Exit Tax – what is it and who does it affect?

What is exit tax and who does it apply to?

The regulations on exit tax came into force in the Polish legal system on 1 January 2019. This was in implementation of Council Directive (EU) 2016/1164 of 12 July 2016. Its aim was to counter tax avoidance practices that have a direct impact on the functioning of the EU internal market. This tax applies to both individuals and legal entities, as corresponding provisions are found in both the PIT and CIT Acts.

Another name for this structurally specific tax is the tax on unrealised gains. It will apply to entities that:

• Transfer their assets outside Poland
• Wish to change their tax residence, which will result in Poland losing the right to tax income from their assets

It is worth noting that this is an atypical tax. As a rule, the tax base is income or revenue. In this case, the legislator provides that income from unrealised gains will be subject to tax. It is defined as the excess of the market value of that asset, determined as at the date of its transfer or the date preceding the date of the change of tax residence, over its tax value. It can therefore be concluded that the amount of the Exit Tax will depend on the value of the transferred assets.

What are the thresholds for the Exit Tax?

The Act provides that, in the case of individuals, the tax liability arises when the total value of the assets amounts to at least PLN 4,000,000. Furthermore, where spouses wish to transfer assets, this limit will apply to both spouses.

What else characterises the Exit Tax?

Exit Tax is also distinguished by specific formal requirements. Legal entities subject to it are required to submit a declaration of income from unrealised gains by the 7th day of the month following the month in which the income from unrealised gains arose. They must also pay the tax by this deadline.

Tax rates differ for individuals and legal entities. In the former case, the rate is 3%, but only where the tax value is not determined. In the latter case, the rate is 19%.

Similar conditions apply to individuals if they exceed the aforementioned threshold. Additionally, they must submit returns for subsequent months if they continue to transfer assets.

Extension of the Exit Tax payment deadline

On 2 August 2023, the Minister of Finance extended the deadline for payment of Exit Tax in a regulation. The earliest date for payment has been set as December 2025. It should be noted, however, that the deadline for submitting declarations has not been extended accordingly, meaning that declarations will need to be submitted for each month subject to the Exit Tax. Consequently, the deadlines for declaring the value of transferred assets and for paying the tax may differ. This difference may amount to several years, as the tax will not be due until December 2025.

As the Exit Tax is a new provision in the Polish legal system, it may give rise to many uncertainties. If you find it difficult to navigate, it would be helpful to seek assistance from tax specialists.