition
of shares in a company as a result
Despite the fact that the share deal of which the buyer purchases the
and asset deal are equally popular, whole or a part of the shares in
their object and manner of conducting the share capital of the company
are different. (i.e. the target company).
The key differences between these • An asset deal is where the
two methods of acquisition concern purchaser acquires all or some of
the extension and nature of purchased the assets of the company. Unlike
items and are presented below. a share deal, in an asset deal it
2.4
is possible to divide out certain aspects of the company’s activity:
elements, such as real estate and in particular tax, employment,
acquire only those parts. accounting, corporate and
contractual matters.
Representations and
It is recommended that the sale
warranties
agreement provides for specific
In order to secure the purchaser’s instruments supporting the
interest extensive representations, enforceability of the indemnities
warranties and related indemnities securing the representations and
should be included in the share warranties. In market practice, part
purchase agreement. The scope of of the purchase price is retained in an
warranties and representations as escrow account or a bank guarantee is
well as detailed legal consequences of obtained from the seller.
their breach have to be regulated in
the sale agreement in details as Polish Types of agreements
law does not provide for a specific There is a number of documents
legal regulation of this issue. related to both transactions. Usually,
• In an asset deal, the seller’s in order to clearly state the intentions,
representations and warranties goals to achieve during negotiations
concern, in particular, the and the key principles of the
validity of the seller’s title to transaction, the parties sign a letter of
the real estate, the information intent prior to signing the real estate
regarding encumbrances (if purchase agreement.
any), the statement confirming
Transfer of the property-
that the development has been
carried out in accordance with related rights
the binding provisions of law and In many transactions, it is necessary
technical plans and that relevant to obtain various types of consents or
permits are valid. permits regarding the transfer of the
• The seller’s representations and rights related to the property, the lack
warranties in a share deal usually of which may affect the legal effect of
include the representations and the entire transaction.
warranties typical for an asset In the share deal the purchaser does
deal regarding real estate, but not obtain any direct rights to the
also extensive representations assets as these remain the property
and warranties relating to all of the target company. Consequently,

2.4
the property- related rights and Potential restrictions related
obligations (such as leases, property to the sale of a property
management agreements, warranty
claims under construction contracts In case of transactions involving real
and contracts of insurance, permits) estate, several restrictions resulting
remain with the corporate entity from applicable legislation may
holding the real estate and no formal apply. As a general rule, transactions
assignment is required. structured as assets deals are more
likely to be subject to a greater
In the asset deal, except for the number of such restrictions. These
lease agreements, the property- include as follows below.
related rights and obligations are
not automatically transferred as a A. Merger clearance
result of the sale agreement. The
Due diligence review preceding any
lease agreements are transferred
asset or share deal should answer
automatically with the acquired asset.
the question whether the legislation
As regards the remaining agreements,
governing merger control will be
as for the formal assignment, it
applicable, in particular, whether a
is, in general, necessary to obtain
notification of the transaction to the
the consent of the other party of
Office of Competition and Consumer
each contract. In case of licenses,
Protection is required. Should such
decisions etc. it should be analyzed
notification be required, the closing
case by case what actions have to be
of the transaction must be suspended
undertaken in order to transfer them
until the clearance of the President
to the purchaser. This means that the
of the Office of Competition and
ability to assign the property-related
Consumer Protection is granted.
rights or assuming the obligations
is examined individually, in light of A notification on the planned
specific regulations or contractual transaction to the Office of
provisions, which may prevent or Competition and Consumer Protection
restrict transferability. is required if any of the following
conditions is met:
Therefore, a share deal is a type of
transaction usually considered by • the combined worldwide turnover
investors when the target company of undertakings participating
conducts regulated activity as all in the concentration in the
permits required for its operation stay financial year preceding the year
in the company. of the notification exceeds the
equivalent of EUR 1 billion, or
• the combined turnover of
2.4 pre-emption held by State Treasury or
undertakings participating in the local authority, it may only be sold to
concentration in the territory a third party under the condition that
of Poland in the financial the beneficiary of that right does not
year preceding the year of exercise it. If such a property is sold
the notification exceeds the without observing this right, the sale
equivalent of EUR 50 million. is considered to be null and void.
However, the Polish antitrust law The notary executing the conditional
provides for certain exceptions from agreement will send a copy of
the obligation of notification even it to the State Treasury or local
if the above conditions are met, in authority, which may then exercise its
particular, when the turnover of the preemptive right within one month of
undertaking over which the control receiving the conditional agreement.
is to be taken did not exceed in the If the public authority does not
territory of Poland in any of the exercise its preemptive right within
two financial years preceding the that period, the parties can conclude
notification, the equivalent of EUR 10 the final agreement, which effects the
million; the concentration arises as unconditional transfer of the title to
an effect of insolvency proceedings, the real estate.
excluding the cases where the control
is to be taken over by a competitor C. Restrictions for foreigners
or a participant of the capital group As regards foreigners residing or
to which the competitors of the having their registered seat within the
to-be-taken undertaking belong; the territory of the European Union or
concentration applies to undertakings European Economic Area, no special
participating in the same capital restrictions regarding acquisition of
group. real estate by foreigners apply. The
conditions differ with respect to the
B. The pre-emption rights
investors from remaining countries to
It may happen that the public which the following restrictions apply,
authorities have a statutory As a general rule, such foreigners
preemptive right to real estate which (or Polish entities controlled by a
is about to be sold. The right of foreigner) are required to obtain
pre-emption is a right to acquire the a special permit of the Minister
property before it can be purchased of Internal Affairs for acquiring a
by any other person or entity. Where real estate in Poland. The permit is
the real estate is subject to a right of necessary when acquiring ownership
2.4
of real estate or perpetual usufruct D. Restriction in acquiring
on the basis of any legal event (e.g. agricultural land
purchase, in-kind contribution, merger
with a Polish entity, taking up shares New legislation restricting trade of
in Polish entities). agricultural land was passed and
came into force as of 30 April 2016.
The permit is issued upon a written The new regulation restricts trade of
request of a foreigner, provided that: agricultural land for both Polish and
• a foreigner’s acquisition of real foreign (EU and non-EU) entities.
estate does not pose a threat Under the new law on shaping the
to the State’s defense, national agricultural system, agricultural
security, public order and is not land is the land used for agricultural
contrary to the social policy and purposes or land that may be used
public health considerations; for such purposes, excluding land
• the foreigner proves that there intended for other purposes in
are circumstances confirming applicable local spatial development
his bonds with Poland (i.e. for plans.
example the buyer has Polish The new law provides for major
origins or is conducting business restrictions in sale of agricultural land
or agricultural activities in the such as:
territory of Poland under the
Polish law). • agricultural land may be acquired
only by individual farmers having
The Minister’s decision concerning agricultural education and
real estate acquisition should be residing in the same municipality
issued within one month (two months where the land is located for at
in particularly difficult cases). The least 5 years,
permit is valid for two years from the
day of issuance. • an obligation to obtain a
permit of the Chairman of the
The acquisition of real estate without Agricultural Property Agency for
a permit is invalid. A foreigner sale/acquisition of an agricultural
intending to acquire real estate in land to/by persons other than
Poland may apply for a promise of the individual farmers, including
permit. The promise of the permit is companies, under pain of
valid for one year. During this period invalidity,
a permit cannot be refused unless the
actual circumstances pertinent to the
decision have changed.
• general prohibition on sale or
2.4 • Agricultural Property Agency
transferring possession (e.g. was given a pre-emption and
under lease agreement) of an buyout right to purchase shares in
agricultural land within 10 years companies owning an agricultural
from its purchase; in ill-fated land, e.g. in case of share
reasons a common court will be purchase agreements or share
entitled to allow the sale, swap (excluding shares in public
listed companies).
• agricultural land acquired under
Chairman of the National Agency E. Acquisition of real estate
for Agriculture Development
from public entities
(KOWR) consent within 10 years
from its purchase; in case a sale or In Poland, real estate is often acquired
transfer of possession is necessary from the State or local authorities.
due to misfortune reasons being Such type of acquisition is considered
beyond the buyer’s control, a to be safe and an attractive alternative
common court is entitled to allow to acquisition of real estate from
for the conclusion of the relevant private owners. Nevertheless, in
agreement, practice, acquisition of real estate
from public entities is subject to
• Agricultural Property Agency
additional specific requirements such
possess a pre-emption right to
as an obligation to dispose the land via
agricultural land regardless of the
public tenders.
area (previously this right applied
only to areas of at least 5ha), An investor interested in acquiring
real estate from the State or local
• Agricultural Property Agency
authorities should ask the authorities
was given a wider buyout right
for information on the contemplated
in case other acquisitions
property to be acquired. Unfortunately,
that acquisitions under sale
it is not possible to purchase such real
agreement e.g. merger, division or
estate on the spot, as there is a special
transformation of a current owner
procedure of selling real estate held in
(perpetual usufructuary) of the
public entities’ possession. With only
land,
a few exceptions provided by law (e.g.
• Agricultural Property Agency real estate being sold to its perpetual
was given a right to buy of an usufructuary), real estate held by
agricultural land in case of the State or local authorities may be
partners change in partnerships, disposed by way of public tender, after
a lengthy procedure is completed.
2.4
As mentioned above, real estate property (a share deal). These two
can be sold either through a direct types of transactions are afforded
sale of the property (an asset deal) different treatment by the Polish tax
or indirectly through a sale of the regulations.
shares in the company owning the
Key scenarios
Sale of
standalone Asset deal Share deal
assets
Sale of an Sale of shares

enterprise /
organized part of
an enterprise (OPE)
2.4
Asset deal
Share deal
Enterprise / OPE Standalone asset
Step-up allowed No step-up allowed
Corporate
Goodwill may arise for Step-up allowed No goodwill for tax
income tax
tax purposes purposes
23% VAT (for
commercial property),
subject to VAT
recovery under general
rules
Out of scope of VAT
VAT exemption may Out of scope of VAT
1%/2% transfer tax apply (exemption may
1% transfer tax (pol.
Transaction (pol. PCC) on gross be either obligatory or
PCC) on the FMV
taxes value of enterprise an option)
of shares payable
/ OPE payable by
If VAT exempt – 2% by the buyer (non-
the buyer (non-
transfer tax (pol. PCC) recoverable)w
recoverable)
on the FMV of asset
payable by the buyer
(non-recoverable)
 For further comments
on VAT see next pages
In general joint and
several tax liability No contingent tax
Unlimited tax liability
Contingent tax Possibility to limit the liability for the events
(up to the value of the
liability contingent tax liability occurring prior to the
investment)
via pre-transaction tax transaction
certificates
2.4
Asset deal
Share deal
Enterprise / OPE Standalone asset
Reclassification
into a transfer of an
enterprise / OPE may
lead to challenging the
Reclassification into a buyer’s right to recover
transfer of standalone input VAT charged
Reclassification assets may lead to VAT by the seller and may
risk arrears for the seller result in transfer tax
(additional penalties arrears (additional
may apply) penalties may apply)
F
 or further comments
on the risk see next
pages
Less time-
consuming and more
Tax assets of the seller Tax assets of the seller straightforward legal
(e.g. tax losses) remain (e.g. tax losses) remain wise
Other
with the seller and can with the seller and can
advantages Possibility to deduct
be used to offset sale be used to offset sale
proceeds proceeds historical tax losses of
the acquired company
(no forfeiture rules)
Timing and legal

complexity (less
Timing and legal
complex than
complexity
Other enterprise / OPE, but
disadvantages Buyer cannot use more than share deal)
historical tax losses of
Buyer cannot use
the seller
historical tax losses of
the seller

Asset deal
2.4 applicable, financial costs accrued
till the purchase, etc., form the initial
The revenues generated on the sale of
value of the real estate and are
real estate are subject to the standard
recognized as tax deductible costs
taxation rules of Polish corporate
through depreciation write-offs or
income tax. Taxable revenues are
upon sale. As the value of the land is
reduced by the net book value of
not subject to depreciation, it is then
the property. Effectively, only the
important to determine the value of
„capital gain” is taxed at the rate of
the land and the value of any buildings
19% (possibly 15% in the first tax
or structure separately.
year of an SPV lifetime). The revenue
from the sale of real estate must be VAT on the acquisition of real
valued at the price set in the sale
estate
contract. However, if the price differs
substantially and without a justified The supply of buildings,
reason from the market value of infrastructure, or parts of buildings
the real estate, the revenue may or infrastructure is generally VAT
be assessed by the tax authorities exempt, except for:
according to the market value. This • the supply of a building,
transaction price adjustment may infrastructure or part of a
be applied to transactions between building or infrastructure in the
related and unrelated entities. course of its first occupation or
Adjustments trigger not only a higher prior to it; and
tax burden but also penalty interest.
• the supply of a building,
The Polish tax system does not infrastructure or part of a
include a replacement provision. building or infrastructure made
Therefore, the corporate seller cannot within two years of the first
defer taxation of a capital gain. occupation;
Costs incurred by the buyer for the • in which cases the supply of
acquisition of real estate: purchase buildings, infrastructure or parts
price, transaction costs including of buildings or infrastructure are
advisory, civil law transaction tax - if generally subject to VAT.

„First occupation” means handing
2.4 • improvement (if the expenses
over a building, infrastructure or part incurred for the improvement
of a building or infrastructure within constituted at least 30% of the
the context of the performance of initial value)
VAT-able activities (subject to VAT or
• of that building, infrastructure
VAT exempt) to the first acquirer or
or part of a building or
user, after the:
infrastructure.
• initial completion; or
Did a period shorter than

Is the supply of the building,
two years elapse between
infrastructure or part of EXEMPTION
the point of ﬁrst occupation
a building or infrastructure WITH AN
NO and the supply of the NO
being carried out in the OPTION OF
building, infrastructure or TAXATION
course of the ﬁrst
part of a building or
occupation or prior to it?
infrastructure?
YES YES
Did the supplier have the right

to deduct input VAT in relation
TAXATION YES to the building, infrastructure
or part of a building
or infrastructure?
NO
Did the supplier incur

improvement expenses higher
than 30% of the initial value
of the building, infrastructure NO EXEMPTION
or part of a building
or infrastructure?
YES
Did the supplier have the right

to deduct the input VAT in NO EXEMPTION
relation to the improvement
expenses?
YES
Had the improved building,

infrastructure or part of
a building or infrastructure YES EXEMPTION
been used to execute taxable
activities for at least 5 years?
NO
TAXATION

Taxpayers may choose not to apply
2.4 Generally, the VAT treatment of
the exemption and charge VAT if: ownership title to land or a perpetual
usufruct (RPU) over land follows the
• both buyer and seller are VAT
VAT treatment of the buildings and
registered; and
infrastructure developed on the land.
• before the day of supply they
An exception to the above rule is
submit the appropriate joint
when an RPU is acquired for the first
statement to the tax office of the
time from the State or local authority,
purchaser.
in which case, the RPU is always
The supply of buildings, infrastructure subject to 23% VAT, even though the
or parts of buildings or infrastructure buildings / infrastructure developed
which should be subject to VAT on the land may be exempt from VAT.
(i.e. supply in the course of first
The supply of ownership title / RPU to
occupation or within two years of the
undeveloped land qualified as land for
first occupation) must be VAT exempt
development purposes is subject to
(no option to tax allowed) if:
23% VAT (supply of agricultural land is
• the seller was not entitled to as a rule exempt from VAT).
deduct input VAT; and
If subject to VAT, the supply of real
• the seller did not incur estate is subject to 23% VAT. However,
improvement expenses on which the supply of residential buildings
he had right to deduct VAT, or and separate apartments is subject
such expenses did not exceed to a reduced 8% VAT, except for part
30% of the initial value of the of residential buildings whose usable
building, infrastructure or part floor space exceeds 300 m2 and
of a building or infrastructure apartments whose usable floor space
(unless the improved real estate exceeds 150 m2. In such a case only
was used for taxable activities for the part of residential building and/
no less than 5 years). or apartment which fits within the
above limits benefits from the 8% VAT
The diagram outlines VAT rules on the
rate, whereas the part exceeding the
taxation of the supply of buildings,
thresholds is subject to a standard
infrastructure or parts of buildings or
23% VAT rate. Depending on the legal
infrastructure.
case underlying the transaction, sale
of a parking space sold jointly with the
apartment but constituting a separate

legal property, can be subject to a
2.4 (shopping center) from an asset
standard 23% VAT. deal performed on piece-meal basis
(which is subject to VAT) into a sale
Starting 1 January 2014, as a rule,
of a going concern (subject to civil
VAT tax point arises in the month of
law transaction tax), even when a
delivery of goods or rendering the
tax ruling was obtained upfront. As
services to the purchaser. The invoice
there is a lot of uncertainty in this
should be issued by the seller no later
respect these days, a detailed analysis
than until the 15th day of the month
of each particular transaction is
following the month in which the
recommended.
goods were delivered or the services
were rendered. Recoverability of input VAT
If the supply of real estate is VAT Input VAT is recoverable if the
exempt, it is subject to civil law company performs or intends to
transaction tax payable by the buyer. perform activities in the future which
The applicable rate is 2% of the are subject to VAT (e.g. lease of the
market value of the real estate. commercial real estate). Input VAT
If the business of the Polish company will not be recoverable if the company
or part of its business is sold as a performs or intends to perform
going concern, the transaction falls activities in the future which are VAT
outside the scope of VAT. The assets exempt. If this is the case, the input
of the business or part thereof will VAT will increase the initial tax basis
be subject to civil law transaction of the real estate.
tax payable by the buyer at the rate For example, certain financial
appropriate for a particular item (2% activities performed by banks,
for land, buildings and other tangible financial institutions and insurance
property, 1% for intangibles, including companies are exempt from VAT:
any goodwill that would crystallize on these institutions have no (or limited)
such transfer). Civil law transaction output VAT and therefore they are
tax constitutes an additional cost not entitled to refunds or any other
of the transaction and is non- kind of recovery of input VAT incurred
recoverable. in the course of their VAT exempt
There has been some cases recently, financial activities (in certain cases
when the tax authorities challenged there may be a limited recovery
the qualification of a real estate available).

2.4
If business activities are partly be adjusted if the liability resulting
exempt, the recovery of any input from the invoice documenting the
VAT which cannot be matched expense incurred is not settled within
directly either to VAT-able sales or the specified deadlines (as a rule
VAT exempt sales should be effected 150 days). Additional sanctions may
in line with the proportion of the net apply if no adjustment is made (i.e.
value of the taxed supplies to the total additional tax liability up to 30% of tax
value of all supplies (a so called pro resulting from the not settled invoices,
rata recovery). During a calendar year, which has not been accordingly
the proportion is calculated based adjusted).
on the volume of supplies made in
the previous year. At the year end, Date of input VAT recovery
the amount of deductions is adjusted The right to recover input VAT arises
to the actual percentage calculated in the period when - with respect to
for the whole year. In the case of the acquired goods or services - the
tangible or intangible assets subject tax point arose (i.e. in the month in
to depreciation for tax calculation which the services were rendered to,
purposes, the percentage of input or the goods were acquired by the
VAT which may be deducted is subject purchaser). It cannot be, however,
to adjustments over the period of 5 recovered earlier than in the period
or even 10 years (in the case of real in which the taxpayer receives the
estate). respective invoice (prepayment
Calculation of the percentage of input invoices do not fall under this rule:
VAT to be deducted is necessary only they must be paid in order for input
if it is not possible to match input VAT to be reclaimable).
VAT with taxed activities or exempt
Direct refund of input VAT
activities directly.
A direct refund of any surplus input
As of 1 January 2016 taxpayers also
VAT incurred should be made within
need to take into account so called
60 days of the submission of the
preliminary pro-rata that limits input
application for the refund (the VAT
VAT recovery on purchases, if linked
return) on condition that the taxpayer
both with the economic activity of
performed VAT-able supply in the
the taxpayer and other activities not
period for which the refund is claimed.
related with business operations.
Please note that this deadline can be
The recovered input VAT also has to
shortened to 25 days at a taxpayer’s

request if the input VAT to be
2.4 25 days from filing a VAT return,
refunded resulted from invoices that with no additional conditions
have been paid in full but - due to the applied;
changes as of 1 January 2017 - this
• the VAT amount payable will be
shortened refund period option would
decreased if a payment is made
rather not apply to the purchase of
from a dedicated VAT account
real estate.
before the statutory deadline.
It is possible to get a refund of input
• the increased penal interest rate
VAT even if VAT-able supplies are
and additional penal VAT rates of
not made in the period for which the
30% and 100 % will not apply.
refund is claimed. However, in such
a case the period for the refund is Share deal
extended to 180 days, unless a form
of security, e.g. a bank guarantee is A capital gain on the sale of shares is
provided (in which case the refund subject to Polish corporate income tax
must be made within 60 days). at the standard rate of 19% (possibly
15% in the first tax year of the selling
Split payment entity lifetime). From 1 January
2018 Poland introduced separate
Split payment mechanism is going to
income basket for capital gains and
be introduced to the VAT law and will
disallowing the offsetting of capital
enter into force as of 1 July 2018. It
gains or losses against other sources
is a solution that was not yet applied
of income (see diagram listing the
in Poland in the past.
items allocated to capital gains). This
At this stage VAT split payment will means that any capital gain from the
be applicable to B2B transactions only sale of shares could be offset only
and on a voluntary basis. against costs allocated to capital gain
basket.
Buyers will have a choice to pay the
VAT amount into a dedicated bank If the selling party is a foreign
account. If they do so, they may enjoy shareholder, the applicable tax treaty
a number of advantages: influences the tax implications of
such a transaction. Under most tax
• no joint and several liability with
treaties concluded by Poland the right
respect to the amount paid on
to impose taxes on the sale of shares
the supplier’s VAT account;
in corporate entities is allocated to
• entitlement to VAT refunds within the country where the shareholder

2.4 is a tax resident. In such cases
Income from capital gains shall Polish income tax rules are not
include, among others: applicable and the fiscal rules
• income from sharing in of the country in which the
profits of legal persons or shareholder is a tax resident
other companies, including govern the transaction. In some
e.g. dividends, income from countries capital gains on shares
investment funds, income are exempt from taxation. The
from redemption of shares, rationale behind this exemption
payments received as a result is that the taxation of capital
of a merger or demerger, gains on shares constitutes
interest on participation loans, double taxation: the profit within
etc. the company is taxed using the
normal income tax rate and,
• income arising from in-kind therefore, the profit on the share
contributions transaction should not be taxed
• other income from participation again. In international taxation
in legal persons or other terminology this exemption
companies, including income is known as the Participation
from the sale of shares, Exemption. Some countries limit
redemption or gains from a this Participation Exemption
share-for-share exchange to capital gains on share
transactions involving domestic
• income from the sale of certain shares only. Other countries
receivables► enable the Participation
• income earned from property Exemption to be applicable to
rights (e.g. royalties, know- transactions involving the shares
how, copyrights), securities of foreign companies as well.
and financial derivative Significant part of Polish tax
instruments, etc. treaties (e.g. with Spain, France,
Requirement to keep accounting Denmark, Sweden, Germany,
records specifying revenues and Luxembourg etc. provide that
costs for tax purposes, broken down a sale of shares in a company
by two types of sources (capital holding mainly real estate assets
gains and other sources). should be regarded as a sale of
real estate. Consequently, income

2.4
earned on the sale of shares in the the taxation of operating profits. The
Polish company will be taxed in Poland tax treatment would depend on the
(the so called Real Estate Clause). practice of the tax authorities, which
should be closely monitored.
The sale of shares in the Polish
company is subject to a 1% civil law CFC Rules
transaction tax (on the fair market
value of shares) payable by the buyer. The CFC rules were implemented into
This is irrespective of where the Polish tax system from January 2015
transaction takes place or where the and were recently amended from
parties to the transaction are resident 2018. CFC is defined as:
for tax purposes. A share transaction 1. a foreign company seated in a tax
is not subject to Polish VAT. However, heaven (as officially blacklisted by the
where a share transaction is treated Polish Ministry of Finance) or
as being made in the course of
business activity (rather than as 2. a foreign company having its
a one- off transaction), it may be seat or place of management in the
classified as a VAT-able event. country other than mentioned in point
However, it will still be subject to civil 1), with which:
law transaction tax. a) Poland has not concluded an
Costs which must be incurred in order international agreement, in particular
to acquire shares (e.g. purchase double tax treaty, or
price and notary public fees) may be b) EU has not concluded an
recognized as tax deductible costs international agreement being a basis
upon the sale of shares. for requesting tax information from
So far, other costs indirectly tax authorities of that country, or
connected with acquisition of shares 3. a foreign company which jointly
such as financing costs were in fulfills the following conditions:
practice recognized as tax deductible
a) the Polish taxpayer has on its own
costs when incurred. Due to the
or together with other related entities
introduction of income baskets, it
a direct or indirect shareholding (for
cannot be excluded that the financing
an uninterrupted period of at least 30
costs related to the acquisition of
days) of at least 50% shares or 50%
shares would need to be allocated to
voting rights or a 50% stake in profits
capital gain basket and as a result,
of the CFC;
would not provide a tax shield against

2.4
b) at least 33% of annual revenues of value added in economic terms or
the CFC consist of a passive income, such value is marginal;
i.e.:
c) tax actually paid by the company is
• dividends and other income from lower that the difference between the
sharing profits of legal persons tax that would be due if the company
was a Polish resident and the tax
• disposal of shares, receivables
actually paid by the company in its
• interest or benefits from all types country of residence; whereas tax
of loans, securities or guarantees actually paid means tax that should
not be refunded or credited in any
• interest part of leasing rates
way.
• copyrights or intellectual
CFC provisions should not apply in
property rights - including
the case where the CFC, which is
disposal of such rights
subject to taxation on its total income
• disposal or exercise of rights in one of the EU / EEA Member
from derivatives States, carries out actual significant
business operations in this state. The
• Insurance, banking or other
Polish companies are obliged to hold
financial activity
registers of the CFC companies.
• transactions with related parties
if the company does not create
2.5
Development and construction
2.5.1 Legal aspects
2.5.1.1 Land development issues

Land development issues are investor may apply for a decision on
important for real estate investors, as land development and management
they determine the possible method of conditions (hereinafter referred to as
investing in a given area. Regulations the zoning decision). Where a building
on land development may influence permit is required for an investment,
the shape of the planned building, either a local spatial development
but sometimes they also prevent the plan or a zoning decision are required
investor from the investment. to start the development of the real
property, since, as a rule, no building
Legal background permit may be issued without them.
Currently only a part of the territory Therefore, before buying the real
of Poland is covered with local spatial property, it is crucial for investors to
development plans, mostly within the verify:
boundaries of bigger cities.
• whether the real property in
The two main spatial planning and question is covered by a local
development acts determining spatial development plan (or
land development within a given whether such a plan will be
municipality (commune) are the adopted soon);
spatial development conditions
and directions study and the local • in the event there is no local
spatial development plan. However, spatial development plan,
from investors’ perspective, the whether a zoning decision has
local spatial development plan is of been issued for the real property
higher importance, as it determines in question; and
their rights and obligations, while • whether the provisions of the
the spatial development conditions local spatial development plan
and directions study binds the local or zoning decision allow for
authorities only. In the case where the implementation of their
no local spatial development plan has investment plans.
been adopted for a given area, the

2.5
Local spatial development plan by the relevant administrative bodies.
The local spatial development plan is The provisions of the local spatial
adopted by the commune council and development plan are crucial for
is binding for third parties (investors) investors, as the planned development
as an act of local law. of the plots covered by such a plan
must comply with its provisions, in
Each local spatial development
particular, regarding the distance of
plan determines the manner of
a building from the plot’s border or
development of the territory
Required to start the

development of the
real property:
Spatial
or Zoning decision
development
plan
the height of a building. Sometimes

covered by that plan. In particular,
the provisions of a local spatial
it determines the designation of
development plan may render
plots (land use - agricultural, forest,
the development of the given plot
building purposes, etc.), development
impossible. Moreover, in certain cases
conditions and types of facilities
the legal provisions provide that
which can be located on the plots. The
selected investments are implemented
procedure for adopting a local spatial
solely based on local spatial
development plan is rather complex
development plans. This relates to i.a.
and time consuming as the draft local
large retail units or windfarms. It is
spatial development plan is subject to
currently planned by the government
„public consultation” with the parties
to extend the catalogue by introducing
concerned, as well as opinions issued
2.5
all investments substantially affecting zoning decisions related to this area
the environment as requiring local expire if the provisions of the local
spatial development plan in order to spatial development plan differ from
be proceeded with. those of the zoning decision. However,
this shall not happen if a final building
Therefore, to be able to implement
permit has already been issued for the
their investment plans, sometimes
real property in question. Therefore,
investors start a procedure
in the case where there is no local
of amending the local spatial
spatial development plan for a given
development plan, which may prove to
real property, prior to investment
be rather time consuming.
planning the investor should monitor
Zoning decision the stage of works related to the local
spatial development plan and should
In the case where no local spatial learn if it is possible to acquire a final
development plan has been adopted building permit before the local spatial
for the given area, an investor may development plan is adopted.
apply for a zoning decision, which
sets out all the required conditions for An application for a zoning decision
the development of that area. Before may be filed with the relevant
the building process is started on the authority even when the applicant
given plot under a building permit, does not hold any title to the land in
the plot must be covered either by a question. A zoning decision may be
local spatial development plan or by transferred to third parties.
a zoning decision (therefore, it can be This means that investors may use
said that a zoning decision substitutes a decision issued for the seller of a
a local spatial development plan for an real property, as they do not have
investor). to apply for the decision once again
A zoning decision is issued by the after acquiring the real property
governing authority of the commune. (the investor only applies for the
The procedure for issuing zoning transfer of such a decision to himself).
decisions includes performance Investors may also apply themselves
of a zoning analysis by the local for such a decision before deciding
authority’s architecture department on the investment. According to
and it may, therefore, take even up to recent information, the government
several months. is planning to restrict the possibility
of construction of investments based
If a local spatial development plan on the zoning decisions. Based on
is being adopted for a real property, the initial information, it is planned
2.5
to introduce a division between As a general rule, a building permit
the areas not covered by the local expires either if construction works
spatial development plans into the have not been started within three
developed and undeveloped areas. years of the date on which the permit
For the developed area, further to became final or if construction works
its determination by the municipality have been discontinued for more than
council, it will be possible to obtain three years.
a zoning decision. Within the
Not all construction works require
undeveloped areas, implementation
a building permit. Construction of
of new investments will, as a general
certain structures which are listed
rule, not be possible.
in the Building Law of 7 July 1994
Building permit (hereinafter referred to as the
Building Law) may be commenced
A building permit is an administrative upon a notification sent to the
decision issued by a local authority relevant authorities if no objections
(starosta or mayor in bigger cities) have been raised by them within 21
which allows an investor to start the days of the notification date.
development process on the site.
The notification procedure pertains
The documents attached by the however generally to minor
investor to the application for a construction works or developing
building permit should include, some of residential (single family)
in particular, a declaration of buildings.
having legal title to use the real
property for construction purposes. Polish government began work on
Moreover, the application must new Urban Planning and Construction
also enclose approvals of the local Code. The new regulation, replacing
authorities responsible for local Spatial Planning and Development
infrastructure, in particular utilities, Act, Building Law and minor acts,
roads, environmental protection will significant change the rules of
and sewage treatment. The building investment process. After conducting
permit will only be granted if the relevant public consultations, new
construction design is consistent with draft Code has been presented on the
the assumptions of the local spatial ministry website in November 2017.
development plan or zoning decision The legislation works are therefore
as well as with the regulations still pending.
governing technical conditions for the Under the proposed law, one
development. document - an investment consent
will replace following documents:
2.5 building or structure if no objection
a building permit (or notification), has been raised by the authorities
zoning decision and a decision on within 14 days of the date of
division of a real estate. Urban notification.
Planning and Construction Code
In cases where a permit for use
provides for the classification of
is required, the building may be
investment into 6 categories of the
occupied only after the decision
investment procedure, dependent on
granting the permit for use is granted.
the complexity of the investment.
The granting of a permit for use is
Moreover, the code will strengthen preceded by a technical inspection of
the role of development study (now: the building or structure to confirm
spatial development conditions and that all construction works have
directions study), which will cease been performed in compliance with
to be a purely internal document. In the terms and conditions of the
the proposed legal framework, the building permit as well as technical
development study will be considered requirements.
in the process of issuing a investment
Occupying a building in breach of the
consent. According to information
above¬mentioned regulations may
published, the Code requires
result in a fine.
further editorial amendments and
consultations, thus, there are small Environmental issues
chances that that act will be adopted
in the nearest future. The building process has many
environmental aspects that must
Usage of the building be taken into account. The Polish
law provides that an environmental
Depending on the individual case, the
decision must be obtained prior to
use of a building or structure after its
obtaining a zoning decision and a
completion requires either notifying
building permit for the given project.
the construction
Pursuant to the Polish law, from the
supervisory authorities that environmental law point of view, the
construction works have been investments are divided into two
completed or acquiring a permit for groups:
use.
• projects that always have
In the case where only a notification significant impact on the
is required, under the general rule environment;
the investor may occupy and use the

•
2.5
projects that may have significant Pursuant to the Polish law, authorities
impact on the environment. must inform the general public about
the environmental impact assessment
Environmental decision must be
proceeding and allow the general
preceded by the environmental
public to submit comments and
impact assessment proceeding (which
recommendations to the proceeding.
includes preparation of environmental
impact assessment report) in case of Moreover, Polish law in certain
projects that always have significant circumstances allows a broad
impact on the environment (i.a. access to the environmental
parking lots, buildings of a particular impact assessment proceeding to
size etc.). However, the environmental non-governmental environmental
impact assessment proceeding may be protection organizations.
also ordered by the authority issuing
Environmental decision may be
the environmental decision in relation
transferred (as well as the building
to projects that may have significant
permit issued on the basis of a
impact on the environment.
zoning decision). According to
Despite of the fact that environmental recent information, the government
impact assessment is carried out at is planning to introduce a
the stage of issuing the environmental requirement that the investments
decision, it may also be repeated (in having substantial impact on the
certain circumstances) at the stage of environment are implemented within
issuing a building permit. the areas covered by the local spatial
development plan.
Environmental impact assessment
is a legal instrument that allows to Energy efficiency
determine the effect of the planned
investment on the environment The EU regulations within energy
(i.e. water, land and air quality as efficiency of buildings, are ambitious,
well as impact on flora and fauna). so is the polish legislation keeping up
Environmental impact assessment with the newest directions.
proceeding, beyond the identification According to the information of
of specific impacts that the proposed the Ministry of Infrastructure and
project may have on the environment, Construction, starting January
concentrates on the ways to prevent 2017, the real estate market will be
and minimize the effects of the challenged with a new values of EP
planned project. energy ratio for newly built buildings
and some of the coefficient U factors

for thermal transmittance of external
2.5 The regulation will cover all of the
walls of buildings. The new law, architectural and construction designs
incorporated back in 2014 is entering which are going to be submitted
into force gradually in order to make together with the applications for
polish legal system compliant with a construction permission in 2017.
the European Directive on the energy New provisions introduce a gradual
performance of buildings, according increase in the level of requirements
to which, until 31 December 2020 up to the year 2021. Such a phased
each and every newly built building changes allow smooth adjustment
shall be nearly zero-energy. of the construction market to the
applicable legal requirements.
2.5.1.2 Construction issues
Legal framework for respect to contractual clauses

regarding statutory warranty periods,
construction works contracts
contracts with and liability towards
The Civil Code includes provisions subcontractors as well as contractor’s
which establish the legal framework payment guarantees. Below we
for construction works contracts. Most present the key legal regulations in
of those provisions are general in this areas.
nature and enable contracting parties
to structure the construction works Statutory warranty periods
contracts in a way that addresses Under the Polish law, the statutory
their particular business needs. Such warranty period for acquired real
a flexible legal framework allows the estates, including buildings is five
parties very often to use international years from the property‘s hand-over
standards for construction works date. The above mentioned statutory
contracts, including the popular FIDIC warranty period of five years applies
forms. However, not all the provisions also in the construction works
of international standards for contracts.
construction works contracts comply
with the requirements of the Civil Liability towards
Code and the Building Law. subcontractors
In particular, a more detailed Based on the recently implemented
analysis should be performed with changes, the investor is severally

2.5
liable with the general contractor for Contractor’s payment
the payment of remuneration due to guarantee
the subcontractor for the construction
works performed by the latter, the One of the inconveniences for
detailed description of which was investors signing construction works
notified to the investor prior to the contracts is the obligation to grant
commencement of such works. The a payment guarantee to the general
liability of the investor does not occur contractor.
if, within 30 days from the date of Under this obligation a general
such notification, the investor objects contractor is entitled to a statutory
to such works. claim against the investor for
Such notification will not be a payment guarantee up to the
required in case the investor and maximum amount of the contract
the contractor determine the scope value. The investor may satisfy the
of works to be performed by the general contractor’s claim by issuing
designated subcontractor in the a payment guarantee in the form
written agreement. of a bank guarantee, an insurance
guarantee, a letter of credit or a
Thus, the investor is liable for bank’s suretyship. The statutory
payment for only such works, which claim for a payment guarantee may
were duly notified to him prior to their be raised at any time and can be
commencement. extended to include the value of any
Additional security for the investor additional works agreed in writing
constitutes the fact that the said during the term of the construction
notification must be made in writing works contract.
(accordingly, such form is also
required for the investor’s objection).
Construction design contracts
One of the key elements of the
Moreover, the said liability of the
building process is drawing up a
investor towards the subcontractor
construction design. A construction
will be limited to the amount
design is a formal requirement for
due to the subcontractor under
obtaining a building permit for most
his agreement with the general
of building investments. Under the
contractor, unless such amount
Polish law a construction design
exceeds the remuneration due to
must be drawn up and signed by
the general contractor for the works
a certified architect, who takes
included in the notification.
responsibility for the technical aspects

of the construction. The architect
2.5 Poland, as one of the EU Member
should prepare a design under a States, was obliged to implement
contract for architectural services regulations governing public
which, depending on its scope, may procurement proceedings. The
either transfer the copyright to the provisions of EU directives on public
construction design to the investor or procurement were implemented to
provide the investor with the right to the Public Procurement Law, which
use the construction design for the constitutes the legal framework for
purposes of the relevant investment. this matter in Poland. The Public
Procurement Law is supplemented
It is worth mentioning that a contract
by additional legal acts which
for architectural services may include
relate in particular to public-
various restrictions with regard to the
private partnership and licenses for
copyright or the use of the design.
construction works and services.
Such restrictions may be crucial for
the investment development process, The main goal of public procurement
in particular when they regard the regulations is to establish clear and
possibility of entering modifications competitive rules and procedures
to the construction design or for awarding public contracts to
transferring the copyright to other the suppliers of works and services
entities. as well as to provide measures for
supervision over the public authorities
Public procurement contracts awarding public contracts. The key
objective of the Public Procurement
General overview
Act is to ensure that public contracts
Thanks to a number of EU funding are awarded while applying equal
programs every year Polish treatment to all entities taking part
authorities have billions of euros in tender proceedings as well as to
at their disposal to be spent on ensure impartiality and objectivity of
development. A considerable part of the final decision.
this funding will be designated for
infrastructural projects, in particular Procedure
road and railway infrastructure, which Under the Polish public procurement
is still not very well developed in regulations there are numerous
Poland. For this reason, many of the different procedures for awarding
infrastructural investments developed public contracts. The ones that are
on the Polish market will be carried most commonly applied are open
out under public contracts. tendering and limited tendering.

2.5
Both procedures must be followed by A similar course of action should be
a public notice. Notice on contract applied to the above main types of
performs the aim of providing proper the public procurement procedure.
implementation of the rule of equal Each of them is comprised of pre-
treatment in the very beginning of qualification, submission of proposals
the procedure. The obligation of and selection
publishing a notice also provides non-
of the winning tenderer phases. In the
confidentiality and transparency of
pre-qualification phase the awarding
the applied public contract systems.
party sets out the requirements /
In general, open tendering is a criteria to be met by the tenderers.
simple procedure, meaning that Based on the specific requirements
entities familiarize themselves with / criteria, tenderers draft their
the information in the notice and in proposals and submit them to the
SETC and, if they are interested in awarding party. In the proposal each
submitting tenders in such procedure, tenderer demonstrates its compliance
they submit a tender which shall then with tender requirements by
be evaluated by ranking. referring to its competencies, such as
experience, knowledge and financial
Under limited tendering procedure,
capacity to perform the contracted
entities interested in being awarded
work. After reviewing all submitted
a public contract submit requests
proposals the awarding party selects
for participating in the tender
the best tenderer with whom the
and the awarding party decides
public contract is to be signed.
which bidders may submit their
proposals. Other public procurement However, this is not necessarily
procedures such as competitive the end of the public procurement
dialogue, negotiated procedure with process as there is a possibility of
publication, negotiated procedure appealing against the decision of the
without publication, single source awarding party. In practice, the appeal
procurement, request for quotations procedure is quite commonly used
or electronic auction can only be by the tenderers who lost a public
applied under specific circumstances contract, which often results in delays
stipulated in the binding law. in the completion of the investment
project concerned.

2.5
Tax treatment of the Purchases the investor needs to make

during construction will typically
construction costs
include Polish VAT. This input VAT
Costs related to construction process could be deducted from the output
and accrued prior to putting the VAT that the investor has to pay
assets into use form the initial value to the tax authorities as a result
of the real estate and are recognized of his business activities. As the
as tax deductible cost through construction process usually takes
depreciation write-offs or upon sale. a considerable period of time and
requires the availability of substantial
Costs related to future operation /
financial resources, it is essential
exploitation of the assets should be
that the input VAT paid is recovered
recognized for tax purposes based on
during this process. Rules of VAT
general rules.
recovery and refunds are presented
VAT and the construction in section 2.4.3. However, during
the construction process the typical
process
situation is that the company has to
During the construction process, pay high input VAT (resulting from
the most important tax is VAT. The purchase invoices), but no output VAT
standard rate of VAT in Poland is 23%. is incurred. Therefore, specific rules
A reduced VAT rate of 8% applies need to be observed to ensure the
to the construction of residential recoverability of input VAT paid during
houses/apartments except for part of the construction process.
residential buildings where the usable
Also, it is worth mentioning that
floor space exceeds 300 m2 and
- as of 1 January 2017 - certain
apartments where the usable floor
construction services (listed in the
space exceeds 150 m2. In such cases
VAT Act) provided by subcontractors
only construction of the part of the
may be subject to reverse charge
residential building and/or apartment,
mechanism (i.e. self-assessment of
which is within the above limits,
both input and output VAT).
benefits from 8% VAT rate, whereas
construction of the part exceeding the Services of foreign contractors
thresholds is subject to standard 23%
VAT rate. The place of the supply of services
(i.e. the place in which services are

2.5
deemed to be rendered and should in the same month in which the
be taxed accordingly) depends on the output VAT on importation of services
nature of a particular service. Under was recognized (which means that the
the general rule, services rendered company suffers no adverse cash flow
to a VAT taxpayer (or a legal person effect).
not being a VAT taxpayer) occur
where the service recipient is located. Taxes due on imported goods
However, services connected with real Imported goods are always subject
estate are generally taxed where the to import VAT when they cross the
real estate is located, i.e. in Poland. EU border (or in the EU destination
Services connected with real estate country when the goods are
include construction works, services transported under a special customs
of architects and firms providing procedure). This VAT is calculated
on-site supervision and the services based on the customs value of the
of real estate agents and property goods increased by the customs due.
appraisers. It is possible to offset this input VAT
If the place of supply of a particular against output VAT in accordance with
service is Poland, it is possible for the general VAT rules. Typically, in
a foreign construction company to Poland the VAT rate is 23%.
register in Poland as a VAT-payer. Import VAT can be settled without
This implies that the foreign company the need for an upfront cash payment
will itself be liable for Polish VAT. The through the VAT return rather than
recipient of the services can recover being paid directly to the customs
the VAT paid to the service provider office and thereafter reclaimed (this
as input VAT under the general rules. mechanism is sometimes referred to
If services are deemed to be rendered as „postponed accounting for VAT”).
in Poland and the foreign service This rule applies only to importers
supplier does not register and account using the simplified customs
for Polish VAT on his invoice, the procedure.
Polish recipient (in this case the real The regulations concerning imports
estate company) must self-assess the do not apply if goods are transported
VAT due on the basis of the reverse from another EU Member State. Such
charge mechanism. This can then be a transaction is classified as an intra-
declared by the recipient as input Community acquisition and is subject
VAT and be deducted from its output to VAT. The company is obliged to
VAT. Such a deduction may be made self-assess VAT on the acquired goods
at the rate appropriate for them
(usually 23%). At the same time self-
2.5 of the construction works exceeds
assessed tax may be treated as input a certain period of time. Usually
VAT and deducted from output VAT this period is 12 months (unless
in the same month in which it was provided otherwise under a relevant
incurred, provided that the acquirer is tax treaty). If the work is finished
in possession of a purchase invoice or within 12 months, then no permanent
will obtain it within 3 months. establishment has been created. If
the construction period takes longer,
No excise tax is due on typical
then a permanent establishment is
construction equipment and
recognized and the income derived
materials.
from the work is subject to Polish
Taxation of a foreign income tax. It should be remembered
that in such cases the permanent
construction company
establishment is deemed to exist from
In some cases it is not necessary the start of the construction activities
for a foreign construction company in Poland. Standard rates and tax
to do business through a Polish rules are applicable to determine the
company. The construction work can tax due.
be performed in Poland directly by
Please note that if the activities of
the foreign entity. In this case the
a foreign company in Poland extend
question arises as to whether the
significantly beyond a single contract,
foreign company is subject to Polish
the company may be required to set
income tax on the revenues generated
up a branch. Setting up a branch will
from the construction work. Poland
most likely lead to the creation of a
is indeed allowed to tax this income
permanent establishment in Poland.
at a rate of 19% if the activities of
the foreign company constitute a Note that under the Multilateral
permanent establishment in Poland. Convention which was signed by
Poland, Poland excluded the changes
Whether or not the given foreign
to the articles related to permanent
construction company has a
establishment though, including e.g.
permanent establishment is
provisions directly addressing cases
determined by the relevant tax treaty
where the construction works are
which Poland has concluded with the
artificially split into various stages
country in which the foreign company
to avoid permanent establishment
is based. In general, a construction
status. Further developments in this
site becomes a permanent
respect should be closely monitored.
establishment once the duration

2.6
Operation and exploitation
2.6.1. Legal aspects
2.6.1.1. Introduction
According to the Civil Code, parties provisions and limitations, which
of the contract may benefit from the have to be considered by the
principle of freedom of contracts, parties. Among all types of property
which gives them an opportunity exploitation agreements, the below
to modify the statutory types and are the most common for the Polish
provisions of the civil contract. real estate sector.
However, there are some mandatory
2.6.1.2. Lease agreement (najem)

Under the lease agreement the lessor however, there are certain
grants to the lessee the right to restrictions. The lease agreement
occupy premises (office, residential concluded for a period longer than ten
etc.) in exchange for the payment of years, is, after this period, deemed to
rent. In general, everything that can have been concluded for an indefinite
be subject to the ownership right, may period of time. The rule above is
be also subject to this agreement, different for the lease agreements
nevertheless in case of real estate, the concluded between entrepreneurs.
more strict provisions may apply. In this case the lease agreement
concluded for a period longer than
Duration thirty years is deemed to have been
The duration of a lease agreement concluded for an indefinite period of
may be definite or indefinite. As a time after the thirty years’ period has
general rule, commercial agreements passed.
are concluded for definite terms of
Rent
5 to 10 years, with the prolongation
option. Paying rent is the principal obligation
of the lessee. The lessee is obliged to
The duration of a lease agreement
pay rent within the agreed time.
may be freely fixed by the parties,

2.6
Maintenance and expenditures The leased property can be disposed
settlement of during the lease period. In this
case the acquirer becomes a party
The lessor should hand over the to the lease agreement as a lessor
property to the lessee in a condition in place of the seller. The approval
fit for the agreed use. It should be of the lessee is not required. The
maintained by the lessor in this new owner may terminate the lease
condition throughout the lease term. agreement retaining statutory notice
Minor repairs connected with the periods. However, the new owner
normal use of the property should be does not have a right to terminate the
fixed by the lessee, unless the lease lease agreement if it is concluded for
agreement provides for otherwise. If a definite period of time, in written
the subject of lease is destroyed due form with an authenticated date (data
to circumstances for which the lessor pewna) and the subject of lease has
is not responsible, he is not obliged to been delivered to the lessee. If, as a
restore it. If, during the lease period, result of the lease agreement being
the property requires repairs which terminated by the acquirer of the
encumber the lessor, the lessee may leased property, the lessee is forced
set the lessor an appropriate time for to return the leased property earlier
repair. than he would have been obliged to
under the lease agreement, he may
Subletting and disposal of the
demand compensation from the seller.
leased property
Security
The general rule is that the lessee
may hand over the property or part Lessors often use the special clauses
of it to a third party for free of charge in the lease agreements to secure
use or sublet it, if the lease agreement their potential claims to lessees such
does not forbid it. However, when the as money deposit, promissory note,
subject of lease constitutes premises surety and bank guarantee.
or retail areas, hand over the property
• Money deposit - it is a sum
or part of it to a third party for free
of money submitted by the
of charge use or sublet it requires the
lessee in order to secure the
lessor’s consent.

2.6
Special clauses in the
Security Bank
lease agreements: guarantee
Money Promissory
deposit note
lessor’s potential claims in case beneficiary of the guarantee -

of non-fulfillment of the lease the lessor, if the lessee does not
agreement or damages caused by fulfill its obligation. The parties
the lessee. of the lease agreement typically
determine a period that has to
• Promissory note - promissory
elapse from the payment due
note issued by the lessee is an
date and after which the lessor
effective way to protect the
has the right to execute a bank
lessor’s potential claims.
guarantee.
• Surety - in the contract of surety,
the guarantor undertakes to Termination
perform certain obligation of the A lease agreement concluded for
lessee towards the lessor if the an indefinite period of time may be
lessee does not perform them, terminated by any party with a prior
mostly this refers to the payment notice of termination (its length
of due amounts. The liability of is in practice defined in the lease
the guarantor is equivalent, not agreement). The statutory period of
subsidiary. notice of termination for the lease
This means that the lessor may agreement concluded for an indefinite
request a payment from both the period of time is as follows:
lessee and the guarantor. • if the rent is due for a period
• Bank guarantee - it is a unilateral longer than a month - three-
obligation of the guarantor’s month notice applies,;
bank, according to which the • if the rent is due every month -
bank will provide funds to the one- month notice applies,
•
2.6
if the rent is due for a period • the lessee may terminate the
shorter than a month - three-day lease agreement without notice;
notice is sufficient;
• if the lessee does not pay rent
• if the rent is due for one day - the for longer than two full payment
contract can be terminated one periods
day in advance.
• the lessor may terminate the
The lease agreement concluded for lease agreement without notice
a definite period of time may be (in case of lease of premises or
terminated only in cases specified in retail areas, before termination,
the contract. the lessor is obliged to warn the
lessee in writing by giving him an
However, the Civil Code stipulates that
additional one-month period to
the parties can terminate the lease
pay the overdue rent);
agreement immediately if certain
conditions defined by the above • if the lessee uses the leased
Code occur. This applies to contracts premises contrary to the terms of
concluded for both definite and the agreement or their purpose
indefinite period of time: and, despite a warning, does
not cease to do so, or if a lessee
• If the subject of lease has
neglects it to such an extent
defects that make it impossible
that the the leased premises are
to use it in the way defined in
likely to be damaged - the lessor
the lease agreement at the time
may terminate the lease contract
of handover of premises, or if
without notice.
the defects occur later and the
lessor does not, despite receiving
a notice, remove them in an
appropriate time, or if the defects
cannot be removed

2.6
2.6.1.3. Agreement for the lease with the
right to collect profits (dzierżawa)
By a lease with the right to collect two full payment periods and, in the
profits agreement, the lessor commits case of rent paid annually, he defaults
to hand over a subject of lease to the in payment for over three months, the
lessee’s use and collection of profits lessor may terminate the lease with
for a fixed or a non-fixed term. In the right to collect profits without
exchange, the lessee commits to pay notice. However, the lessor should
the agreed rent. The lease agreement warn the lessee by giving the lessee
gives not only the right to use the an additional three- month period to
property but also to collect benefits pay the overdue rent.
from it, which is why the lease with
The lessee is responsible for the
the right to collect profits agreement
costs of all repairs to the extent
usually concerns land.
necessary to keep the subject of
The duration of a agreement may lease with the right to collect profits
be definite or indefinite. However, in the same condition. However, the
the agreement for a period longer parties are able to modify this rule
than one year should be concluded in in the lease with the right to collect
writing, otherwise it is considered to profits agreement. There are also
be concluded for an indefinite term. some differences between a lease
Agreement executed for a longer agreement and a lease with the right
period than thirty years is deemed to to collect profits agreement in the
be concluded for a non-fixed term, field of subletting a property. The
after this period passes. lessee cannot sublet the property
without the lessor’s consent. If the
Under the Civil Code, if the rent
above obligation is violated, the lessor
payment period is not specified in the
may terminate the lease with the right
contract, rent is payable in arrears
to collect profits agreement without
on the date customarily accepted,
notice.
and in the absence of such custom,
semiannually in arrears. If the lessee
defaults in payment of rent for at least

2.6
Income subject to tax The costs are deductible if they were

incurred for the purpose of revenue
Taxable income comprises the entire earning or maintaining/securing the
income generated from business source of revenue. For the exploitation
activities (trade or services). of real estate, the most important
Taxable income is calculated on costs, such as interest payments, the
the basis of accounting records costs of exploitation and maintenance
prepared in accordance with Polish and depreciation write-offs are
accounting standards after significant considered tax deductible. Polish
adjustments relating to the tax base. tax rules specifically exclude certain
Taxable income is as a rule recognized expenses from tax deductible costs.
for tax purposes on an accrual basis. For example, doubtful receivables
The applicable tax rate is 19%. can only be deducted under very
strict conditions. Also business
Calculation of taxable income
entertainment expenses (e.g. the
Taxable revenues minus tax deductible costs of representation) are non-
costs constitute the tax assessment deductible.
base.
Minimum levy
From 1 January 2018 Poland
introduced separate income basket Commercial property (malls, office
for capital gains and disallowing the buildings) of initial value exceeding
offsetting of capital gains or losses PLN 10m are subject to taxation;
against other sources of income. This the tax base amounts to 0.035%
mean that any qualifying capital gain per month (approx. 0.42% annually)
could be offset only against costs of initial tax value of the building,
allocated to capital gain basket. It decreased by PLN 10m. There is an
will be required to keep accounting exception for office buildings used
records specifying revenues and costs solely or mainly for own purposes of
for tax purposes, broken down by two the taxpayer. The tax is creditable
types of sources (capital gains and against CIT.
other sources). If it is not possible to
Limitations in deductibility of
assign expenses to a particular source
of income, expenses are divided intangible service costs
proportionately. From 2018 fees for certain intangible

services and royalties exceeding in
2.6 Example:
total 5% of the adjusted tax base (tax
Year 0 1 2 3 4 5 6
EBITDA) are not tax deductible (with a
safe harbor of PLN 3m). (Loss)/
(100) 60 10 10 20 5 20
profit
The limit applies to such services
Loss
as: advisory, market research, - 50 10 10 20 5 -
utilised
advertising, management, data
Carry
processing, insurance, providing forward
- 50 40 30 10 0 -
guarantees and other similar services Effective
- 10 0 0 0 0 20
as well as payments for the use of tax base
licenses, trademarks and certain other Total loss effectively carried forward: 95,
rights made directly or indirectly to unutilized loss: 5.
related parties.
Tax losses cannot be carried forward
There are exceptions for payments
following certain legal transactions
being direct costs of goods/services
involving the company (e.g. mergers
sold as well for the re-invoiced
where the losses pertain to entities
expenses.
which no longer exist after the
The new regulations provide for a merger). There is no tax loss carry
carry forward mechanism of 5 years back. As a rule, the losses incurred
for non-deducted costs. i.e. such costs in the past should be settled based
may be potentially deducted for the on the rules in place before 2018,
next 5 years within the applicable however there are some doubts
EBITDA limits. as to how this general rule will be
interpreted in practice due to the
Note that the above restrictions would
introduction of income baskets. On-
not apply to transactions for which
going practice in this respect should
a taxpayer obtains an APA with the
be monitored.
Polish Ministry of Finance.
Loss carry forward rules Depreciation rate for real

estate
Polish legislation provides for
carrying forward tax losses over five The standard depreciation rate for
consecutive tax years following the most new buildings for tax purposes
year when the loss was incurred. The is 2.5% per year. Hence, the costs of
amount which can be utilized in any of real estate investment are generally
these five years cannot exceed 50% of deducted over a period of 40 years.
the total loss, however. Newly acquired buildings, used
2.6
previously by a former owner, can be building materials, designs, interest
depreciated for tax purposes during and foreign exchange differences
the period equal to the difference accrued during the construction
between 40 years and the number period, commission and potentially
of years that have passed since the non-recoverable input VAT related to
building was put into use for the first the building incurred before it was put
time (that period cannot be shorter into use. As the value of the land is
than 10 years). Land is not subject to not subject to depreciation, it is then
tax depreciation. important to determine the value of
the land and the value of the building
If residential buildings constitute fixed
separately.
assets used for business purposes
(e.g. if they are leased) they are VAT implications of renting
depreciated at a rate of 1.5% per year.
out real estate
Under certain circumstances it may
Rental income is subject to 23% VAT.
be worth carrying out a cost split
This VAT is added to the rent due and
analysis of investment expenditures
is payable by the lessee to the lessor.
prior to putting a building into use.
If the lessee is a regular VAT payer, he
This is because some machinery
can deduct the VAT paid in the rent
may - under specific regulations -
invoice from his output VAT liability
be excluded from the value of the
resulting from taxable activities.
building and be treated as separate
fixed assets depreciated at higher If the lessee performs VAT exempt
rates (4.5% - 20% per year). This could business activities, the input VAT on
lead to significant tax savings as the the rent is irrecoverable. For example,
costs incurred could be deducted the activities of banks, financial
over a shorter period of time. A cost institutions and insurance companies
split analysis should be also possible are exempt from VAT.
in case of the purchase of an already
If the lessee performs exempt
developed building.
activities, as well as taxable activities,
Calculation of the depreciation then the input VAT on the rent can be
deducted proportionately on the pro
base
rata basis computed for a given year.
The depreciation base consists of
Beginning of 1 January 2016
all costs incurred in making the
preliminary pro rata must also be
investment: construction costs,
taken into account, which might

result in limited recovery of input VAT
2.6 Local authorities may differentiate
related both to economic activity and between tax rates for different types
non-business activities. of activities or locations and grant
exemptions for certain types of real
Rental of residential units for housing
estate.
(but not the rental of residential units
for the purposes other than housing)
is VAT exempt.
Real estate tax

Real estate tax is charged to
the owner (or in some cases the
holder) of the land or buildings
and infrastructure which are used
for business activities. The local
authorities set the real estate tax
rates and collect the taxes. However,
in 2018 local authorities are bound by
the following maximum PLN annual
tax rates:
• for land, PLN 0.91 per m2 of

land;
• for buildings, PLN 23.10, per

m2 of the usable surface of a
building;
• for infrastructure (e.g. roads,

pipelines), 2% of the value of
the infrastructure calculated
according to specific regulations
(initial value determined for the
purposes of tax depreciation).

2.7
Exiting the investment
The investor’s choice of exit strategy which exit strategy to choose, and
will be predominantly tax driven, and should be given proper consideration,
it is important at The outset of the so that the investor’s position on exit
investment process to have a clear will be as strong as possible.
idea of the possible exit mechanics.
Generally, the exit may be structured
The due diligence findings made as an asset or share deal. The legal
during the acquisition phase are likely and tax consequences of both are
to bear relevance to the question of presented in section 2.4.
Legal aspects
2.8
Sale and lease back
choosing such a solution shall be

made on detailed calculation of all
A sale and lease back transaction
the costs related, including the lease
consists of two stages. The first
costs.
stage assumes selling the target
real property by the seller to the Tax implications
purchaser. In the next stage the seller
If a sale and lease-back transaction
concludes the agreement on the
is structured as an operational lease,
lease of the real property from the
the buyer / lessor is in most cases the
purchaser. As a result of the sale, the
owner, and will be able to depreciate
owner (or perpetual usufructuary)
the value of the investment at the
of the real estate changes. However,
standard depreciation rate of 2.5%.
due to leasing the real property back,
Accelerated depreciation for used
the real estate remains under the
buildings can be considered in some
operational control of the original
cases. Other costs related to the
party (the seller).
maintenance and exploitation of the
From the legal perspective it is building are tax- deductible for the
important to secure the sellers’ lessor.
interest already in the first stage
If, under a sale and lease-back
of the transaction, i.e. to establish
contract, the real estate asset which
the obligation of the purchaser to
is the subject of the contract is sold
lease the real property back in the
at a higher price than its net book
agreement on the sale of the real
value, a taxable capital gain will occur.
property.
Under Polish legislation, it is not
It is also important for both parties to possible to defer the taxation of such
agree details of the lease (duration, a capital gain in order to use it for
price, etc.) as soon as possible, reinvestment.
especially if the seller and the
A sale and lease-back arrangement
purchaser do not belong to the same
has an advantage for the seller /
capital group.
lessee that the lease payments are
The main advantage of such a sale fully tax deductible as costs incurred
and lease back operation is the for the purpose of earning revenue.
release of the seller’s capital as By contrast, for the borrower
a consequence of the sale of the party to a normal direct financing
real property. This capital may be arrangement, only the interest
thereafter used e.g. for investment payments made on the loan are tax-
purposes. However, the decision on deductible.
2.8
The repayment of capital is not a The main purpose of the due diligence
tax- triggering event. Under a direct process is to provide investors with
financing arrangement secured by a complex overview of the situation
a mortgage, the debtor would still of the real estate being the subject
be the owner of the real estate. As of the acquisition from the legal,
such, the debtor would be unable financial and tax perspective.
to depreciate the value of the land. Taking into account the specific
Under a lease contract, the lease status and features of a given real
payments are partly a compensation estate, a broader due diligence
for the use of the land. Therefore, review, conducted by technical and
payments for the use of the land are environmental experts, may be
tax-deductible for the benefit of the recommended.
lessee.
2.9
Due diligence as part of the
acquisition process
2.9.1. Legal due diligence

The due diligence process is all In practice, within the due diligence
about mitigating investment risks. regarding the real estate the investor
In practice, the legal due diligence should:
review consists in gathering
verify basic information on the real estate
information and should provide
(location, area, construction, legal title etc.)
the potential investor with a
comprehensive view of the legal examine compliance with laws and
issues regarding the real property he effectiveness of acquiring a legal title to the
considers acquiring. real estate,
examine restrictions with the disposal of real
By the end of the due diligence
estate,
process, the investor should have a
fair idea of whether the real estate is examine the necessity of acquiring third
parties’ / administrative bodies’ corporate
worth investing time and money. In
approvals for acquiring a real estate,
this regard, a due diligence should be
as comprehensive as possible. examine the collaterals established on the
real estate,
The scope of the legal due diligence
examine the third-party rights to the real
will depend on the structure of the
estate,
deal. In a share deal, the scope of the
verify the permissible use of the real estate,
due diligence will generally be wider
than that required for an asset deal, verify the construction of the real estate
as it needs to cover all the aspects in order to obtain required permits and
related to the activity of the company. approvals
In case of an asset deal mostly the verify the access of the real estate to the
legal status of the real estate should public road,
be taken into consideration and analyze the responsibility of the buyer for
examined carefully. the pollution of the real state
Within the legal due diligence, the verify the amount of public burdens related
review bases mainly on data and to the real estate and lack of arrears with
information provided by the seller and this regards
on enquiries and discussions with the examine the potential claims to the real
seller and/or the management of the estate
target. Additionally, publicly available
sources (such as data in court
registers) are explored.
Review of other aspects is usually
2.9 Within the review of the local spatial
agreed with the seller and strictly development plan, in particular, the
depends on the type of transaction issues of the conservation and historic
(share or asset deal). preservation zones and agricultural
land should be verified.
The aim of the legal due diligence
review of the real estate is to identify Conservations and historic
areas of investment risks but also
preservation zone
other specific legal aspects regarding
performing of business activity on The zoning master plan may provide
the real estate and its sale. Below we that the area where the real estate
present certain issues that need to subject to the potential investor’s
be analyzed during the due diligence interest is located falls within a
process and which may influence conservation and historic preservation
the structure of the transaction, or zone where some specific rules apply
even a decision on entering into the in order to protect the historical
transaction. monuments located in the zone.
Depending on the type of the real
Local Spatial Development estate and its historical status there
Plan may be additional requirements
and limitations established by the
Development of an investment on the
provisions of law.
real estate is possible provided that
buildings, plants and other industrial Revitalization
facilities comply with the relevant
local spatial development plan for a The Revitalization Act entered
given area. Therefore, it is essential into force at the end of 2015.
to establish during the due diligence Under the act, revitalization is the
process whether there is a local local comprehensive process of rescuing
spatial development plan covering degraded areas from crisis through
the area where the targeted real integrated actions for the benefit
estate is located and if so, what are of the local community, space and
the conditions of this local spatial economy. A degraded area is a terrain
development plan in order to confirm in which there is a concentration of
whether it will be possible to perform negative social phenomena as well
the planned investment. Please refer as, for example, degradation of the
to the section 2.5.1. for more detailed technical condition of buildings, a low
information regarding the local spatial level of transit service, and poorly
development plan. adapted urban planning solutions.

Under the new legislation, it
2.9 an administrative decision from the
is necessary for the commune relevant authority.
authorities to pass local government
It should be noted that after exclusion
law in the form of a resolution in
of the area from agricultural activity
establishing a revitalization zone or a
an annual fee has to be paid for ten
special revitalization zone.
years (see comments below).
It should be noted that the
An investor considering acquisition
Revitalization Act added new cases,
of agricultural real estate should also
when a commune may exercise
bear in mind existing restrictions
the right to pre-emption of real
relating to purchase of an agricultural
estate, i.e. in case of transactions
land. Regulations in force provide for
the subject of which is a real estate
many specific legal restrictions and
located within a revitalization area or
limitations and new legislation are to
special revitalization zone. In case of
further restrain entities other than
considered acquisition of real estate
individual farmers from purchasing
located in one of those plans, an
an agricultural real estate (please see
investor should bear in mind the pre-
comments in section 2.4.2).
emption right of a commune.
Restitutions claims
Agricultural land
Under the nationalization laws passed
The local spatial development plan
in Poland after the Second World War,
may provide that the real estate is
many real properties and functioning
assigned for agricultural activity.
enterprises (including their real
As a rule, the development of real
estate assets) were „nationalized” (or
estate designated for agricultural
„communalized”). However, currently,
use requires a special procedure
there are no specific reprivatisation
involving the modification of the local
laws in force in Poland to deal with the
spatial development plan. Such a
restitution matters and claims. As a
procedure may be time-consuming
result, the legal status of nationalized
and is connected with the risk of third
properties is quite often subject to
parties challenging the proposed
uncertainty. Under specific conditions,
changes to the plan. Additionally, real
former owners or their successors
estate classified as agricultural land
may apply to civil courts and initiate
in the Land and Building Register,
proceedings aimed at the restitution
but not covered by the master
of such real estate. As the current
plan, should be also excluded from
owner benefits from the land and
agricultural production by obtaining
mortgage register’s public credibility
warranty, the outcome of such claim
2.9 estate nationalized under the Warsaw
will primarily depend on the apparent decree or transferring claims for
good faith of the current and previous reestablishing the rights for such.
owner at the time they acquired the
According to the new act, in case
property. Nevertheless, this issue
when the real estate in Warsaw is e.g.
needs to be subject to analysis during
assigned or used for public purposes,
the due diligence.
the Capital City of Warsaw may refuse
In Warsaw, on the basis of the special to establish the right of perpetual
„Warsaw decree” on land ownership usufruct to a previous owner of this
of 1945, the City of Warsaw gained real estate.
ownership rights to the major part
of real estate in the city. However, A new provision is granting
subject to specific conditions, the State
former owners of the real estate
Treasury and the Capital City of
were granted the right to apply for
Warsaw right of pre-emption in the
obtaining usufruct rights to real estate
event of the sale of rights and claims
or compensation. Currently, such
arising from the Warsaw decree
applications which were not resolved
and claims for the establishment of
or were resolved in contravention
perpetual usufruct to the previous
of the law may be the base for
owner of real estate located in
successful claims for reestablishing
Warsaw. The pre-emption right also
the rights of the previous owners or
applies in case of sale of perpetual
their successors. In consequence, it
usufruct right established by the way
is essential during the due diligence
of satisfying rights and claims arising
to investigate whether any such
from the Warsaw decree.
proceedings are pending with respect
to the target property located in As a result, the new regulation should
Warsaw. be taken into consideration during
the investment process. Currently,
After the judgement of the
the government is working on
Constitutional Tribunal dated 19 July
the reprivatisation act. According
2016, the Act on amendment of the
to the already published draft,
Act on Property Management and
the land and the buildings will no
the Family and Guardianship Code
longer be returned in kind. Instead,
came into force on 17 September
compensation in the amount between
2016. This act provides limitations
20-25 % of the value of the property
of restitution of ownership of real
will be granted, however these

2.9
will most likely be paid out in the forestry land or an agricultural land
reprivatisation vouchers and bonds. is reclassified in the local spatial
development plan into public roads, its
Fees - holding the real estate value usually increases. In such cases
the zoning fee („Renta Planistyczna”)
Zoning fee
may be established as a percentage
Zoning fee („Opłata Adiacencka”) is a (not higher than 30%) of the increase
charge which may occur with regard in value of the land calculated as at
to the increase of the value of the real the date of the transfer of the given
property resulting from: real estate.
• division of the property; The percentage for calculation of
the zoning fee should be provided
• the construction of infrastructure
for in the local spatial development
with the use of public funds
plan. The zoning fee is payable by the
(placing water pipes, sewage
vendor in the case of a transfer of the
pipes, heating systems, electricity
property within 5 years from the day
gas and telecommunications
when the local spatial development
facilities).
plan came into force.
The amount of the fee depends
on the amount of the increase in Exclusion from agricultural
the property’s value and is usually production fee
established based on an opinion of
Entrepreneurs are often interested
an independent expert determining
in changing the purpose of use of
how much the value of property has
the agricultural and forest land in
increased by.
order to develop the land and realize
The amount of fee shall not be an investment. Exclusion from
higher than 50% (with respect to agricultural production is subject
the division following a merger and to an initial fee and subsequent
the construction of infrastructure annual payments. The value of such
with the use of public funds) and not payments depends on the:
higher than 30% (with respect to a
• area of the land subject to
division) of the increase in value of
exclusion;
the property.
• quality of the land (class of soil);
Additionally, adoption of the local
spatial development plan may • market value of the land subject
also lead to an increase in real to exclusion.
estate market value, e.g. when a
It should be noted that if the land
2.9 the following branches of industry:
excluded from agricultural production metallurgy and steel industry, the
is sold, the obligation to pay the mineral industry and the chemical
annual fees passes to the purchaser. industry.
Environmental issues Besides, it is important to take into

account the permissible level of noise.
Introduction Permission is required only if the
noise level exceeds the noise limits,
Polish environmental law affects the
which should be evaluated taking into
conduct of economic activity for most
account the provisions of the local
business entities. One of the most
plan.
important requirements imposed
by the environmental law is the Liability for contaminated land
requirement to obtain permits related
to the rules of having an impact Under the Polish law there are two
upon the environment. It is usually regimes of liability for land (soil)
examined during the due diligence contamination, depending on the
whether the seller (or the target period from which the contamination
company) fulfills the environmental originates (with the border line
law requirements. being 30 April 2007). A current
holder (in particular owner or
Permit requirements perpetual usufructuary), revealed in
the Land Register, is liable for soil
Environmental permits can be
contamination which occurred prior to
basically divided into two groups. The
30 April 2007 or may be attributed to
first one includes permission obtained
activity completed prior to that date,
in the course of the investment
even if such holder did not actually
process and the second group
cause the contamination.
includes permission related to the use
of the property. Parties to the sale agreement cannot
contractually exclude the above
In certain circumstances Polish
mentioned administrative liability
environmental law imposes an
of the purchaser for clean-up of
obligation to obtain an integrated
contaminated land so when a potential
permit, which includes a number of
investor intends to buy a property
permits governing the use of the
(especially one that was used for
environment. The obligation to obtain
industrial purposes) a detailed study
integrated permit relates to, inter alia,
on pollution of the land is required.

2.9
To secure purchaser’s interest, the operate and use the environment) is
seller of contaminated land may agree liable for any such damage.
to reimburse the purchaser with
expenditures borne for the clean-up. Environmental impact
assessment
The situation is different for „new”
land contamination, i.e. any soil According to the section 2.5.1 where
damage, which occurred after 30 the environmental decision and
April 2007 or could be attributed to environmental impact assessment
an activity completed after that date. where described, in some cases -
An entity using the environment (i.e. especially for large investments an
an entity who has relevant permits to environmental impact assessment
proceeding may be required.
2.9.2. Financial due diligence

Not many investors perform due indicate how the acquired assets will
diligence when completing a real affect metrics such as revenue and
estate transaction. Often the net operating income. In addition,
investor’s own internal procedures due diligence is able to discover
require due diligence to determine unforeseen problems such as
whether or not the transaction is in discrepancies between the amount
the best interest of the investor. paid for rent as described in lease
agreements vs. the actual amount
Although for transactions of a smaller
being paid per the accounting books.
scale this may not be a good way
to evaluate a deal, most investors A buyer usually makes use of financial
understand the value of expert due diligence to assist in identifying
outsourced financial due diligence major issues concerning a transaction:
services. This rings especially true
• the value of the property’s NOI
when taking into account larger
taking into account the existing
time¬sensitive transactions (auction
lease portfolio
processes for example).
• any provisions in the lease that
Although some investors choose to
affect the NOI adversely (for
forego due diligence when acquiring
example, discounts on rent for
new assets, they should understand
any given period of time or for
that financial due diligence can
improvements made by lessee)?
• bookkeeping in use being
2.9 their influence on profitability
adequate for the business, and cash flow;
and how does it looks next to
• evaluating critical problems
the investor’s bookkeeping
influencing earnings position;
procedures
• recognition of the need for cost
• lessee ever being late with the
recharges incurred and focus
rent, or it taking longer to collect
on areas for improvement;
rent;
recognizing the „normal” working
• charges made by the lessee being capital and cash flow tides of the
enough to cover the costs of business and probable funding
maintaining the building; and any needs down the line;
service charges not settled for
• making sure constructions costs
any reason
are properly reflected in the
Analyzing financial issues bookkeeping records;
The items listed below should be • recognizing the net asset base
considered when seeking to resolve for acquisition; addressing
the previously mentioned issues possible balance sheet valuation
concerning financial due diligence: discrepancies; making sure
everything has been adequately
• the financial figures being viable: addressed in evaluating the
can the figures be traced back to underlying earnings;
its origin reliably;
• comparing the rent roll against
• critical bookkeeping procedures the rental agreements and
being applied consistently and bookkeeping records;
appropriately; the influence of
the bookkeeping procedures on • comparing the service charges
the financial figures; incurred against the bookkeeping
records; and
• assuring that the creation and
level of management information • going over rental agreements to
is accurate and adequate for the identify balance sheet liabilities.
business being considered;
• evaluating the contractual

obligations the business has and

2.9
2.9.3. Tax due diligence
Tax due diligence, in general, such tax arrears. Performing a tax due
focuses on assessing material tax diligence review is thus a way to limit
risks pertaining to assets or shares or exclude such liability.
by reviewing the tax position of
This liability is in practice of a
the target company. By identifying
‚subordinated’ nature, as even if a
tax risks during due diligence
formal decision declaring that the
conducted before the transaction,
acquirer is liable for the seller’s tax
the investor may seek protection or
arrears is issued, the claim against
indemnification from the seller.
the acquirer may crystallize only if
From a tax perspective, it is also the enforcement procedure against
important to ensure that the the seller is ineffective (and tax claims
appropriate tax structure is used, against the seller are not satisfied).
which usually involves a pre-
According to the tax regulations the
transaction study and the preparation
acquirer (with the seller’s consent)
of the transaction structure in
or the seller may submit to the tax
accordance with the Polish and
authorities a formal request for a
international tax regulations. In
certificate which lists all the tax
addition, it can also include an
liabilities which are transferable to
assessment of the tax implications of
the acquirer. The acquirer is then
a future exit scenario.
liable only up to the value of the tax
Acquisition of assets liabilities presented in the certificate.
In the case of an asset deal deemed In the case of a sale of single assets
to be the acquisition of business as (not constituting a going concern
a going concern or a viable part of or an organized part thereof), the
that business (organized part of an acquirer should not be liable for
enterprise), the acquirer may be held the outstanding tax arrears of the
liable for the outstanding tax liabilities seller. However, if the transaction
of the seller. This liability should be is reclassified into a sale of a going
excluded if the acquirer could not concern, the buyer might then be held
have become aware of the seller’s liable for the seller’s undisclosed tax
tax arrears despite acting with due liabilities.
diligence in attempting to identify

Acquisition of shares
2.9 any tax liabilities assumed, full due
diligence is usually conducted.
In the case of a share deal, all the
potential outstanding liabilities The tax due diligence in case of a
that are not statue barred remain share deal usually covers the following
with the acquired company. As a areas:
consequence, the acquirer faces the
• review of tax returns for periods
possibility of incurring an economic
previously filed and review of
loss on the transaction if undisclosed
tax calculations for periods that
tax liabilities become apparent
are not yet filed with the tax
afterwards. Tax due diligence is
authorities;
therefore conducted to allow the
acquirer to assess and minimize this • review of the results of past tax
risk. audits to detect tax risks for
periods that are still open for tax
Generally, the period of limitation for
audits by the tax authorities;
tax liabilities is 5 tax years following
the year in which the tax is payable. • review of any obtained tax
In practice this means that from the rulings;
perspective of 2018 there is still a tax • review of any losses carried
risk in relation specifically to a target’s forward, tax credits and special
corporate income tax payments tax privileges to identify related
for 2012-2017, and to other tax tax risks for unaudited periods
liabilities, in general, for 2013-2017. and to assess whether such tax
benefits will be available post
Tax issues analyzed
transaction;
The scope of a tax due diligence
• review of withholding tax
review depends on the structure of
procedures and exemptions
the planned transaction.
available;
In the case of an asset deal, the
• review of significant historical
scope of due diligence depends on
reorganizations and one-off
the subject of the transaction and the
transactions and their impact on
extent to which the acquirer may be
the tax accounts;
liable for the seller’s tax liabilities.
• review of intercompany
In the case of a share deal, as the
transactions and present transfer
acquirer faces the full impact of
pricing policy in the company;

2.9
as well as an examination of areas on the tax accounts;
typical for a real estate company, such
• treatment of the investment
as:
costs incurred by lessees
• the existing debt financing (leasehold improvements) when
structure (e.g. debt push down the lease expires;
schemes), thin capitalization and
• tax recognition of management
other pending restrictions on
charges payable by special
the tax deductibility of interest
purpose vehicles to servicing
payments on the debt;
companies within the group;
• any large differences between
• any step-up in the value of the
book and tax basis of assets,
real estate performed; review
analysis of the deferred tax
of input VAT refunds in the
calculations, in particular
investment phase;
identification of any deferred tax
liability, e.g. from accrued foreign • policies for real estate tax.
exchange gains;
A review of the sale and purchase
• rules for capital expenditure agreement (SPA) for the acquisition of
recognition and the impact of a real estate target usually covers the
foreign exchange differences on following tax points:
the initial value of fixed assets for
• review of the tax definitions
tax depreciation purposes;
in the SPA, and of the tax
• policies for the tax depreciation representations and warranties;
of assets, including a review of
• review of the tax indemnity
cost segregation schemes;
clauses in the SPA; and
• cash incentives offered to
• analysis of the SPA from the
lessees such as a rent free period
perspective of other protection
or step-up rent and their impact
available against tax exposures.

2.9
2.9.4. The use of due diligence results when
negotiating
After the whole process of due to complete the transaction, and
diligence, the investor gets a general if so, in what form. Due diligence
financial and tax risk overview, which investigations let the buyer’s legal
makes up the origin of the information team construct the conditions of the
for negotiations with the seller and deal so that the buyer is afforded with
assists in adjusting the financial model an adequate amount of comfort and
for valuation. protection. The legal team will then
be in a position to address specific
This can be used to get a decrease
problems by asking for further
in price in order to alleviate possible
explanations and/or promises or
tax liabilities and can be used when
warranties from the seller. The legal
writing warranties and damages in the
team can also evaluate whether or not
SPA.
such promises or warranties need to
The results may directly affect the be covered by an indemnity clause or
structure of the transaction, for other legal language allowed under
example, transforming an asset deal the Polish law.
into a share deal or the other way
When taken together, the financial,
round; they may also be used for post-
tax and legal due diligence results
acquisition tax planning.
are a very strong tool which can
Along with the tax and financial very easily have an influence on the
due diligence results, the legal due final result of negotiations, and, in
diligence review should assist the particular, how much the buyer will
buyer in determining whether or not ultimately pay.

3
Accounting
and auditing
3.1
Introduction to the accounting framework
in Poland
Polish accounting is regulated by the Accounting Act as of 29 September

1994 (the Accounting Act). The Minister of Finance has also issued several
regulations which cover specific accounting areas, such as: financial
instruments, consolidation, accounting principles for banks, insurance
companies, investment funds and pension funds. Since 1994, the Accounting
Act has undergone significant changes to bring Polish accounting regulations
closer to the International Financial Reporting Standards (IFRS). However,
the differences between the Accounting Act and IFRS, mainly following IFRS
developments in the last decade, continue to exist. The following information
applies to financial statements prepared for the periods beginning on or after 1
January 2018.
In order to help implement the Accounting Act, the Polish Accounting Standards
Committee (‘the Committee’) prepares and issues National Accounting
Standards (KSR). As of 1 January 2018, eleven National Accounting Standards
had been issued in regard to different topics including cash flow statement,
leasing, fixed assets and impairment of assets, concession accounting, income
tax, recognition and presentation of changes in accounting policy, estimates
and correction of errors, and post balance sheet events.
The Committee has also issued several position papers (not referred to as
standards) in regard to e.g. accounting for emission rights, inventory count,
inventory valuation, green certificates, financial statements of housing
cooperatives and some aspects of bookkeeping. In the areas not regulated by
the Accounting Act or National Accounting Standards, reference may be made
to IFRSs. National Accounting Standards and the Committee’s position papers
are available on the website of the Ministry of Finance.

3.1
Introduction to the accounting framework
in Poland
The Accounting Act permits or requires applying the accounting principles of

some Polish entities to apply IFRS, as the Accounting Act. Those regulations
adopted by the EU, as their primary are summarised in the following table:
basis of accounting, rather than
Standalone Consolidated
financial financial
statements statements
1. Entities listed on a regulated market in

Poland or other European Economic Area Choice Required
(EEA) country.
2. Banks (other than those included in points
Not permitted Required
1, 3, 4 and 5).
3. Entities planning to apply or applying for
a permission to list on regulated market in
Choice Choice
Poland or other European Economic Area
(EEA) country.
4. Entities that are part of a group where
the parent prepares consolidated financial
Choice Choice
statements for statutory purposes in
accordance with IFRS as adopted by EU.
5. Branches of a foreign entrepreneurs that
prepare separate financial statements for
Choice n/a
statutory purposes in accordance with
IFRS as adopted by EU.
6. Other entities Not permitted Not permitted

3.2
Accounting records
The provisions of the Accounting • Rules for keeping subsidiary

Act and related regulations are ledgers and their link to general
applicable to, among others, ledger accounts.
companies and partnerships that
It should be noted that the violation of
have their registered office or place
the Accounting Act requirements by
of management in Poland. For those
a person responsible for drawing up
entities that apply IFRS as the primary
the financial statements (usually the
basis of accounting instead of Polish
Management Board and Supervisory
principles, the following sections of
Board) may be recognised as a
the Accounting Act still apply:
criminal offence, which is punishable
• Chapter 2 on bookkeeping by imprisonment for a term not
exceeding two years, by a fine, or
• Chapter 3 on inventory count
both.
• Chapter 6A on report on
payments made to government
The regulations, summarised in
• Chapter 7 on auditing, filing
with the appropriate court Chapters 3.3.- 3.5 below, apply to
register, providing access to all entities in general. Certain types
and publication of financial of entities such as banks, insurers,
statements or investments funds might be
governed by specific regulations
• Chapter 8 on data protection
in relation to the measurement
• Chapter 9 on criminal liability and impairment of assets (such as
• Chapter 10 on special and financial instruments) or financial
interim provisions, and statements.
• Article 49 in regard to directors’

report.
• Each entity is obliged to maintain

its accounting books and
other documentation which, in
particular, comprises:
• A description of the entity’s

accounting principles

3.3
Financial statements
Financial statements must be for the investment funds and

prepared in the Polish language and alternative investment companies.
expressed in the Polish currency.
The format of the balance sheet,
Financial statements consist of:
income statement, statement of
• A balance sheet cash flows, statement of changes in
equity, and the contents of notes to
• An income statement
the financial statements for entities
• A statement of cash flows preparing their financial statements
in accordance with Polish GAAP are
• A statement of changes in equity
determined by the Accounting Act.
• Notes to the financial statements Companies listed on the Warsaw
(split into an introduction and Stock Exchange, when preparing the
additional notes). financial statements in accordance
with Polish GAAP, are guided by
• A cash flow statement and a
specific regulations for public issuers.
statement of changes in equity
This includes reconciliation between
are only required by entities
the results reported in accordance
whose financial statements are
with Polish accounting principles and
subject to a statutory audit.
those that would have been met if
For some specialised types of entities IFRS, as adopted by the EU, had been
additional exceptions or requirements applied.
might apply in relation to primary
financial statements such as, for
example, a summary of investments
3.4
Financial reporting, publication and audit
requirements
Financial reporting review by management - the

management report (the Director’s
All entities governed by the
report). The scope of the report
Accounting Act are obliged to prepare
is defined in legal regulations and
their standalone and consolidated
includes topics such as:
financial statements (the latter ones
only if criteria apply) for each financial • Description of events that
year. The financial year doesn’t significantly impact upon the
have to be the calendar year. Listed entity’s performance and that
companies are additionally obliged occurred during the reported
to publish semi-annual and quarterly period and after its closing
reports. An entity must also prepare date, till the date the financial
financial statements as of the date of statements are approved
the close of accounting records, and
• Predicted development of the
as a result of other events leading to
entity
the termination of the activities of
an entity, for example, the close of • Major achievements in the
business (liquidation date). research and development area
The standalone and consolidated • Actual and planned financial

financial statements should be situation, including financial
prepared within three months after ratios
the balance sheet date and approved • Details about transactions in own
within six months after the balance shares
sheet date.
• Information on branches
Directors’ report (business units)
Specific entities such as, for example, • Financial risk management

joint-stock companies, limited liability objectives and methods
companies, selected partnerships, • Key financial and nonfinancial
mutual insurance companies, co- efficiency metrics in relations to
operatives, state-owned companies, operations, as well as information
investment funds and investment on employment and natural
companies prepare, in addition to environment
the financial statements, a financial

3.4
• Information on the application of • Shareholders’ resolution on
corporate governance rules (only the approval of the financial
public companies). statements and distribution of
profit or coverage of loss
Statement of non-financial
• Directors’ report (if applicable)
information
• The report on payments to
The listed entities that exceed the
the public administration (if
given thresholds are also required
applicable).
to present a statement and a
consolidated statement of non- If not approved within 6 months after
financial information. This statement balance sheet date, additional filling
includes among others: is required from the entities which
have not managed to approve their
• Description of the business
financial statements in the prescribed
model;
dates.
• Key non-financial performance
Listed companies are also required to
ratios;
file their financial statements with the
• Description of social, Polish Financial Supervision Authority
environment, human rights and including interim (quarterly and semi-
anti-corruption policies, the annual) reporting.
associated risks and the effects
of application of those policies. Audit requirements
• That statement may be published Polish statutory audit requirements
on the entity’s web pages. apply to all annual consolidated
financial statements and to the annual
Publication requirements standalone financial statements of the
following entities that operate as a
Management is required to file the
going concern:
annual financial statements to the
registration court together with the • Banks, insurance companies,
following documents: reinsurance companies, pension
funds, investment funds
• Auditor’s opinion, if the
(including alternative, closed,
statements were subject to an
open and specialised funds),
audit
investment fund management

3.4
companies, joint-stock companies All statutory IFRS financial statements
and public companies, payment are subject to audit requirements.
institutions, brokerage houses
There are also additional
and firms
requirements in relation to audit or
• Other entities that meet at review of interim financial statements
least two of the following three of public companies and investment
thresholds in the financial year funds.
preceding the financial year for
Audits are governed by the relevant
which the financial statements
legal requirements in force which
were drawn up:
include:
• Annual average employment
• Chapter 7 of the Accounting Act
(equivalent of 50 individuals
employed full-time) • Auditors Act
• Total assets of at the end of the • National auditing standards

financial year (the PLN equivalent issued by the National Council of
of EUR2.5 million or greater) Statutory Auditors
• Net sales including financial • Regulation (EU) No 537/2014 of

income for the financial year (the the European Parliament on the
PLN equivalent of EUR5 million council on specific requirements
or greater regarding statutory audit of
public-interest entities.
The statutory audit requirements also
apply to entities after merger for the
year when the merger occurred.

3.5
Consolidation
Consolidation requirements • total revenue of all group entities

- PLN64 million are exempted
A capital group is a group which
from drawing up the consolidated
comprises a holding company and its
financial statements.
subsidiaries.
A subsidiary is excluded from
According to the Accounting Act, a
consolidation if:
holding company is a company that
controls another entity. • The shares in such entity were
acquired, purchased or otherwise
A capital group draws up its
obtained for the sole purpose
consolidated financial statements
of subsequent resale within one
on the basis of standalone financial
year from the date of acquisition
statements of entities that belong
to the group. Groups which, in the • There are severe long term
preceding and current financial years, restrictions on the exercise of
did not exceed at least two out of control over the entity which
three of the following thresholds prevent free disposal of its
before intragroup eliminations: assets, including net profit
generated by this entity or which
• annual average employment -
prevent exercise of control over
equivalent of 250 individuals
the bodies managing the entity
employed in full time
• It is impossible to get the
• total assets of all group entities -
information necessary for
PLN38.4 million
preparation of a consolidated
• total sales and financial income financial statement without delay
of all group entities - PLN76.8 incurring unreasonably high cost
million (applies in exceptional cases
only).
Or after intragroup eliminations:
A subsidiary doesn’t have to be
• annual average employment -
included in the consolidated financial
equivalent of 250 individuals
statements if the amounts stated in
employed in full time
that entity’s financial statements are
• total assets of all group entities - immaterial in relation to the holding
PLN32 million company’s financial statements.

3.5
Consolidated financial then consolidation may cover
statements financial statements drawn up for a
twelvemonth period different to the
Consolidated financial statements
financial year, if the balance sheet
comprise:
date of those financial statements is
• A consolidated balance sheet earlier by no more than three months
of the balance sheet date adopted by
• A consolidated income statement
the group. Companies included in the
• A consolidated statement of cash consolidation should adopt consistent
flows accounting policies and consistent
methods of preparation of financial
• A consolidated statement of
statements. If the accounting policies
changes
of consolidated entities differ from
inequity
those applied for consolidation, then
• Notes to the consolidated appropriate adjustments must be
financial statements (split into carried out at the consolidation level.
an introduction and additional
notes). Methods to include entities
in consolidated financial
statements
should be accompanied by a Group
Directors’ report prepared by the A subsidiary (see Consolidation
Management Board of the holding requirements) is consolidated using
company. Group Directors’ report can the full consolidation method. Jointly
be prepared together with a Directors’ controlled entities are consolidated
report of the holding entity as a single using a proportional consolidation
report. method or accounted for using
an equity method. Associates are
accounted for using the equity
should be prepared at the same
method. When the associate prepares
balance sheet date and for the
its consolidated financial statements,
same financial year as the financial
the equity method applies to the net
statements of the holding company.
consolidated assets of the associate.
If this date is not the same for
all entities within the group,

3.6
Hot topics in accounting with potential
implications for the real estate industry
– IFRS 16 (Leases )
Introduction affect different areas, such as the
presentation of financial statements,
Nowadays, a number of entities in
financial instruments and leases.
Poland apply International Financial
Reporting Standards (IFRS) for their Some of the changes have
accounting and reporting purposes implications that go beyond matters
(see section 3.1. above). Companies of accounting, as they may impact
reporting under IFRS continue to business decisions, such as the new
face a steady flow of new standards regulations on leases (IFRS 16).
and interpretations that may
IFRS 16 – highlights and implications
The new standard will affect lessees across many sectors. The scale of impact
is typically driven by the volume of opearting leases and whether they contain
multiple components such as lease and non-lease component.
Less complex More complex
• Majority of current leases classified as • Majority of current leases classified as

finance leases operating leases
• Contracts of less than one year and • Long-term contracts, such as
leases of low-value assets commercial property
• Lease contract data readily available • Lease contract data not readily
and easily accessible available, e.g., stored manually, in
• Centralised operations and processes multiple locations
• Contracts do not contain non-lease • Decentralised operations and

components processes
• Lease portfolio contains similar assets, • Lease contracts contain both lease
terms and conditions and non-lease elements
• Standard, straightforward lease • Lease portfolio contains dissimilar

contract terms and consideration assets, terms and conditions
• Lease contracts contain variable
consideration and renewal, purchase
and termination options

Contrary to accounting by landlords,
3.6 interest and depreciation expense
IFRS 16 significantly changes the will be recognised separately in the
accounting for lessees that are real statement of profit or loss (similar
estate tenants, requiring them to to today’s finance lease accounting).
recognise most leases (i.e. rental However, tenants can make an
contracts) on their balance sheets as accounting policy election, by class
lease liabilities with corresponding of underlying asset to which the right
right-of-use-assets. Tenants will of use relates, to apply accounting
apply a single model for most similar to current IAS 17’s operating
leases. Generally, the profit or loss lease accounting to ‘short-term’ leases
recognition pattern will change as and leases of ‘low value’ assets.
Lessee accounting brings most leases on balance sheet
Initial recognition Measure the right of use (ROU) asset and lease liability at
and measurement present value of lease payments.
Depreciate the ROU asset based on IAS 16,

ROU asset or use alternative measurement basis under
IAS 16 and IAS 40, if applicable.
Subsequent
measurement
Accrete liability based on the interest
method, using a discount rate determined at
Liability
lease commencement. Reduce the liability
by payments made.
Interest and depreciation are recognised and presented

Profit and loss separately. Generally front loaded expense for an
individual lease.
Today, tenants that enter into net a tenant’s decisions, including the
leases of single-tenant properties nature of its business, its real estate
may make different decisions about requirements, debt and equity
whether to lease or purchase the covenant restrictions, and access to
property. Many factors will influence capital.

3.6
Also, tenants may reassess their more frequent lease negotiations are
needs when negotiating their rental held.
contract terms and payment. For
Tenants may request that landlords
example, a higher proportion of
separately price non-lease
variable payments compared to fixed
components to help them support the
payments or shorter initial rental
allocation of consideration between
terms may result in smaller lease
the lease and non-lease components
liabilities.
to minimise the financial statement
Landlords should consider the impact of IFRS 16. However, landlords
potential impact that shorter lease may be reluctant to disclose this
terms and an increased amount of information for proprietary reasons.
variable rent would have on their Although a contractually stated price
business, including their financing may be the stand-alone price for a
costs, the value of the properties and, good or service, it is not presumed to
perhaps, increased operating costs as be for accounting purposes.
For tenants, recognising lease-related assets and liabilities could have

additional financial reporting implications, such as:
Increase in total assets and liabilities
Increase in net debt and earnings before interest, tax, depreciation and
amortisation (EBITDA)
Increase in finance expense; decrease in operating expense
Shifts in cash flow statements (from operating to financing)
Front loading of lease expense on individual rental contracts
Deterioration of debt-related ratios
Change in deferred tax assets and/or liabilities

3.6
IFRS 16 may have additional business implications
for tenants, such as:
Off-balance sheet accounting (an important advantage today of leasing

compared to buying an asset) will diminish under IFRS 16, so leasing may
become less attractive
Debt covenants may need to be modified
Changes in the administration of rental contracts, management reporting,

employee remuneration policies and key performance indicators
The volume of balance sheet driven sale and leaseback transactions is

likely to decrease
As demonstrated above for tenants, 2019. Early application is permitted

recognising lease-related assets provided the new revenue standard,
and liabilities could have significant IFRS 15 Revenue from Contracts with
financial reporting implications that Customers, has been or is applied at
may potentially lead to a change in the same date as IFRS 16. Lessees
current business practices in relation must adopt IFRS 16 using either
to rental contracts. a full retrospective or a modified
retrospective approach.
IFRS 16 is effective for annual periods
beginning on or after 1 January

4
Contact
REAL ESTATE GROUP
Anna Kicińska
Anna.Kicinska@pl.ey.com
+48 505 107 010
Anna Kicińska is a Partner and Leader for CSE Region of the EY Real
Estate Advisory Group responsible for real estate Transaction Support,
Strategic Advisory and Real Estate M&A. She has over twenty years of
real estate experience in valuation, transaction support, market analysis,
and corporate real estate management. She is a certified Polish appraiser
and a member of The Royal Institution of Chartered Surveyors (MRICS),
Certified Commercial Investment Member (CCIM) and Urban Land Institute
Member (ULI).
Anna Andrzejewska
Anna.Andrzejewska@pl.ey.com
+48 22 557 75 43
Anna Andrzejewska is a Senior Manager in the Real Estate Advisory

Group. She specializes in strategic advisory consultancy in the real estate
sector, especially in corporate strategic advisory including portfolio &
processes management, consolidations & relocations, optimal business
locations. She graduated from the University of Łódź with Master’s degree
in Finance and Banking and specialization in Investments and Real Estate.
She completed a post-graduate School of Real Estate Valuation at Warsaw
School of Technology. She is a certified property manager as well as a
member of The Royal Institution of Chartered Surveyors (MRICS).

Dominik Wojdat
Dominik.Wojdat@pl.ey.com
+48 22 557 6645
Dominik Wojdat is a Manager in the Real Estate Advisory Group. He has

broad experience in providing both developers and investors with market,
highest & best use and feasibility studies for commercial as well as
residential properties. Dominik also conducted valuations for accounting,
investment and loan security purposes. He graduated from Faculty of
Geography and Regional Studies at University of Warsaw. He completed
a post-graduate property management studies at Warsaw University of
Technology and became a certified property manager. Dominik is Certified
Commercial Investment Member (CCIM) and member of the Royal
Institution of Chartered Surveyors (RICS).
Paulina Marcinek
Paulina.Marcinek@pl.ey.com
+48 22 557 6645
Paulina Marcinek is a Manager in the Real Estate Advisory Group. Paulina

has over 10 years of real estate experience in providing real estate
advisory services including market analysis, highest & best use and
feasibility studies, valuation for accounting, investment and loan security
purposes and transaction support. She graduated from the Warsaw
School of Economics with Master’s degree in Finance and Banking and
specialization in Corporate Finance and International Financial Markets.
She also completed a post-graduate real estate valuation studies at
Warsaw University of Technology. She is a certified Polish appraiser and a
member of The Royal Institution of Chartered Surveyors (MRICS).

Katarzyna Lubaś
Katarzyna.Lubas@pl.ey.com
+48 22 557 67 06
Katarzyna Lubaś is a Marketing and Business Development Coordinator

in the Real Estate Advisory Group. She has over 12 years of experience in
real estate market advisory. She is responsible for PR and new business
development activities, market research and investor relations.

ASSURANCE SERVICES
Łukasz Jarzynka
Lukasz.Jarzynka@pl.ey.com
+48 22 557 84 29
Łukasz is an Associate Partner in Warsaw Office and EY Real Estate

Group Audit Leader in Poland and CSE Region. Łukasz has over 12 years
of experience in audit and is Polish Chartered Accountant. He gained
comprehensive experience in auditing both large and multinational groups,
as well as smaller private clients, IPO/SPO transactions and audit of listed
companies, with focus on the real estate market. Łukasz is co-author of “The
real state of real estate” book – The Real Estate Guide published by EY.
Mariusz Kędzierski
Mariusz.Kedzierski@pl.ey.com
+48 22 557 62 42
Mariusz is an experienced Manager in Assurance Department and member

of the Real Estate Group at EY’s Warsaw office. He has over 8 years
of experience in audit and is at final stage of gaining Polish Chartered
Accountant qualifications (10/10 exams passed, during last application
phase). He specializes in audits of clients from real estate market (real
estate groups / funds, listed residential and real estate developers).
Mariusz has also experience in IPO audits of real estate groups.

Hubert Rogoziński
Hubert.Rogozinski@pl.ey.com
+48 22 577 84 71
Hubert is a Manager within EY Assurance and Advisory Business Services

practice. He has a Master Degree in Finance and Banking Warsaw School
of Economics, Poland. Member of Association of Chartered Certified
Accountants. He is in the final stage of qualifications for Polish Certified
Auditor. Member of EY Poland Real Estate Group. Hubert gained
experience durign audits and reviews of capital groups reporting under US
GAAP, International Financial Reporting Standards and Polish Accounting
Standards, including publicly listed companies.
Katarzyna Gołąb
Katarzyna.Golab@pl.ey.com
+48 22 577 89 32
Katarzyna is a Manager in EY Assurance. She has a Master Degree in

Finance and Accounting, specializing in Corporate Finance, of Warsaw
School of Economics. She is in the final stage of qualifications for Polish
Certified Auditor. Member of EY Poland Real Estate Group at EY’s Warsaw
office. Katarzyna was involved in audits of the financial statements and
reporting packages prepared both under International Financial Reporting
Standards and Polish Accounting Standards, including publicly listed
companies.

ACCOUNTING ADVISORY AND TECHNICAL DESK SERVICES
Anna Sirocka
Anna.Sirocka@pl.ey.com
+48 22 557 79 36
Anna is IFRS desk leader in Poland. She has over 20 years of professional
experience as an auditor and accounting expert. She is Polish Chartered
Accountant, Certified Internal Auditor, member of ACCA and member of
Accounting Standards Committee in Poland (appointed by the Minister of
Finance). She is involved as IFRS subject matter expert during audits of
multinational groups, listed companies as well as smaller private clients
operating on real estate market. She participated in numerous IPOs, mergers
and acquisitions with accounting advisory services.
Małgorzata Matusewicz
Małgorzata.Matusewicz@pl.ey.com
+48 22 557 84 30
Małgorzata is a Senior Manager in Professional Practice Group at EY’s

Warsaw office and member of EY IFRS Desk. She is Polish Chartered
Accountant and member of ACCA. Małgorzata is IFRS and financial
reporting expert, responsible for assisting clients and EY teams by
providing consultations on complex accounting issues and promoting
consistent interpretation and application of IFRS. She also has many
years of experience in advisory with respect to impact assessment of
complex transactions on financial statements, accounting opinions, IFRS
conversions and reorganisation of reporting processes.

TAX SERVICES
Tomasz Ożdziński
Tomasz.Ozdzinski@pl.ey.com
+48 22 557 69 22
Tomasz Ożdziński is the head of the Tax Real Estate Group of EY in Poland
and a member of EY’s Transaction Tax (M&A) Team. He is a graduate of the
Faculty of Law and Administration of the University of Adam Mickiewicz in
Poznań and an Executive Programme in Real Estate at the Solvay Brussels
School of Economics & Management at Université Libre de Bruxelles. Tomasz
is a certified tax advisor and has two decades of experience in managing
large, complex projects, including in particular transaction services and tax
optimizations, undertaken both locally and internationally.
Sebastian Ickiewicz
Sebastian.Ickiewicz@pl.ey.com
+48 22 557 75 24
Sebastian is an Associate Partner in International Taxation Group and Tax Real

Estate Group at EY’s Wrocław office. He is a chartered tax advisor and has
15 years of experience in tax advisory. Sebastian’s managed and supervised
numerous tax buy-side or vendor due diligence projects, tax structuring
projects and post-closing reorganisations (mergers, de-mergers, disposals of
assets, etc.). He was involved in the biggest transactional projects on the Polish
market for corporate clients and investment funds, especially in the real estate
and telecommunications sector.

Anna Pleskowicz
Anna.Pleskowicz@pl.ey.com
+48 22 557 79 04
Anna Pleskowicz is a Senior Manager in International Tax Services Group

and Tax Real Estate Group at EY’s Warsaw office. She has been with EY
since 2004. She is a certified tax advisor. Her skills include advising
on global restructurings, international tax structuring and planning
(corporate issues, financing etc.), providing tax advisory services on
domestic tax law. In 2008 Anna worked as Polish Tax Desk in New York.
Anna is a co-author of the book “Taxation of the Real Estate Market” and
co-author of the book „International tax planning”, an author of various
press articles relating to tax issues.
Michał Sawicki
Michal.Sawicki@pl.ey.com
+48 22 557 70 26
Michal Sawicki is a Senior Manager in Tax Real Estate Group at EY’s Warsaw
office. He has been with EY since 2007. He is a certified tax advisor. His
skills include advising on global restructurings, transaction support and
structuring, tax accounting. He was involved in projects concerning tax
issues in relation to the process of setting up, operating and restructuring
of companies, tax assistance in establishing tax effective exit scenarios,
international tax structuring. Michal is an author of various articles relating to
tax aspects of investing on the real estate market and co-author of the book
“Taxation of the Real Estate Market”.

Daniel Banach
Daniel.Banach@pl.ey.com
+48 22 557 78 15
Daniel is a Transaction Tax Senior Manager and member of Tax Real Estate
Group at EY’s Warsaw office. He is a chartered tax advisor and ACCA member
with nearly 8-year experience in tax advisory. His professional experience
includes both buy-side and sell-side advisory for corporates and private
equity. He advised during leveraged real estate acquisitions, divestments and
multinational tax structuring projects. Daniel also advised on tax efficient
exit strategies for real estate companies as well as refinancing and debt
restructuring projects conducted in an international environment. Daniel was
a lecturer and tutor on many tax conferences and meetings. He is also an
author and co-author of numerous professional publications in press.
Michał Koper
Michal.Koper@pl.ey.com
+48 22 557 70 24
Michał Koper is a Senior Manager within International Tax Services Division

and Real Estate Group of EY in Warsaw. He has been with EY since 2006.
From 2013 to 2015 he held a position at Ernst & Young LLP’s International
Tax Services group based in New York where he led the Polish tax desk. He
is a certified Polish tax advisor. His professional skills include advising on tax
planning for international investments in Poland, tax effective ownership
structures and financing schemes, global restructurings, providing tax
advisory services on domestic tax law. He was involved in projects concerning
tax aspects of setting up, operating and restructuring of companies, tax
assistance in establishing tax effective exit scenarios. Michał is a co-author of
the book “Taxation of the Real Estate Market” and author of various articles
relating to tax issues.

Mikołaj Bokowy
Mikolaj.Bokowy@pl.ey.com
+48 22 557 74 39
Mikolaj is a Transaction Tax Senior Manager and member of Tax Real Estate
Group at EY’s Warsaw office. He is a chartered tax advisor and a legal counsel
with over 7-year experience in tax advisory. His professional experience
includes: numerous structuring and tax due diligence projects, day-to-day tax
advisory, assistance in re-financing schemes, implementation of the step-up
structures and restructurings of businesses (such as mergers, spin-offs, etc.).
He assisted in many investment / dis-investment projects for real estate
clients and investment funds.
LEGAL SERVICES
Zuzanna Zakrzewska
Zuzanna.Zakrzewska@pl.ey.com
+48 22 557 78 16
Zuzanna is an advocate with eighteen years of experience in legal

advisory for domestic and international entities from different sectors.
She has extensive experience in providing legal support and day to day
legal advises to companies particularly from the real estate, financial
services and energy sector. Zuzanna specializes in providing legal
assistance related to the corporate law including restructuring processes
and M&A transactions. She has advised in a numerous transactions
involving the acquisition of companies and assets related to real estate
both on the buyers and sellers side. Zuzanna also advised clients during
processes of examination of legal status of the real estate as well as
during negotiating of the lease agreements.

Piotr Woźniak
Piotr.Wozniak@pl.ey.com
+48 71 375 10 22
Piotr Woźniak is a legal counsel with ten years of experience in real estate
and property development legal aspects. A graduate of the Faculty of
Law at the University of Wrocław. Piotr also completed postgraduate
studies on commercial companies legal regulations at University of
Wrocław and postgraduate studies on legal aspects of construction
process at the Warsaw School of Economics. Before joining EY Piotr
was working in real estate departments in two high quality law firms
in Warsaw. Piotr specializes in real estate trading law, spatial planning
and land development law and construction law. Piotr advises clients
on matter relating to property purchase, location of developments and
contracting with architects and construction companies. He is responsible
for comprehensive advice on preparation stage of development projects
and day to day problems connected with development process. He has
strong experience in providing legal support related to commercialization
of shopping centers and office space lease. Piotr has also advised in
infrastructure projects i.e. wind farms, shell gas platforms and gas
transmission networks.
Katarzyna Kłaczyńska
Katarzyna.Klaczynska@pl.ey.com
+48 22 557 79 61
Katarzyna Kłaczyńska, LL.M., is an attorney specializing in energy and

environmental matters. She has advised on a number of high-profile
regulatory projects, including acting as a leading counsel for power
sector companies and the Polish government regarding climate change
regulations and developing advocacy strategy concerning revision of
the current Environmental Impact Assessment model on behalf of the
Business Association of Polish Power Plants. She has worked on a number
of environmental and regulatory due diligence projects for the variety of
sectors. She is also experienced in environmental aspects of shale gas
investments.
Katarzyna is a member of the New York Bar. She graduated from
Jagiellonian University in Poland, and Harvard Law School, where she was
granted Gammon Fellowship for Academic Excellence.

Magdalena Kasiarz
Magdalena.Kasiarz- Lewandowska@pl.ey.com
+48 22 557 62 07
Magdalena Kasiarz-Lewandowska is an advocate and a Senior

Associate in EY Law with ten years of experience in advising on the
sale, reorganization and liquidation of companies with international
capital (conducting M&A transactions and legal audits), advising on
the restructuring of capital groups, including mergers, divisions and
transformations of companies, as well as cross-border mergers. She
advised in numerous transactions on shares and assets related to
real estate both on the buyers and sellers side. She also specializes
in providing the ongoing legal assistance in the scope of civil law and
company law, including preparation and negotiation of lease and service
agreements.

EY | Assurance | Tax | Transactions | Advisory
About EY
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Real Estate
Consulting & Transaction Services Assurance Services
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e-mail: Anna.Kicinska@pl.ey.com e-mail: Lukasz.Jarzynka@pl.ey.com
Phone +48 22 557 7542 Phone +48 22 557 84 29
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The Polish Real

1 Legal and tax

1.1 Poland in a Nutshell 3 2.1 Legal background 52

Inflow of FDI Top BPO/SSC/R&D

$13.9bn 1,078 centres

Poland. The real state of real estate | 3

GDP growth in 2016 The cumulative growth

2.7% vs. Euro

2.2% KATOWICE 1,232

1,234 297k 169k

130k 2.2% KRAKÓW

Population(1) Unemployment Monthly No. of students(3)

(1) as of December 2017

Poland holds 2nd position in EY’s European Attractiveness

Poland may become a beneficiary of BREXIT, attracting financial

Kraków is the top city for Business Process Outsourcing, Shared

Google has opened three R&D centres in Poland

E-commerce giants such as Zalando and Amazon, as well as

Poland’s student population of 1.5 million drew companies

6 Poland. The real state of real estate

Net prime yields in selected European cities, 2017

Poland. The real state of real estate 7

in terms of volume invested in real

8 Poland. The real state of real estate

Office Market Share 2017

Warsaw 56% Tri-City 7%

Poland. The real state of real estate 9

Warsaw 5.3m 750,000 12% 20-23

Kraków 1.1m 295,000 9.8% 14-15

Wroclaw 895,000 160,000 8.2% 14-15

Tri-City 680,000 135,000 7.0% 13-14

Łódź 490,000 130,000 6.5% 11.5-12.5

Katowice 480,000 50,000 11.0% 12.5-13.5

Poznań 450,000 40,000 11.5% 12-13

10 Poland. The real state of real estate

Poland’s real estate market is second to none within

Differentiation in terms of quality, rents and availability depending on

Occupiers focus on quality, efficiency, flexibility and accessibility of space.

Poland. The real state of real estate 11

Upper South (Mokotów)

12 Poland. The real state of real estate

accounted for 45% totalled 67,200 m2

The vacancy rate decreased to 12%, which is 3.4 pp

Prime rents in schemes located in the CBD range from

Poland. The real state of real estate 13

Prime rents are

278 m2 4.5% 395,000 m2

Under Prime rent Prime rent in major

475,000 €110-130 €40-60

Poland. The real state of real estate 15

Modern retail stock by type

Shopping centres 88% Outlet centres 2%

Shopping centre stock by size of the city, 2007 vs. 2017

2007 62% 24% 16%

2017 54% 27% 19%

Retail density and annual purchasing power in major agglomerations

Poland. The real state of real estate 17

Rents in top shopping centres continue to increase

Poland is on the radar of retail newcomers. In 2017

Polish brands are successfully expanding abroad with

18 Poland. The real state of real estate

The era of large-scale schemes will soon be over.

As the market in many cities is reaching maturity in terms of density, there