The Polish Real Estate Guide Edition 2017 Poland · Preface EY, a global leader in assurance, tax, transaction, advisory and legal services prepared this guide to the Polish real

The real state of real estateThe Polish Real Estate GuideEdition 2017

PolandThe real state of real estate

Cont

ents Preface 1

1. Polish Real Estate Market 31.1. Officemarket 31.2. Retailmarket 111.3. Warehousemarket 181.4. Residentialmarket 231.5. Hotelmarket 281.6. Investmentmarket 331.7. KeycitiesinPoland 44

2. Legal and tax aspects of investing in real estate 59

2.1. Legalbackground 602.2. Investmentvehiclesandstructures 672.3. Realestatefinancing 782.4. Acquisitionofrealestate–assetdealandsharedeal 902.5. Developmentandconstruction 1052.6. Operationandexploitation 1172.7. Exitingtheinvestment 1252.8. Saleandleaseback 1262.9. Duediligenceaspartoftheacquisitionprocess 128

3. Accounting and auditing 1393.1. IntroductiontotheaccountingframeworkinPoland 1393.2. Accountingrecords 1413.3. Majorprinciplesinregardtorecognitionandmeasurement

ofassetsandliabilities 1433.4. Financialstatements 1483.5. Financialreporting,publicationandauditrequirements 1503.6. Consolidation 1533.7. PrincipaldifferencesbetweenPolishAccountingRegulations

andInternationalFinancialReportingStandards 1553.8. SelectedAspectsofAccountingforRealEstateunder

InternationalFinancialReportingStandards 1613.9. Exemptionsandsimplificationsapplicableforsmallandmicro

entities 165

4. Contact 169

Appendix 181

Preface

EY,agloballeaderinassurance,tax,transaction,advisoryandlegalservicespreparedthisguidetothePolishrealestatemarket.Thisguideaimstoprovideitsreaderswithabroadviewofthemarketandthecurrentinvestmentclimate,aswellaslegalandtaxinformation,inapracticalformattohelpyoumakeinformedinvestmentdecisions.OurcombinedexpertiseinthismarkethasenabledustoproducewhatwehopewillbecomeanindispensablereferencetoolonthestateofthePolishrealestatemarket.

Inconjunctionwiththeviewscontainedinthisguide,itisimportanttoseekcurrentanddetailedinformationonthecommercialclimateatthetimeofconsideringyourinvestment,asthiscanchangeatanytime.Thisguidereflectsinformationcurrentasof1January2017unlessstatedotherwise.

Poland.Therealstateofrealestate|1

12|Poland.Therealstateofrealestate

Polish Real Estate Market1.1.Officemarket

Poland – generalFollowingmajorreformsin1992,Polandexperiencedaboomineconomicactivitythroughoutthe1990s.AswithothermarketswithintheemergingPolisheconomy,themodernofficemarketbeganwithaninitialwaveofnewofficeconstructionprimarilyinthefinancialandpoliticalcapital–Warsaw.

Until1996,annualsupplyremainedbelow50,000m2,whichwassubstantiallylessthantherapidlyincreasingdemand.Becauseofthedifficultlocaldevelopmentandfinancingconditions,supplywasinitiallyslowtorespond.Thesecondhalfofthedecadeshowedarapidincreaseinsupply,asPolanddemonstrateditspoliticalstabilityandsoundeconomicfundamentals.Therapidincreasescontinuedintothefirstpartofthisdecade,initiallyaddressingpent-updemandfromdecadesoflowsupply,butlaterresultinginanofficeoversupplyinmanymajorcitiesandtownsinPoland.Generally,rentswereinsteadydeclinefromthe1990suntil2005.Therunupto2009showedareversalofthistrend,withindicationsofamaturingofficemarketwherenewbuildingscometomarketinamoretimelyresponsetodemand,thusstabilizingrentsandvacancies.Althoughthefinancialcrisistemporarilyinterruptedmanyoftheplannedprojects,WarsawremainsbyfarthelargestofficemarketinPolandandstillattractsmajordevelopmentactivity.Ontheotherhand,otherregionalbusinesscenters

haveenteredthepathofstrongeconomicgrowth,increasinginterestinmodernofficeaccommodationeveninsmallercitiesandtowns.ForthemajorityofPolishofficemarkets,2011wasoneoftheweakestyearsintermsofnewsupply.Strictlendingcriteriaimplementedbybanksafter2008initiallyhinderedtheinvestmentprocess,butthemarkethassinceadjustedtothenewlendingconditionsandconstructionactivityhasfullyrecovered.Theannuallevelofnewsupplyin2013wasnearly670,000m2,whichrepresentsasignificantincreasefrompreviousyearsandthehighestyearlylevelinPolandsince2000.DeliveryofnewofficespaceinPolandcontinuestobestrongandgrowing,withsupplynumbersfor2014,2015and2016at600,000,643,000,and900,000m2 respectively.ThisresultsinthetotalcurrentstockofofficespaceinPolandinexcessof9.0millionm2.WhileWarsawremainsthedominantlocation,athemajorityofdevelopmentoutsideofthecapitalwillbeinthemajorsecondarycitiesofKraków,Tri–City,ŁódźandWrocław.Overall,2017willbeanothersuccessfulandproductiveyearforthePolishofficesector,providedthatdomesticandforeigndevelopersproceedwiththeirplansandbarringanymajoreconomicupheaval.Insummary,regionalcitiescontinuetoattracttheirfairshareofnewofficedevelopment,alongwithayoungandeducatedworkforcetooccupythegrowingstockofmodernofficeaccomodation.Atthesametime,Warsawofficedevelopmenthasrecovered


Source: EY

Office market in Poland

fromtheupsetofthefinancialcrisisandisevenlikelytogetanaddedboostfromBrexitasinternationalcompaniesreconsiderthebenefitsoflocatinginPoland.

Focus on WarsawThemodernofficemarketinWarsawstartedtodeveloprapidlyatthebeginningofthe1990sinresponsetothePolishpoliticaltransitionandeconomicreforms,followedbyagrowthperiodduringrecentyears,inwhichtheWarsawareaplayedamajorrole.

Becauseofitscentralfunctionsandconvenientlocation,thePolishcapitalcityhasreceivedasignificantshareoftheinflowofforeigncapital.Largeforeigncompanies,includingvariousfinancialinstitutions,consultingcompanies,aswellasinternationalfirms,usuallychooseWarsawasalocationoftheirheadquartersinPoland.Inaddition,Warsawhastraditionallybeenthemostimportantadministrativeandbusinesscenterfordomesticcompanies.

Thisledtorapidgrowthofdemandformodernofficespaceinthecity,whichintheperiodfrom1990untilthefirsthalfof1998resultedin98%to100%occupancyratesaswellasoneofthehighestrentallevelsforofficespaceamongEuropeancities.

SupplyTheyear1998markedthefirstdramaticperiodformodernofficespace,whenoverthecourseofoneyearthesupplydoubledfromthe300,000m2completedbetween1989and1997to680,000m2. Twoyearslater,stockrosetoapproximately1,360.0m2andalthough54%ofthiswasinthecitycenter,2001alsomarkedtheendoftheperiodinwhichcitycenterlocationsdominatednewannualsupply.Withtheexceptionof2003,annualdeliveryofmodernofficespaceinnon-centrallocationsexceededcentral,andthetrendcontinuedthrough2013.Bytheendoffirsthalfof2013,thetotalmodernofficespacein

Polish Real Estate Market


Source: EY

Annual delivery of modern office space (m2) in Warsaw

Warsawhadexceeded4millionm2,withnon-centrallocationsaccountingforaround70%.WarsawremainsthemostmatureofficemarketinPolandwithatotalofficestockofover5.05millionm2 as of the end of 2016.

Asthesupplyofnewspacereachedandsurpasseddemand,themarketsawvacancyratesrisetoveryhighlevels.Startingfrombetween4and6%in1998,thebuildingboomfrom2000to2002helpedvacancyratesriseasfaras20%inthecitycenterand16%intheoutskirts.Asthemarketstabilized,andnon-centrallocationsbecamethenormratherthantheexception,vacancyratesincentralandnon-centrallocationsfluctuatedbetween15and19%,withnon-centrallocationsfallingbelowthe10%mark(7%onaverage)in2004.

Regardlessoftheproportionofcentraltonon–centrallocations,theoverallvacancylevelinWarsawsystematicallydecreasedfrom2002until2007,whencentralandnon-centralvacancyratesstoodatthe3.4%

and2.9%respectively.Withthecrisescameareversalofthistrend,in2008and2009vacanciesdoubledtoover7%.In2010,vacancyrateremainedstableatthelevelof8%.Duetothegrowingdemandforofficeaccommodationandlimitedcompletionsin2011,thevacancyrateinWarsawfellandreached6.7%.Howeverattheendof2012,approximately8.8%wasunoccupied.Duetothesignificantvolumeofnewprojectscompletedin2014,thevacancyrateexceeded13%.Intheendof2015thevacancyratedecreased,reachingthelevelof12.3%butin2016theupwardtrendrecoveredandtheaveragevacancyratestoodslightlybelow14.4%asoftheendoftheyear.Reasonsfortheincreaseshouldbeassociatedwithrecord-breakingannualsupplydeliveredtothemarketandstillinsufficientdemand.Inparticular,thenon-centrallocationsweresufferingassignificantpartofthecentralannualtake-upwastheconsequenceofrelocationsfromnon-centralofficedistricts.Theaveragevacancyrate,as



Major office developments completed in 2016Name Location Area (m2) Developer

WarsawSpireA Central EuropeanSq. 60,000 Ghelamco

ProximoI Non-centralPrzyokopowaSt. 26,500 Hines

GdańskiBusinessCenterII Non-central InflanckaSt. 46,500 HBReavis

Q22 Central GrzybowskaSt. 48,000 ECHOInvestment

PrimeCorporateCenter Central GrzybowskaSt. 20,500 Golub GetHouse

oftheendof2016,stoodat13.0%innon-centraland17.1%incentrallocations.

Itisexpectedthatthevacancylevelwillrisesteadilywithinthenextfewyearsandolderbuildingswillfacedifficultiesincompetingwithnewprojects.

Onthebasisoflocation,themodernofficestockinWarsawistypicallydividedintotwogroups:centralandnon–central.ThecitycenterisboundedbyTowarowaSt.,GrójeckaSt.,WawelskaSt.,ArmiiLudowejAve.,theWisłaRiverandSolidarnościAve.

Themostsignificantofficebuildingslocatedwithinthisareainclude:Rondo1,Q22,WarsawFinancialCenter,Lumen,Skylight,Metropolitan,FocusFiltrowa,AtriumCity,GrzybowskaPark,WarsawTradeTowerandAtriumcomplex.Non–centralofficelocationsincludeMokotów,Ochota,Wola,WłochyandPragadistricts.IntheselocationsEurocentrum,Equatorbuildings,AdgarParkWest,JerozolimskieBusinessPark,WiśniowyBusinessPark,LipowyOfficePark,numerousofficebuildingsalongPuławskastreet,IndustrialSłużewiecaswellasrapidlydevelopingbusinessdistrictlocatedinthecloseneighbourhoodofRondoDaszyńskiego(CBD/Westzone)andDworzecGdański(GdańskiRailway&MetroStation)playkey

roleandareresponsibleforthevastmajorityofofficesupplyinWarsaw.

Yearlynewadditionstotheofficestockfluctuatedduringlastyears.

Theyear2010sawthecompletionofover200,000m2ofnewstock,thoughthiswasplannedwellbeforethecrisisandtheseprojectshadsecuredfinancinginadvanceofnowstricterlendingcriteria.In2011approximately120,000m2weredeliveredtothemarket.In2012themarketwitnessedahighergrowthinnewofficesupply,whichamountedto270,000m2. In2013arecordamountofnewofficespacedeliveredtothemarketwasobservedexceeding300,000m2.Year2014broughtslightslowdowninnewsupplywithnearly280,000m2ofnewspace,whilein2015theamountofnewofficespaceremainedatthesimilarlevelasin2014.Year2016withalmost415,000m2 of total annual supplywasabsolutelyrecord-breaking.Oncontrarytothepreviousyears,thebalancebetweencentralandnon-centralsupplywasobservable.ItisexpectedthatWarsawwillcontinuestrengtheningitspositionintheregionoverthenextyearsthankstonumerous,plannedandcurrentlybeingconstructed,skyscraperdevelopments.



Major office developments under constructionName Location Area (m2) DeveloperGenerationPark(buildingX)

Central Wronia 20,000 Skanska

WestStationII Non-central JerozolimskieAve. 34,000 HBReavis/Xcity

Investment

BusinessGarden Non-central ZwirkiiWigurySt. 55,000 Vastint

Neopark Non-central WynalazekSt. 11,000 YarealPoland

D48 Non-central DomaniewskaSt. 25,000 Penta

Investments

Graffit Non-central DomaniewskaSt. 30,000 Prochem

ProximoII Non-central PrzyokopowaSt. 20,200 Hines

EquatorIV Non-central JerozolimskieAve. 25,000 Karimpol

MennicaLegacyTower

Central WołoskaSt. 64,000 MennicaPolska/

Golub GetHouse

SiennaTowers Non-central TowarowaSt. 77,000 Ghelamco

Cedet Central JerozolimskieAve. 15,000 ImmobelPoland

CentrumMarszałkowska

Central MarszałkowskaSt. 13,000 BBIDevelopment

NowogrodzkaSquare

Central JerozolimskieAve. 11,000 YarealPoland

Wronia31 Central WroniaSt. 15,000 Ghelamco

Source: EY


Name Location Area (m2) Developer

AtriumII Central PerecaSt. 20,000 Skanska

KróLEWska Central GrzybowskaSt. 6,000 S+BPlanBau

Warschau

AstoriaPremiumOffices Central PrzeskokSt. 19,000 Strabag

Source: EY


Accordingtoprojectannouncements,morethan400,000m2ofmodernofficespacewillentertheWarsawmarketin2017.However,predictionsfornextyearsaresubjecttoanumberofvariables,asdevelopersandtheirlenderstakeamorecautiousapproachtospeculativeprojects.Itisexpectedthatsomeofprojectswillbedelayeduntilsuchtimewhenareasonablelevelofpre-leasinghasbeenachieved.

DemandThedemandformodernofficespacecomesmainlyfrom:

• PolishandforeigncompanieswhoarebasedinPolandandhaveparticipatedintherapideconomicgrowth;

• newentrantsintothePolishmarket;• thenew“ServicesandInformation

Economy”acceleratingtheneedforup–to–dateofficespace.PolandinparticularhasbenefitedfromBusinessProcessOffshoring(BPO);

• stateentitieswhicharemoreandmoreinterestedinleasingofficespacerather

thanoccupyingself-owned,oldandlowqualitybuildings;

• renewalsandrelocations.

Currently,demandisdrivenmostlybybusinessexpansionandtenantsseekingforofficespaceofhigherquality.Grosstake-upinyear2016waslower.AsoftheendofDecember2016annualtake-upexceeded760,000m2whichwasabitlowerthanin2015butstillisexceptionallypositivenumberandisthebestproofofthehighleveloftenants’activity.

Rents

Alongtheclassicsupplyanddemandmodel,rentsinthelate1980sandearly1990sescalatedasPolandopeneditsborderstoforeigninvestment,andthesupplyofmodernofficespacewasextremelylimited.Demandforofficespacepushed,rentstotheirpeakin1991ofUSD50/m2/monthforofficespace.

Withsuchlimitedsupplyavailable,therewaslittlesegmentationintheWarsawoffice

Prime office rents & cumulative office supply

Source: EY



market,resultinginbothcentralandnon-centrallocationshavingsimilarrentalrates.

Thefirstbuildingboomofthelate1990spushedoverallrentsdown,butitwastheintroductionofout-of-townofficeparksaround1996,thathelpeddifferentiatepricesbetweencentralandnon-centrallocations.Duringthelate1990srentsformoderncitycenterofficestypicallywere25%to30%higherthanrentsfornewofficesinout-of-townlocations.However,notallofthedifferencecanbeaccountedforbylocationaloneasnon-centrallocationsweretypicallybuiltformoreprice-conscioustenantsreadytoacceptalowerstandard.

Thesecondpartoftheboomintheearly21stcenturybroughtadditionalincreasesinsupplyandafurtherdropinoverallrents’level.Thistemporarilypushedthegapbetweenlocationscloser,butmoredemandingclientshelpedraisethestandardofcentrallocationsandtwoaltogetherseparatemarketsemerged.

Currencieshavealsoplayedaroleintheleasingmarket.IntheearlyyearslowstandardpropertieswerepricedinPLN,withhigherstandardpropertiesgearedforinternationalclientelebeingdenominatedinDMorUSD.SinceaccessionintotheEU,theEurohasbecomePoland’sstandardreferencecurrencyforleases.Today,rentsforcentrallylocated,highqualityofficebuildingsarebetweenEUR18and23/m2/month.

CurrentrentsforprimeofficespacelocatedoutsideofthecitycenterrangefromEUR11to15/m2/month.Asexpectedinatoughmarket,newrentalcontractsarebeingsignedwellbelowaskingrates.Oursourcessuggesttypicaleffectiverentsareroughly15-30%lowerthanaskingrents.Askingrentsdependmainlyonlocation,buildingstandard,sizeandlengthofleaseterm.

Duetothesolidandstillgrowingdevelopmentactivityandnumberofnewprojectsscheduledforcompletionin2017,itisexpectedthatrentalratesmaystillslightlydecrease,notonlyincentrallocationsbutalsonon-centrallocations.Asaresultofintensecompetitionamonglandlords,thedifferencebetweenaskingandeffectiverentsmayincrease.

Standard lease termsThefollowingtermsformodernofficebuildingsareregardedascommonfeatureswithinatypicalleaseagreement:• sincetheintroductionoftheEUR,most

newleaseshavebeendenominatedinEUR,butpaidinPLNasregulatedbyPolishlawuntil2009;

• rentsaresubjecttoannualindexationonthebasisoftheconsumerpriceindexintheEurozone(MUICP,HICP);

• servicechargesareaddedtonetrentsandcalculatedaccordingtothearealeased.TheseratesgenerallyvaryfromEUR3.5to5.5/m2/month;

• achargeforcommonspaceisusuallyaddedtothenetofficespace.Thischargeisbasedontheproratashareofcommonspaceused(lift,lobby,reception).Such“add–onfactors”generallyvaryfrom3%to10%oftheleasedarea;

• inadditiontorentandservicecharges,tenantsareobligedtopay23%ValueAddedTax(VAT);

• landlordsusuallyrequiretenantstoprovidearentaldepositorbankguaranteeequalto3monthrent;

• leasesrangefrom3to10years;typicalcontractsare5years,withatrendtowardlongerleasesforlargertenantsandnewdevelopments;



• Incentivesfortenantsarecurrentlyacommonpracticeandtheirrangeissubjecttoindividualnegotiations,whichdependmostlyonthesizeoftheoccupiedpremisesandthetermoftheleaseagreement.Typicalleaseincentivesinclude:

• rent–freeperiodofapprox.1monthper1yearofleaseormore;

• fit-outallowanceofapprox.EUR150–250perm2ofnetofficespace.

Key pointsThefollowingbulletslistsomeimportantfactorswhichimpactedthePolishofficein2016.

• TotalmodernofficespacestockinWarsawexceeded5.05millionm2whichplacesthepolishcapitalatthe20thplaceamongEuropeancitiesintermsofoverallofficespacesupply

• Allregionalcities,exceptforLublinandSzczecin,recordedannualgrowthintotalmodernofficespacestock.

PerformanceinKatowiceandKrakówwasexceptionallystrong,withadouble-digitannualchangeinoverallsupply

• During2016,twoabsolutelyprimeofficebuildingswerecompletedinWarsaw-Q22andWarsawSpire

• 2016wasanotherdifficultyearforWarsaw’snon-centrallocationsduetoanexceptionallyhighlevelofofficespacedeliveryinthecentraldistricts.Theresulthasbeenanincreaseinvacancyandfallingprimerents

• Thelastyearwasalsothefirstonrecordwhentheamountofofficespacedeliveredinthecentrallocationswasashighasthatdeliveredinnon-centrallocations

• 2016wasasuccessfulyearnotonlyintermsofnewdeliveriestothemarketbutalsokicked-off,previouslyplannedprojectsthatconfirmeconomy’sstabilityandPoland’sinvestmentattractiveness



1.2.Retailmarket

Poland – General

Overthelastfewyears,thePolishretailmarkethasundergonesubstantialchanges,growingfromalimitednumberofstate–ownedandsmallprivateenterprisesatthebeginningofthe1990s,toamajorsectorthatencompassanincreasingnumberofinternationalretailchainsandqualitylocaloutlets.

AsPolandopeneditseconomyitbecameeasierforforeignshoppingcenteroperators,investorsanddeveloperstomoveacrossnationalbordersandaccessneworlesscompetitivemarketsortoexploitmarketniches.Inthiscontexttheownershipofshoppingcenters,aswellasthemixofretailtenants,becameincreasinglyinternational.However,occupiersfocuschangedfromanchorsandmassmarketbrandsthatdrivedemandinmediumandlarge-sizedretailschemes,tosmallershoppingcenters,retailparksorconveniencecenterslocatedinsmallerurbanareas.

TheearlydevelopmentoftheretailmarketinPolandbeganin1990swhensupplygrewtosatisfythedemandforfood.Thisledtothearrivalofinternationalbrand


supermarketsincludingBilla,Hit,Rema1000andGlobi.From1996on,PolandhasseenarapidexpansionofmajorhypermarketchainssuchasTesco,Hypernova,Carrefour,Auchan,Géant,E.LeclercandReal.Simultaneously,somesupermarketchainsretreated(e.g.Billa),someweresold(e.g.Hit,Géant,LeaderPrice,Hypernova,Real)andafewnewstrongbrandsappeared(Aldi,Alma,PiotriPaweł,Simply,MILA,Bi1replacingeightRealandtwoAuchanhypermarkets).Moreover,anexpansionofdiscountstoresrepresentedbyLidl,PlusDiscount,Netto,KauflandandBiedronkahasbeenobserved.InformationconcerningtheretreatofTescochainfromPolandandthreeotherCentralEuropeancountriesremainedunconfirmed.

Themajorhyperandsupermarketchainsintermsofsalesrevenuesinclude:MetroAG(MakroCash&Carry,MediaMarkt,Saturn),JeronimoMartins(Biedronka,Hebe),Tesco,Carrefour,AuchanGroup(Auchan,Simply),SchwarzGroup(Lidl,Kaufland),EmperiaHolding(Stokrotka,Milea),ITM(Intermarche,Bricomarche),E.Leclerc.

Moreover,someofthelargesthypermarketoperatorslikeTescoorCarrefourhavebeenintroducingnewformatssuchasmini-hypermarketsandsupermarkets(e.g.CarrefourExpressandCarrefourMarket).

InJuly2016,PolishgovernmentpassedanewtaxonretailsaleswitheffectfromSeptember1,2016.Thesalestaxhastworates,oneforsalesbetweenPLN17mandPLN170mandoneforsalesabovePLN170mpermonth,respectively0.8%and1.4%.Accordingtothelatestevents,connectedwithopeninvestigationofthe

EuropeanCommission,thetaxonretailsalesissuspendeduntilJanuary1,2018.

Currently,thetotalmodernretailsupplyaccountsfornearly13.5millionm2.Morethan70%ofthetotalmodernspaceisprovidedbyshoppingcenters,whileretailparksandoutletcentersaccountfor27%and2%respectively.AlthoughthelargestshareintheretailmarketisheldbyWarsawfollowedbyothermaincitiessuchasSilesia,Tri-City,Wrocław,Poznań,Łódź,Tri–City,Poznań,Wrocław,Kraków,ŁódźandKatowice,investorshavebeenseekingopportunitiesinsmallercities,asmoreandmoreprojectsarebeingopenedandbuiltintownswithlessthan50,000inhabitants.RetailmarketcontinuestogrowinsmallercitieslikeTomaszowMazowiecki(GaleriaTomaszów),Mysłowice(QuickPark),NowyDworMazowiecki(GaleriaHIT),Zambrow(GaleriaZambrow),Legionowo(GaleriaGondola),Sandomierz(GaleriaKrólewska),GrodziskMazowiecki(GaleriaGrodova).

Modernretailspacecompletedin2016amountedtoaround460,000m2,butthemostimportantcompletionstookplaceinthelastquarteroftheyear.Majornewopeningsincluded:Posnania(Poznań),GaleriaMetropolia(Gdańsk),GaleriaNavigator(Mielec),GaleriaWolomin(Wołomin).ThisyearthefirstclosureofshoppingcentreinPolandtookplaceinSosnowiec(CHSosonowiec).

TheretailmarketinPolandislikelytocontinuetobenefitfromstrongerdomesticandinvestorinterest.Currently,morethan360,000m2ofmodernretailspaceisunderconstruction,over60%inthebiggestagglomerations.Afewofthemajor



projectsinthepipelinefor2017areatadvancedstagesofdevelopment,suchas:GaleriaPółnocna(Warsaw),Wroclavia(Wrocław),ForumGdańsk(Gdańsk)andSerenada(Kraków).Theremainingprojectsinthepipelinewithopeningsplannedinyears2017-2018are:IkeaLublin(Lublin),Libero(Katowice),CentrumSkalka(Tychy),GeminiParkTychy(Tychy),Karuzela(BiałaPodlaska)andNowaStacjaPruszków(Pruszków).

Developer’sactivityinsmallandmediumcitieshasbeenobservedforthelastyears.Theactualamountofspacethatwillbedeliveredtothemarketin2017willdependuponavailabilityoffinancingandtenantdemandforretailspace.Apartfromthemedium-sizeretailprojectsandplannedextensionandremodelingoftheexistingretailstock,themarketistendingtowardstheopeningof“stripmalls”(conveniencecenters)-smallretailparkswithanareanotexceeding5,000m2,oftenlocatedintheregionalcitiesandconstitutingcompetitionforregularshoppingcenters.

Asinpreviousyears,in2016trendconsistingmodernizationand/orextensionofexistingshoppingmallshasbeenobservedonthemarket.AlmosthalfoftheshoppingmallsinPolandwasconstructedbefore2004whichforcestheownerstointroducesomechanges:refreshtheinteriors,refurbishfacades,includenewamenities,rearrangeexistingandencouragenewtenants.

Themainextensionscompletedin2016wereincaseofAtriumPromenada(Warsaw),GaleriaMorena(Gdańsk),ETC(Gdańsk),Auchan(Gdańsk)andGaleriaSudecka(JeleniaGóra).

ThemostimportantworksplannedforthenextthreeyearsaretheextensionsofJankishoppingcenter(20,000m2),CK61(Warsaw,20,000m2),GaleriaBałtycka(Gdańsk,16,000m2),FortWola(Warsaw,upto55,000m2tobedeliveredin2019),AtriumTargówek(Warsaw,5,000m2),Arkadia(Warsaw,renovationand2,000m2 gastronomicalextension),AuchanHetmańska(Białystok,5,800m2)andGalaxy(Szczecin,upto58,000m2inQ42017).

Supermarketsorhypermarketsarestillimportantanchortenants,althoughanincreasingnumberofprojectsarelookingtowardsentertainmentfunctionstodecreasegroceryretailingasthebasicdemanddriver.Standardcomplementaryfunctionsstillincludegalleryshops,servicepointsandafoodcourt.Customersnowlookforquickerandmoreconvenientshopping,andwiththischangeofexpectations,retailoffershouldadjustaswell.

Themarketforretailoutletcentershasbeendevelopingrapidlyoverthelastfewyears.Outletcentersthatarecurrentlyinoperationinthesurroundingareasoflargercities,arerunbythreechains-FactoryOutlet,FashionHouseOutletCentreandOutletCenter.In2016OutletAtmosfera(6,000m2)wasdeliveredtothemarket.Themainfutureoutletopeningsare:MetropolitanOutletinBydgoszcz(2017),extensionofOutletCenterinBiałystok(2017),SilesiaOutlet(2018)andoutletcenterinRzeszów.



Focus on WarsawTotalmodernretailsupplyinWarsawagglomerationexceeds2.2millionm2,butonlyapproximately1.7millionm2 of itcouldbeconsideredas“modern”retailspace.Thisequatestoaround0.9m2 of totalretailspaceperperson.AmongallofthePolishlargecities,Warsaw’sretailspacemarketremainsoneoftheleastsaturated,despitethehighestpurchasingpower.Theremainingretailersoccupymostlyretailunitssituatedonthegroundfloorsofresidentialbuildings/officebuildingsordepartmentstoresbuiltbeforethe1990s.

FirstshoppingcentersinWarsawopenedinearly90s:ParkHandlowyJanki(exIKEAJanki),Tesco(exHIT)andKENCenter(exE.Leclerc).ThatdecadebroughtalsoopeningsofAtriumPromenada,Klif,M1Marki,AtriumRedutaandAtriumTargówek.Between2000and2007fourmajoropeningstookplace:Arkadia(oneofthebiggestshoppingcentersinPoland),ZłoteTarasy,GaleriaMokotówandBlueCity.Currentlythereare7majorshoppingcentersinWarsawonly,offeringover3,500retailunits.

InOctober2016HalaKoszykiwasopened,adding7,500m2ofmodernretailspaceinWarsaw.Thetwo-phaseextensionofPromenadaadded7,700m2 and the extentionofTargowekParkHandlowy(AgataMeble)added25,000m2 to thesupplyofretailspace.InWarsawagglomerationtwonewlyconstructeddevelopmentswasopened:FabrykaWołomin(30,000m2)andGondolaLegionowo(10,500m2).

AmongshoppingcentersunderconstructionandintheplanningphaseinWarsawagglomerationthereareGaleriaPółnocna(64,000m2),GaleriaWilanów(61,000m2),NowaStacjaPruszków(27,000m2),ArtNorblin(21,000m2),Koneser(21,000m2)andGaleriaRondoWiatraczna(11,000m2).

Warsawagglomerationstillhasthepowertoattractnewinvestorsandbrands.Someareasmaybeconsideredforlocationofnewretaildevelopments.Fromtheotherhand,thehighestpotentialhavehighstreets,duetorisingdemand.


Major shopping centers in Warsaw

Name Location Area (m2) Owner Completion

Arkadia Śródmieście JanaPawłaIIAve. 110,000 Unibail-Rodamco 2004

BlueCity OchotaJerozolimskieAve. 65,000 Singspiel PhaseI–2004

PhaseII-2014

WolaPark Wola GórczewskaSt. 77,000 InterIkeaCenter

PolandPhaseI–2002PhaseII-2015


Name Location Area (m2) Owner Completion

AtriumPromenada

PragaPołudnieOstrobramskaSt. 55,000 AtriumEuropean

Real Estate

PhaseI–1996PhaseII–1999PhaseIII–2005PhaseIV-2016

Złote Tarasy

Śródmieście ZłotaSt. 65,000

AXAREIMJVCBREGlobalInvestors

2007

GaleriaMokotów

Mokotów WołoskaSt. 62,500 Unibail-Rodamco

PhaseI–1999PhaseII–2002PhaseIII-2013

SadybaBestMall

Sadyba PowsińskaSt. 27,000 KlepierreGroup 2000

Source: EY


IntherecentyearsWarsawhighstreetretailhasrecoveredandgainedimportance.

Highstreetsarelocatedacrossthecentralquadrantofthecity.TheretailcategorieswhichdominatethehighstreetsinWarsawarecafésrestaurant,barsandservicesproviders.Alsowellrepresentedarefashionandfinancialservicesandluxuryretailers.NowyŚwiatStreetisthehistoricalhighstreetlinkbetweenTrzechKrzyżySquaretotheOldTownandoffersanimportanttouristdestination.Therearenumerousrestaurantsandcafeslocatedonthestreet.PlacTrzechKrzyży,ontheotherhand,isdominatedbyprimeandluxurybrands,stylishrestaurantsandcafes,extendedtowardstoMokotowskaStreet.AnotherimportanthighstreetinWarsawisMarszałkowska.ChmielnaStreetisapedestrianzoneconnectingNowyŚwiatandMarszałkowskawhichoverflowswithcafesandrestaurants.

TheopeningofthesecondmetrolinehasenhancedtheattractivenessofNowyŚwiatStreetandŚwiętokrzyskaStreet.Primehighstreetrentsforunitsofca.100m2rangebetweenEUR70-95EUR/m2/month.UnitsincentralWarsawvarysignificantlyintermsofstandardandaccessibility.ForeignanddomesticretailershavealsoestablishedastrongpresenceonthegroundfloorofbuildingsfacingJerozolimskieAvenueandMarszałkowskaStreet.ThesectionofJanaPawłaIIAvenuetothenorthoftheAtriumBusinessCenterhastraditionallybeenknownasashoppingdestinationandtodaystillfeaturesamixofmoderatelypricedstores.Smallclustersofexpensiveshopsarealsofoundinhotelarcadesandonthegroundfloorsofthemajorofficebuildings.

TheWarsawhighstreetretailsectorisenjoyinglowvacancylevels(1.6%)andalowlevelofsaturationgiventhegenerallackofretailspaceinshoppingcentersas


comparedwithdemand.Thedevelopmentpotentialofthehighstreetshasdrawntheinterestofmanydeveloperswhoarenowseekingnewlocationsfortheirprojectsorexpendingexistinglocations.

NewdevelopmentsthataddedorwilladdnewretailspaceinthehighstreetcenterofWarsawincludereconstructionandmodernizationofobjectssuchasCEDET(JerozolimskieAvenue),Ethosofficebuilding(TrzechKrzyżySquare)andHalaKoszyki(KoszykowaStreet)andtheconstructionofofficebuildingswithretailcomponent(SiennaTowers,CentrumMarszałkowskaandAstoria).

Retailrentratesvarywidelyanddependmainlyonthetypeoffacility,locationandquality.Over2016rentalrateshaveremainedstablewithnochangesexpectedinthenearfuture.TheratesforretailunitsinprimelocationsmayexceedEUR130/m2/month.

AveragerentsforsmallunitsinmodernshoppingcentersinWarsawvaryfromEUR40to50/m2/monthdependingonlocation,unit–sizeandtypeofmerchandise.Primeunitsof100–150m2areletatEUR60to100/m2/month(includingrentsinZłoteTarasyandArkadia,whichrepresentthehighestretailrentsinPoland).LargerunitsleaseforapproximatelyEUR15to 30/m2/month.Usuallyanchorstoreoperatorsoccupyingunitsofmorethan1,000m2paymuchlessthanothers,withaveragerentsfromEUR9to12/m2/monthandevenlower,aroundEUR5to8/m2/monthforhypermarkets.ServicechargesforsmallerspacevaryfromEUR5to9/m2/month.MajortenantsarechargedEUR2to3.5/m2/month.

BrandsthatrecentlyopenedtheirstoresinPolandinclude:Dunkin’Dounuts,Dior(beautyproducts),&OtherStories,Marc&Co,L’Erbolario,MaxiBazar,Uterque,Forever21orSteveMadden.Simultaneously,weobservesamemarketexits,suchas:AmericanEagle,Celio,Brice,Burberry,Devered1902,DairyQueenorKari.Also,Marks&Spencer,Kappahl,TopShop,MothercareandGAPdecidedtoclosealloftheirstoresinPoland.

Standard lease termsStandardleasetermsforretailspacearesimilartothoseintheofficemarket.However,thetypicalleaselengthforretailspaceinmodernshoppingcentersrangesfrom5to10years.Anchortenantsusuallyprefer10-yearleaseagreementswithextensionoptions,typicallyforanadditional10-yearperiod.

Withtheincreasingsupplyofretailspace,tenantshavebecomemoredemandinganddevelopersseekingattractivetenantsfrequentlyoffernotonlylowerrentalratesbutalsoincentivessuchas:

• rentfreeperiodrangingfrom1–2monthsforsmallershopsandupto6monthsforlargerunits;

• fit-outallowanceatthelevelof EUR50–200/m2forlargeunitsanduptoEUR600/m2foranchortenants(i.e.withminimum10-yearleaseagreements).

Withincreasingsupplynowbecomingavailable,thebroaderPolishmarket,isbecomingmoretenant-ledascomparedtopreviousyears.

Onthematureretailmarkets,withhigh




saturationrate,anchortenantsstartedtodemandlargefit-outcontributions,extendedrentfreeperiodsorpartiallyturnover-basedrents.

Key points:• Legalchanges,suchastaxonretail

sales(suspendeduntilJanuary1,2018)orprohibitionforretailoperationonSundays(actcurrentlyunderdevelopment)couldinthefutureaffect

financialperformanceofretailchainsinPoland.

• DuetoweakfinancialconditionAlmaclosesstoresalloverPoland.

• ThefirstclosureofshoppingcenterinPolandtookplaceinSosnowiec(CHSosonowiec).

• Newsupplyin2016amounted460,000m2andcumulatedinlastquarter.Itisexpectedthatnewsupplyin2017exceedthisyear’slevel.


1.3. Warehouse market

Poland – GeneralThemodernwarehousemarketinPolandbeganitsdevelopmentintheearly1990s,andcurrentlyincludesover11.2millionm2 ofwarehousespace.AlthoughinitiallycentralizedwithintheWarsawmetropolitanarea,themodernmarketisnowsubdividedintosevenregions,eachofwhichhasawelldevelopedwarehousespaceoffering.Theseinclude:Warsaw,Poznań,UpperandLowerSilesia,CentralPoland(Łódź,PiotrkówTrybunalski),Tri-City,andKraków.Logisticscentersaretypicallylocatedoutsideofcitylimitswithgoodaccesstomajorexistingandplannedhighways.

Oneactivitythathascontinuedeventhroughthecrisishasbeenroadandinfrastructureconstruction.Thiscontinuestoboostinvestorinterestinalternativeregions,especiallySzczecinwheredemandin2016exceededthelevelofsomeofthemoreestablishedlocations,butalsoZielonaGóra,Lublin,Toruń,BydgoszczandRzeszówareexhibitinggrowth.

ItscentrallocationonthemapofEuropeandrelativelystrongeconomymakesPolandaperfectlogistichubforcentralandeasternEuropebranchesofinternationalcompanies.Thewarehousemarkethasalsobeenboostedbytheincreaseine-commerce.AmazonalonehasalreadycompletedthreelogisticcentersinPolandtotalingalmost300,000m2 GLA


anda4thwith67,000m2isnowunderconstruction.

Currentlyunderconstructionisca.1.5millionm2ofmodernwarehousespace,ofwhich75%isalreadyleased.Althoughthestrongrentalmarketreducestheriskassociatedwithspeculativedevelopment,shortconstructiontimesandevenmorecomplexrequirementsofthetenantshaspushedmostdevelopersandinvestorstosticktothebuilt-to-suitformula.

Intensivemarketgrowthcontinueswiththeyear2016.Newsupplyin2016exceeded1.25millionm2–settinganewrecordandbeatingthepreviousyearbyalmost30%.Despitethehighamountofnewsupplycomingonthemarket,vacancyrates

increasewasnotsignificant–fromc.a.4.6%in2015to5.4%in2016.Rentsremainonstable level.

PositivetrendsshouldcontinueinthefollowingyearsandwillprobablyaffectregionalmarketssuchasSzczecin,Rzeszów,Lublin,Bydgoszcz,ToruńandOpole.

ApartfromstablegrowthinregularwarehouseswepredictanincreaseindemandforSmallBusinessUnits(SBU)drivenbygrowinge-commercemarket.Therearealsonewformatswhichhavebegunenteringthepolishmarketsuchasself-storegeunitsorinvestmentslikeAdgarDataCenter-4storey,150,000m2 warehousefordataservers.

The most active warehouse developers in Poland

Company Country of origin

Major locations (existing and proposed)

Panattoni USA

Bielsko-Biała,Błonie,Bydgoszcz,Czeladź,Garwolin,Gdańsk,Gliwice,Gorzów,Grodzisk,Kraków,Kutno,Legnica,Łódź,Lublin,MińskMazowiecki,Mysłowice,Opole,OżarówMazowiecki,Poznań,Pruszków,Radomsko,Robakowo,Rzeszów,Sosnowiec,Stryków,Szczecin,Święcice,Teresin,Toruń,Warsaw,Wrocław

ProLogis USA

Bedzin,Błonie,Chorzów,DąbrowaGórnicza,Gdańsk,Goleniów,KątyWrocławskie,Kobierzyce,Młochów,PiotrkówTrybunalski,Poznań,RudaŚląska,Sochaczew,Stryków,TarnowoPodgórne,Teresin,Ujazd,Warsaw,Wrocław

SEGRO UK Gdańsk,Gliwice,Łódź,Poznań,Stryków,Tychy,Warsaw,Wrocław

Goodman Australia Gdańsk,Gliwice,Kraków,Łódź,Poznań,Toruń,Sosnowiec,Warsaw,Wrocław,Lublin



Company Country of origin

Major locations (existing and proposed)

P3 UK Błonie,Mszczonów,PiotrkówTrybunalski,Poznań

MLPGroup Israel Bieruń,Lublin,Łódź,Poznań,Pruszków,GliwiceTeresin,Wrocław

WhiteStar(formerlyAIG/Lincoln)

USA Gliwice,Łódź,Stryków,Warsaw

BiuroInwestycjiKapitałowych Poland Kraków,OżarówMazowiecki,PruszczGdański,

Sosnowiec

MenardDoswell&Company USA Czeladź

MetropolGroup Poland Błonie,Warsaw

Source: EY

Focus on WarsawTheWarsawmodernwarehousestockisdefinedaspropertieswithinapproximately50kmofthecitycenterandissplitintotwozones:

• zoneI:approximately680,000m2 in propertieslocatedwithina15kmradius(Okęcie,Służewiec,Targówek,Żerań),warehousefacilitiesinthiszonehostmostlypharmaceuticals,cosmeticsandelectronics;

• zoneII:approximately2.42millionm2 inpropertieslocated15to50kmfromthecitycenter(e.g.Piaseczno,OżarówMazowiecki,Błonie,Teresin,Nadarzyn,Pruszków).

AlthoughtheWarsawmetropolitanareacontinuestoaccountforthelargestsingleshareinthePolishmarket(c.a.28%oftotalspaceinPoland),thisdominancehasbeen

steadilyerodingasdeveloperspushforapresencealongtheemergingmotorwaysoutsidethemajorcities.

ThetotalmodernwarehousespaceintheWarsawMetropolitanArea(ZonesIandII)isestimatedatover3.1millionm2ofmodernspace.

AstheWarsawwarehousemarketwasalwaysthemostsaturatedoneinPoland,theboomof2014didnotaffectitatfirst.Whilesupplygrowthinregionalcitieswasaccelerating,Warsawhadatemporarydownturn.Only38.000m2 ofnewsupplywascompletedin2014inWarsaw.Situationchangedin2015,whendevelopersdeliveredaround150,000m2 -almost4timesmorethanin2014.Year2016broughtanotherhugeincreasewithmorethan240,000m2newsupplyandexpectationsfor2017areevenhigher.



Currentlyabout350,000m2ofwarehousespaceisunderconstructioninWarsawarea,mostprojectslocatedinzoneII.Predictingfuturesupplybecomesmoredifficulttoestimateasdevelopersmovetoclientfocusedbuilt-to-suitprojects.

Themajorityofspaceleasedinmoderndistributioncentersislettologisticscompanies,whichsub–letspaceandprovidetheirtenantswithfullservice,includingpackaging,loading,customsclearanceandtransportation.

Examples of class A modern warehouse developments in Warsaw area

Project LocationArea (m2) [existing / proposed]

Developer / Owner Completion

DiamondBusinessPark Piaseczno 57,000

WHITESTAR(formerlyAIGLincoln)

2001-2007

EuropolisPark Błonie 178,000 MenardDoswell/CAImmo 2006–2012

MilleniumLogisticParkPruszkówII Pruszków 81,000

/182,000 MLPGroup 2007-2014

PanattoniParkOżarów Ożarów 67,800 Panattoni 2009

PanattoniParkPruszków Pruszków 85,300 Panattoni 2007-2009

PanattoniParkKonotopa Konotopa 46,700 Panattoni 2016

PlatanPark Warsaw,Ursynów 53,000 PlatanGroup 1998–2001

ProLogisParkBłonie Błonie 153,000 ProLogis 1999–2008

ProLogisParkTeresin Teresin 159,000 ProLogis 2000–2005

ProLogisParkWarsawI

Warsaw,Okęcie 39,000 MenardDoswell/

ProLogis 1995–1997

ProLogisParkWarsawII

Warsaw,Targówek 38,300 ProLogis 2006

ŻerańPark Warsaw,Żerań 52,000 ApolloRida/

Prologis 1999–2000




Project LocationArea (m2) [existing / proposed]

Developer / Owner Completion

SEGROBusinessParkWarsawŻerań

Warsaw,Żerań 49,900 ApolloRida/

SEGRO 2005–2011

DistributionParkAnnopol

Warsaw,Annopol 31,239 Hines 2007-2014

Source: EY

Despitetheriseoftheregionallocations,Warsawremainsthemostattractivedestinationforwarehousetenants.DemandforleasablewarehousespaceinWarsawin2016reached900,000m2,breakingthepreviousrecordof2014(860,000m2).

Comparedto2015,thedemandin2016increasedbyc.a.34%andwasc.a.60%higherthaninthesecondlargestregion–Silesian.Almost85%oftheareawasleasedin Zone II.

Themostsoughtafterunitsizesare1,000–3,000m2,usuallyleasedinoffice/warehousefacilitiesofabove10,000m2,locatedinlogisticsparks.Areaslargerthan10,000m2areusuallyleasedbylogisticsoperatorsorretailcompanies.

VacancyratesinWarsawhaveslightlydecreasedtothelevelof6.5%comparingtothe6.7%in2016.

Warsawbigboxrentshaveremainedstablewithaslightdownturnandfor2016arecurrentlyquotedatthefollowinglevels:

• zoneI:EUR3.5to4.8/m2/month;

• zoneII:EUR1.9to3.0/m2/month.

Incentiveshavealsomoderated,withonemonthforeachyearofleasetermbeingageneralbenchmark.Inadditiontorent,tenantsareobligedtopayservicechargesforpropertymanagement,maintenance,propertytaxandsecurity.AfixedamountpaidinadvanceandadjustedannuallyonthebasisofactualcostsvariesfromEUR0.7to1.2/m2/month.

OneofthecharacteristicsfortheWarsawindustrialmarketisalargepresenceofclassBbuildings.FirstmodernwarehouseandproductionfacilitieswerebuiltinPolandintheearly90s,thus,overtheseyearstheyagedandnowarebeingslowlyreplacedbynewerdesignsbetteradaptedtochangingtenantsneeds.


1.4. Residential market

Poland – current overviewIn2016developerswerebreakingrecordsintermsofnewresidentialspacedeliveredonthemarket.Theyalsolaunchedahugenumberofprojects,encouragedbycontinuingstrongdemandandpositivemarkettrends.AccordingtotheCentralStatisticalOfficein2016developersdelivered78,462unitswhichwas25.7%morethaninpreviousyearandobtained106,643buildingpermits,whichwas9.7%morecomparedto2015.Newconstructionstarts,althoughveryhighat85,497unitsfor2016wasstillslightlybelow(1.2%)newstartsin2015.

Afterrecordbreakingyearsin2014and2015,thetrendhascontinuedfor2016historicalhighsbothforunitssoldandlaunchedtothemarket.

DevelopersonthetopPolishmarkets(Warsaw,Kraków,Wrocław,Poznań,Tri-CityandŁódź)soldover61,800newunits,nearly20%morethaninthepreviousyear.Thenumberofnewflatslaunchedtothemarketin2016wasevenhigherthanduringthe2007boomwhendeliverieshitnearly65,000units.Demandfornewresidentialsitesremainshigh,suggestingthatthetrendisexpectedtocontinuethefollowingyear.


Themarkethasbeeninfluencedbyanumberoffactors,withacumulativeimpactovertheyear.Interestrateshaveremainedlowmakingmortgageloansmoreaccessiblewhileatthesametimeencouraginginvestmentbuyers.Alsoastrongfactorhasbeenagovernmentco-financingprogram‘HousingfortheYoung”(“Mieszkanie dla Młodych”,MdM)whichremainsapopularprogramamongbuyers.

Theprogramwasintroducedatthebeginningof2014butduetochangeshadmajorimpactinthelastquarterof2015.SinceSeptember2015theprogramwasalteredtocoveralsothesecondarymarketandbecamemoreavailableforlargerfamilies.Thisincreasedthenumberofapplicationsformortgagesubsidiesandpurchasetransactions.Itwillcontinuetohaveanimpactalsoin2017and2018.AlthoughmorespecifictypeofapartmentsfulfillingMdMprogramparametersareavailableonthemarket,therearesignificantdisproportionsregardingsetpricelimitswithinthecities.

SinceJanuary2016themaximumavailableLTVlevelformortgageswas85%.Thismeansthatbuyersarerequiredtopayatleast15%ofequity.However,alargenumberofbanksallowa90%LTV.AccordingtoregulationsofthePolishFinancialSupervisionAuthority(KNF)theowncontributionamountsto20%in2017.

Stableprices,widerangeofnewflats,securityofmatureddevelopers’marketaswellasgoodeconomicindicatorswerethemainfactorsinfluencingdemandthroughout2016.

Poland-fundamentalsDuringthelasttwodecadesthePolishresidentialmarketgrowthhasbeendrivenbytheoverallgrowthofthecountry’seconomy,mortgagefinancingdevelopmentaswellaspositivedemographictrendsobservedinbigcities.

Oneoftheturningpointsinthemarketwastheboomperiodof2004-2007,triggeredbyEUaccessioninlowinterestrates,inflowofinvestorsincreasedavailabilityofmortgagefinancing.Theboomreshapedthestateoftheresidentialmarket,pumpingupthepricesofhousingandresidentialland.

Despitethecontinuingneedforadequatehousing,demandstillreliesonaffordability,andtocapoffafewgoodyearsofstrongpricegrowth,2007markedanotherturningpoint.Moderationinlate2007ledtostagnation2008,whichultimatelygavewaytopricesdecreasesin2009.Since2010pricesremainstablewithaslightupwardtrend.

InPolandover75%ofthehousingstockisowneroccupied,whileintheEUthemajorityofpeoplerenttheirflats.Theprivaterentalsectorremainsdifficulttoestimatebecauseinordertoavoidtaxation,manyoftherentalagreementsarenotofficiallyregistered.AccordingtoofficialstatisticsinPolandlessthan5outof100peoplerenttheirflat.Therentalmarketisdominatedbyprivateinvestors-andisdeveloping-mainlyinlargestcities,universitycitiesandresorttowns.Aninstitutionallevelrentalmarketisalmostnon-existentinPoland.



In2014anewinitiativecalledApartmentsfortheRentFundappearedonthePolishresidentialmarket.ThiscommercialprojectofinstitutionalrentalpropertiespreparedbyBGK(BankGospodarstwaKrajowego)aimstoincreasethemarketshareofapartmentsforrentavailableatattractiveprice.Thefundwasbuyingstandingassetsanddevelopmentprojectsforrent.Currently,flatsareavailablein:Warsaw,Kraków,Wrocław,Gdańsk,Poznań,Piaseczno.AmongplannedlocationsareKatowiceandŁódź.thefundplanstorentfullyequippedflatsatrentalrates20%-30%lowerthancomparableunitscurrentlyavailableonthemarket.PlannedinvestmentscaleisPLN5billionandaimstobuildca20,000flatstolet.

In2016newprogrammecalled“Mieszkanie+”wasintroducedasthepartofplannednewhousingpolicy.Theaimof Mieszkanie+istoprovide6,000flatsavailableforrentatlowerprice.Newhousingdevelopmentsareplannedtobebuiltincitiessuchas:Poznań,Katowice,StalowaWolaorWałbrzych.

ThemajorityofprojectsdeliveredonthePolishmarketarethoseconsistingofmultifamilybuildings.AccordingtotheCentralStatisticalOffice,in2016over162,727unitsweredelivered,whichwasa10.2%increasefromthepreviousyear.48.2%werebuiltbydevelopersand48%byindividuals(mainlysinglefamilyhouses).Theremainingsupplywasdeliveredbyhousingcooperativesandmunicipalities,whoseshareremainsmarginal.

Therewasa12%increaseinbuildingpermitsissuedin2016thatamountedto211,565.Alsothenumberof

constructionsstartedincreasedbyapprox.3.3%reaching173,932units.

Currently,thePolishresidentialmarketisthelargestinCentralandEasternEurope,however,itstilllagsbehindwesternEUmembersintermsofquality,ageofstockandmarketlevelofsaturation.

Moreover,statisticalindicators,suchasnumberofresidentialunitsper1,000inhabitants,usablefloorareaperoneinhabitantandperaverageresidentialunit,arebelowtheEuropeanaverage.

AmajorobstacleconstraininghousingsupplyinPolandisadministration-drivenandconsistsofthelimitednumberofzoningplans,whichcoverlessthan30%ofcountry’sarea.Ineachcase,lackofzoningresultsinatime-consumingadministrativeprocedure,whichusuallytakesseveralmonths.Incaseswherealocalspatialdevelopmentplanhasnotbeenimplementeditisnecessarytoobtainazoningdecision(WarunkiZabudowy)priortoapplyingforabuildingpermit.Currentlyobservedtrendsinmajorityconcernrentalmarket,alsostudentandseniorhousingdevelopment.

Focus on WarsawWarsaw’sresidentialmarketremainsthemostdevelopedinPoland.Thedemandisdrivenmainlybyin-migration,thehighestincomelevelinPolandandthelowestunemploymentrate.Warsawisalsoapopularlocationforsharedservicecentresandofficeinvestments.Bothofthemresultinincreaseddemandonresidentialdevelopments.Employmentperspectivesandmajoruniversitieslocated



inWarsawareamagnetforyoungpeoplefromotherregionsofPoland.Therefore,themarketreactsforincreaseddemandresultingthemultifamilydevelopmentsbeingfocalpointfordevelopers.

Morethan10%ofPolishresidentialsupplyisdeliveredtotheWarsawmarket.Theshareofnewhousingunitsinsingle-familydevelopmentsbuiltinWarsawremainsunder1%.Stilllowinterestratesin2016causedtheincreaseoftransactionvolumeresultinginwithdrawalofpersonalsavings,whichisbeingappliedtothepurchaseofrealestate.

Aftertherecord2001year,numberofcompletedunitsinWarsawfluctuatedbetween10,000and15,000p.a.forseveralyears.Followingtheboomperiod,unitcompletionsincreasedto19,049and19,482for2008and2009respectively.However,in2009constructions’startswerestarklycurtailed,resultinginthedeliveryofonly12,462dwellingsin2010and9,408in2011.Inthebeginningof2012thesituationontheresidentialmarketwasinfluencedbyhighsupplyofdwellingsreleasedinQ1.Thiswasmainlydrivenbyintroductionofthe“DevelopersAct”attheendofApril.AccordingtotheCentralStatisticalOfficein2013nearly13,200apartmentswerecompleted.Thefollowingyearsoccurredevenbetteramountingupto14,964and13,320unitsfor2014and2015respectively,whilein2016thenumberofunitsdeliveredincreasedto19,505.

Warsawremainedthemostexpensiveresidentialmarketwithanaverageapartments’transactionpriceofapprox.7,600PLN/m2.

Buyerspayonaverage5-7%lessthantheofferprice.Thetendencyismainlyreflectedinthesecondarymarketandisalsoduetobetteralignmentofdemandandsupply,aswellaslargenumberofcompletednewresidentialinvestments.AccordingtotheNationalBankofPolandtheaverageaskingpriceofapartmentsontheprimarymarketinWarsawiscurrentlyatthelevelof7,800PLN/m2. ThehighestaveragepriceswereobservedinŚródmieście(PLN11,700/m2)andthelowestinBiałołękadistrict(belowPLN5,600/m2).ApartfromŚródmieście,themostexpensivedistrictsinWarsawremainMokotów,Ochota,UrsynówandŻoliborz.

Aswiththerestofthecountry,demandinWarsawisontheupturnduetolowinterestratesandgovernmentsupport.However,thereisathreatofslowdownasmortgagefinancingregulationsthathavebeentightenedgraduallyinrecentyears.NeverthelessstronginternaldemandanddemographicfactorsshouldsupportgoodintheWarsawresidentialmarket.

Key points

• Polishresidentialmarketischaracterizedbyconstantgrowthofbothsupplyandthedemandespeciallyontheprimarymarket.

• 2016wasarecordbreakingfordevelopersintermsofsalesaswellasnewunitslaunchedonthemarket.

• Pricesofresidentialpropertiesareremainingstablewitharisingtendencyobserved(Warsaw,Tri-City-forprimelocations).




• Thereisahugeinterestofbothindividualandinstitutionalinvestorsduetolowinterestratesandhighdemandonrentalmarket.

• ApartmentsforRentFundisdevelopinginnewlocationsinbiggestPolishcities.

• HousingforYoungnotedrecordhighresultsinthe2016and2017andissupposedtobringanotherrecordsonthemarket.

• Thereisrisinginterestofinvestorsinnewmarketsegments–studentandseniorhousing.


1.5.Hotelmarket

HotelmarketinPolandisinastageofrapidgrowthwhichisreflectedbytheincreasingnumberofnewhotels,growingnumberoftourists,aswellasthegrowinginterestinthePolishmarketfromtheinternationalhotelbrands.

ThekeydriversforthedevelopmentofhospitalitybusinessinPolandare:economicgrowth,risingpopularityofPolandasaholidaydestinationaswellasthedevelopmentofmedicaltourisminPoland.AnotherimportantfactorinfluencingpositivelythedevelopmentofthehotelmarketinPolandisthedynamicgrowthofBPO/SSCsector.

AccordingtodatapublishedbyCentralStatisticalOffice,thenumberofcategorizedhotelsinPolandexceeds2,450andisgrowingyear-to-year.However,only14%ofthecategorizedhotelsinPolandarechainhotelscomparedtotheaveragelevelof30%inEurope.Thehigherthecategoryofahotel,thelargestpercentageofchainhotelsinthecategory.Currently,theshareofchainhotelsexceeds50%infive-starcategoryandiswellbelow10%inthecaseofone-starhotels.

Chainhotelsarealsoonaveragelargerthanindependentoneswhichisconnectedwiththeminimumrequirementsofhotel


chainsregardingthebusinessprofitability.Inthecaseoflargerhotelsthefixedcostsaredistributedacrossgreaternumberofrooms.

ThenumberoftouristsstayingathotelsinPolandin2015reachednearly17.5million,whichisanincreaseof8.4%comparedtotheprecedingyear.TheshareofPolishguestsusinghotelinfrastructureisrising.Foreigntouristsaccountedfor25.1%oftotalnumberoftouristsstayingathotels,whichis1.1p.p.lessthanin2014.

TheaveragehotelroomoccupancyinPolandin2015equaled48.3%andwas5.6p.p.higherthanin2014(CentralStatisticalOfficedata).

ThetablebelowpresentsthenumberofhotelsandhotelroomsinmainPolishcities.Asshown,Krakówisthecitywiththehighestnumberofhotels.However,whenlookingatthenumberofhotelrooms,Warsawtakestheleadwith27%morehotelroomsthanKraków.


Number of hotels and hotel rooms in main cities in Poland

Source: EY based on GUS

Asfarasoperatingmodelsareconcerned,internationalhotelchainsthatareexpandingtheiroperationsonthePolishmarketaremainlyinterestedinmanagementorfranchiseagreements.PureleaseagreementsareacceptedonlyinthecaseofprimelocationsinmajorcitiesandusuallybyhotelchainsthatareenteringthePolishmarket.Hotelchainsthatarethemostactiveintermsofnew

openingsinPolandare:Accor/Orbis,HiltonHotels&Resorts,MarriottInternationalandRezidor.

Thetablebelowpresentsplannedinvestments,whichareaccountedformainlybyMarriotInternational,Accor/OrbisandHiltonHotels&Resorts,whileresortsaremainlytargetedbyRezidorwhichistoopenhotelsinSzklarskaPoręba,ŚwinoujścieandZakopane.



Selected hotels in pipeline and planned (2017 – 2020)

Chain Brand Standard City

Accor/OrbisIbisStyles(5) 3* Warsaw,Kraków,Szczecin,

Grudziądz

IbisBudget 1* Gdańsk

HiltonHotels&Resorts

HamptonbyHilton(5) 3* Warsaw,Gdańsk,Łódź,Lublin

HiltonGardenInn 4* Szczecin

MarriottInternational

FourPointsbySheraton(2) 4* Warsaw,Zakopane

Moxy(2) 3* Warsaw,Katowice

Moxy+CourtyardbyMarriott 3* Szczecin

Moxy+ResidenceInn 3* Warsaw

RenaissancebyMarriott 5* Warsaw

RezidorRadissonBlu 4/5* SzklarskaPoręba,Świnoujście,

Zakopane

ParkInnbyRadisson 4* Poznań

InterContinentalHotelsGroup Holiday Inn 4* Warsaw,Gdańsk

Likus Prudential 5* Warsaw

RafflesHotels&Resorts HotelEuropejski 5* Warsaw

Gołębiewski Gołębiewski 4* Łeba

Source: EY

Focus on WarsawWarsawisthelargesthotelmarketinPolandintermsofanumberofhotelrooms.ItisalsousuallythefirstchoiceoftheinternationalbrandsenteringthePolishmarket.

AccordingtodatapublishedbyCentralStatisticalOffice,in2016therewere85categorizedhotelsinWarsawofferingapproximately13,000rooms.Three-starhotelsconstituted40%ofallhotelsinWarsawandaccountedforca.33%ofhotelroomssupply.



Therewere12five-starand16four-starhotels,accountingforapproximately24%and27%oftotalnumberofhotelroomsinWarsaw,respectively.

In2015inWarsawthereweremorethan4.2milliontouristswhichwasanincreaseof5.5%comparedtothepreviousyear.DuetothefactthatWarsawisperceivedprimarilyasabusinesscity,themajorityofguestsusingthehotelinfrastructureinWarsawarebusinesstravelclients(75%).

Theaverageoccupancyinfive-starhotelsinWarsawin2015reachedalmost77%,incaseoffour-starhotelstheoccupancywasslightlyhigherandequaled79%.AnaverageoccupancyacrossallthehotelcategoriesinWarsawin2015stoodataround71%.

ThetablebelowpresentsmainhotelprojectsinWarsawthatareeitherinpipelineorintheplanningphase.

Hotel projects in Warsaw

Chain/Brand Standard Location Number of rooms Opening date

MarriottInternational/Renaissance

5* ChopinAirport,ŻwirkiiWigurySt. 225 3/4Q2017

MarriottInternational/Moxy 3* ZąbkowskaSt. 141 4Q 2017

Likus/Prudential 5* ŚwiętokrzyskaSt. 150 2017/2018

RafflesHotels&Resorts/HotelEuropejski

5* KrakowskiePrzedmieścieSt. 103 4Q 2017

WolaInvest/AparthotelWola n/a

CornerofKasprzakaSt.andPrymasaTysiącleciaAve.

416 4Q 2017

Arche/KrakowskaResidence 4*

CornerofKrakowskaAve.andŁopuszańskaSt.

356 2Q2018

MotelOne 2/3* TamkaSt. 330 2Q2018

InterContinentalHotelsGroup/Holiday Inn

4*CornerofTwarda,ŻelaznaandSiennaSt.

254 2Q2018

Accor/Orbis/IbisStylesWłochy 3* ŚwierszczaSt. 214 2018


Chain/Brand Standard Location Number of rooms Opening date

MarriottInternational/FourPointbySheraton

4*CornerofKonstruktorskaandSuwakSt.

192 2Q2018

Puro 4* WidokSt. 180 2018

Accor/Orbis/IbisStylesWarszawaExpo

3* PrądzyńskiegoSt. 120 2/3Q2018

Hilton Hotels&Resorts/HamptonbyHiltonSłużewiec

3*CornerofCybernetykiandPostępuSt.

163 4Q2018

MarriottInternational/Moxy+ResidenceInn

3* WilanowskaAve.

200rooms(Moxy) 100 stay apartments(ResidenceInn)

2019/2020

Source: EY

Accordingtothetableabove,thenexttwoyearswillseetheopeningoffourupscalehotelprojects–RenaissanceMarriot,HotelRafflesEuropejski,PrudentialandAparthotelWolaInvest.Together,thesehotelsshouldaddalmost900newroomsandapartmentstotheWarsawmarketandwillincreasethetotalsupplyofhotelroomsinWarsawby7%.Inadditionin2017isplannedopeningofhotelundernewMarriottbrand–Moxywith141roomsexcept,abovementionedprojects,inyears2018-2019.Inyears2018-2019additional2,100roomsaretobedeliveredonthemarket.

Key points:• ThePolishhotelmarketisconstantly

growingbothintermsofnumberofhotelsandvisitors-growthby6.3%and8.4%respectively.

• In2016thenumberofhotelsinPolandexceeded2,400whichintotaloffermorethan126,000rooms.

• Thereareagrowingnumberofchainhotels-currentlytheirshareinthemarketisapproximately14%.

• ThenumberoftouristsstayingathotelsinPolandin2015reachednearly17.5mln.

• Theprojectsinpipelineandplannedarefocusedonmajorcitiesandresorts.



1.6.Investmentmarket

DevelopmentofPolishcommercialinvestmentmarkethastrailedbehindtherestoftherealestatemarket.Initiallytherewerefewinvestorsandyieldswereinthedoubledigits.Itwasnotuntil2004andtheadventofanEUmembershipthatthesituationimproved.ThatyearmarkedthebeginningofanintensivefouryearperiodofforeigninvestmentinthePolishmarket.OverthisperiodthevolumeoftransactionsaveragedjustunderEUR4billionayear,witharecord-breakingvolumeofoverEUR4.7billionin2006;afarcryfrom2001whenforeigninvestmentsweremoreorlesslimitedtotheWarsawofficemarket.Furthermore,theearlyyearssawthecommercialinvestmentmarketplaguedwithalackofavailableinvestmentschemes,ormismanagedandoverrentedpropertieswithhighvacancyrates.Theincreasingnumberoftransactionshasnotonlystabilizedinvestmentsbutcompletelychangedthestructureofyields(downward)andprices(upward).

Year2009markedahistoriclowwithlessthanEUR500milionintransactionvolume.However,from2010onwardsthemarkethassubstantiallyimprovedandin2011-2014totalinvestors’activitybouncedbacktoanaverageofEUR3billionperyear.Thankstolowinterestratesandstablemacroeconomicsituationin2015


thetotalvolumeofinvestmenttransactionsinPolandwentuptoEUR4billion–a31%increasecomparedto2014.

Intheyear2016thetotaltransactionvolumeinPolandamountedtoEUR4.55billion.ThisisthesecondhighestresultinthehistoryofthePolishinvestmentmarketfollowingtherecordvalueofEUR4.7billionin2006.Majorinvestmentactivitywasrecordedinretailsector(43%),howeverofficeandwarehousemarketincreasedtheirsharescomparedto2015to39%and17%respectively.

AcquisitionoftheEchoPrimePropertyPortfoliobySouthAfricaninvestorRedefineProperty,valuingtheportfolioatEUR1,248billionwasdefinitelytheheadlinedealof2016.Theportfolioconsistedof10retailand8officeassets.ThiswasthelargestsingletransactioneveronthePolishinvestmentmarket.

WarsawremainsaveryimportanttransactionmarketinPolandandisperceivedbymanyinvestorsascore,however,in2016thisdominantpositionwasovertakenbyregionalcities.Kraków,Wrocław,PoznańandTricityhavebeentargetedmoreandmorefrequentlybyinternationalanddomesticinvestors.

Major investorsThemajorityofplayersonthePolishinvestmentmarketareforeignentitiesmostlyfromUSA,UK,Germany,theNetherlandsandSouthAfrica.

Duetothescaleofonemajortransactionnearly40%oftheinvestmentvolumein2016camefromaSouthAfricanfund,following20%fromtheUSA,15%from

Germany,and10%fromtheUK.TheinvestmentdriversweregoodqualityassetsandstillattractiveyieldsinPoland.

Lessthan5%ofinvestmentvolumein2016inPolandcamefromPolishcapital,representedbydynamicallydevelopinginvestmentfundReinoPartnersandPolishassetmanagerPHN.

TheinsurancecompanyPZUTFI,althoughnotactiveinacquisitionsthisyear,stillholdsthepositionofamajorplayerinPoland,withalargeprimeproperties’portfolio.

TheminorityshareofPolishentitiescomesfromthelegalregulationsasPolishlawdoesnotallowlocalpensionfundswithsubstantialaccumulatedcapitaltoinvestdirectlyintherealestate.Instead,theirportfoliosarebasedonstocksandcorporatebonds.

Theplansconcerningintroduction of Real EstateInvestmentTrusts(REITs)structuresinPolandmightinfluencethestructureofinvestedcapitalinthefuturewithmoredomesticindividualsbenefitingfromreturnsonlarge-scalecommercialrealestate assets.

ThemostactiverealestatefundsinPolandin2016were:RedefineProperties,RockcastleGlobalRE,InvescoRE,EchoPolskaProperties,CBREGlobalInvestors,UnionInvestment,EPF,SavillsInvestmentMgmt,Hines.

Newcomersin2016includedRedefineProperties,MVPLogistics,Invesco,BouwfondsEuropeanResidentialFund,PrimeKapital.In2016PolishindustrialmarketattractedalsoaSingaporesovereignwealthfundGIC.



Major real estate funds investing in Poland

Fund Sector Major Assets in Poland

AllianzRE Retail,Office

SilesiaCityCenter,WarsawFinancialCenter(JVwithTristanCapitalPartners),PlatiniumBusinessPark

AtriumEuropeanRE Retail

AtriumPromenada,AtriumReduta,AtriumTargówek,GaleriaDominikańska,FocusParkinBydgoszcz,AtriumFelicityinLublin

Azora Office AquariusBusinessHouse(Wrocław),HarmonyOfficeCenter,MokotówPlaza,GreenParkandAvatarinKraków

BergoldGroupOffice,Retail,Logistics

JutrzenkiBusinessPark,Okopowa56(Warsaw),TeofilówBusinessPark(Łódź),GaleriaŁomża,Dukat(Olsztyn)

Blackstone/Logicor

Retail,Logistics

Shoppingmalls:TwierdzaKłodzko,GaleriaLeszno,MagnoliaPark(Wrocław),TwierdzaZamość(Zamość),WzorcowniaWłocławek,GaleriaPestka(Poznań),GaleriaTęcza(Kalisz),Warehouseproperties:Łódź,Łazy,Błonie,Czeladź,Gliwice,Kraków,Piaseczno

Total investment volume in all sectors (office, retail, warehouse) 2004–2016


Source: EY



CAImmo Office SaskiPoint,SaskiCrescent,SiennaCenter,WarsawTowers,BitwyWarszawskiej

CBREGlobalInvestors

Retail,Industrial,Office

IdealIdeaI-III,WarsawDistributionCentre,ManhattanBusiness&DistributionCentre,ZłoteTarasy-partialinterest,GaleriaMazovia,WarsSawaJunior,KingCrossPraga,Jantarshoppingcenter

DekaOffice,Logistics,Hotel

InternationalBusinessCenter(Warsaw),IntercontinentalWarsaw(50%),MokotowskaSquare,NorthGate,Atrium1,BemaPlaza(Wrocław),ForumGliwice,AndersiaTower(Poznań),Andel’sHotel(Kraków)

GLL Real Estate OfficeKazimierzBusinessCenter(Kraków),GreenDay(Wrocław),Renaissance,MarynarskaPoint,DompodGryfami,LibertyCorner(Warsaw),ZaułekPiękna

GriffinRE Office,Retail

EchoInvestmentPorftolio,KoszykiHall,NowaEmiliaplannedoffice,MicrosoftHouse,RaiffeisenBusinessCenter(Warsaw),Renomashoppingcenter(Wrocław),LubiczOfficeCenter(Kraków),Supersam(Katowice),GreenHorizon(Łódź)

Heitman Office,Retail

MarynarskaBusinessPark,GaleriaTarnovia,GaleriaMalta

Hines Office,Logistics

Ambassador,NestleHouse,SkyOffice,Proximo(Warsaw),PrologisParkWarsaw&Będzin,RabenGądki&GrodziskMazowiecki

Immofinanz Office,Retail

STOP.SHOPandVivo!retailparks(accrossPoland),BramaZachodnia,Nimbus,EquatorI,BokserskaOfficeCenter,ParkPostępu,EmparkMokotów(Warsaw),TarasyZamkowe(Lublin)

Invesco Office,Retail

PlacUnii,CrownSquare(Warsaw),GaleriaKazimierz(Kraków),Q22

IVG(Triuva) OfficeLePalais,Feniks,Chmielna25,RoyalTraktOffices,NorwayHouse,VictoriaBuliding,Nowogrodzka21,MłodziejowskiPalace

KulczykSilversteinProperties

Office,Retail

Ethos(HollandPark),Stratos,Mazowiecka2/4,UfficioPrimo,WartaTower,KruczaHouse

LoneStar(GTC) Office WiśniowyBusinessPark,MilleniumPlaza,Irydion,Europlex(Warsaw)




OctavaS.A. OfficeBalticBusinessCenter,AlfaPlaza(Gdynia),OrangeLabs,LighthouseII(Warsaw),QuattroForum(Wrocław),RedTower(Łódź)

PolskiHoldingNieruchomości(PHN)

Office,Logistics

DomaniewskaOfficeHub,SenatorskambankHQ,FoksalCity,Intraco(Warsaw),AndersiaBusinessCenter(Poznań),Alchemiaphase2(Gdańsk)

PZUTFILogistics,Retail,Office

PanattoniWarehousesŁódź,Gdańsk&Wrocław,ArkońskaBusinessPark(Gdańsk),AthinaPark(Warsaw),GaleriaJeziorak,GaleriaEchoPabianice,AlmaNowyTarg

ReinoPartners Office Kapelanka(Kraków),MaltaHouse(Poznań),Alchemiaphase1(Gdańsk)-lasttwoinaJVwithBluehouseCapital

RockcastleGlobalInvestors Retail

Karolinka,SolarisCentre(Opole),Pogoria(DąbrowaGórnicza),Platan(Zabrze),FabrykaWołomin,BonarkaCityCenter,FocusMall(ZielonaGóraandPiotrkówTrybunalski)

RREEF(DeutscheAsset&WealthManagement)

Office,Retail

StaryBrowar(Poznań),Rondo1,Metropolitan,FocusFiltrowa,Nefryt,Topaz,GreenCorner,NordeaHouse(Warsaw)

SEB Office

TrinityParkIII,MarynarskaPoint2,UniversityBusinessCenter,RiversidePark,SalzburgCenter(Warsaw),PhilipsBuilding(Łódź),ArkonskaBusinessPark(Gdańsk)-partlysold

StarwoodCapitalGroup Office T-MobileOfficePark,ŁopuszańskaBusinessPark(Warsaw),

KatowiceBusinessPoint,QuattroBusinessPark(Kraków)

TPGCapitalOffice,Retail,Logistics

Bonarka4Business,EuropolisParkBłonie,EuropolisParkPolandCentral

TristanCapitalPartners

Office,Retail

WarsawFinancialCenter(JV),MokotówNova(Warsaw),EnterprisePark(Kraków),Arena(Gliwice),CHBorek,CHDąbrówka,GaleriaTurzyn,ECPowiśle(JV)

UnibailRodamco Retail,Office

GaleriaMokotów,ZłoteTarasy(77%interest),Lumen&Skylight,Arkadia,WarszawaWileńska(Warsaw),Wroclaviaunderconstruction(Wrocław)

Union Investment

Retail,Hotel,Office

RivieraMall(Gdynia),Manufaktura(Łódź),FocusPark(Rybnik),SarniStok(Bielsko-Biała),DominikańskiOffice,Senator,ZebraTower,HorizonPlaza,HolidayInn,HamptonbyHilton(Warsaw),RadissonBlu(Wrocław)




Valad Retail,Logistics

CHJanki,CHKingCross,CityPoint,CHSter,CHRondo,CHTulipan,CHKometa,TechnicznaIndustrialPark,RaszynBusinessPark,PiasecznoBusinessPark,BłonieBusinessPark,GazowaIndustrialPark,WarsawCorporateCentre,WiśniowyBusinessPark

WPCarey Office,Logistics

PolkomtelHQ,LipowyOfficePark(Warsaw),FMLogistics(Mszczonów&TomaszówMazowiecki),H&Mdistributioncenter

RedefineProperties(REIT)

OfficeRetail

A4BusinessParkI&II,AstraPark,MaltaOfficeParkOxygen,ParkRozwojuI&II,WestGate,Amber,Galaxy,GaleriaEchoinKielce,CHEchoinBełchatówandPrzemyśl,GaleriaOlimpiainBełchatów,OutletParkSzczecinPasażGrunwaldzki,GaleriaSudecka,GaleriaVeneda

Source: EY

Forthepastseveralyearseconomicdevelopmentandpoliticalstabilityhaveplayedakeyroleintheincreaseoftransactions.Otherimportantfactorswere:

• EUmembership;

• fallingPLNinterestrates.

Investorswereseekingtobuyathighyieldsandsellatloweryields,expectingconvergencewiththeEUlevels(i.e.capratecompression).

Whilerisingpricesfromthecapratecompressionhaveexceededeventhemostaggressiveexpectations,bythethirdquarterof2007theeconomyhadlostsomeofitsmomentum.

By2008financialcrisisaroundtheglobehadplacedmanyinvestorsinthe“waitandsee”mode.Thelastfewyearsshowthatinvestmentmarketisontheriseagain.However,itismorestableandlessaggressivethanbefore2007.

Office propertiesOfficeinvestmentinregionalcitieshasgrowninimportancein2016.ThetrendshowsthattheshareofofficeinvestmentsoutsideWarsawisincreasingyearbyyear.Warsawstillattractsmanyforeigninvestorsandin2016anewprimeyieldwasestablishedforthecapitalofPolandamountingto5.25%.

OfficetransactionalvolumeinWarsawin2016totaledapprox.EUR1.15billion,withsuchmajortransactionsaspurchaseofQ22byInvescoREfromEchoInvestment,acquisitionofGdańskiBusinessCentre (A-B)bySavillsInvestmentMgmtandEPFandsaleofWiśniowyBusinessParkbyPeaksidePoloniaManagementtoValadEurope.

OntheotherhandcombinedvolumeinothercitiesisestimatedatEUR650million,representedbytheacquisitionofIntelAllconParkinGdańskbyIntelCorpforoverEUR60million,purchaseofDominikański



SquareinWrocławbyUnionInvestmentforapproximatelyEUR117millionorsaleofAlejaPokoju5inKrakówbyBUMAS.A.toWarburg-HIHInvest.

CapitalizationrateshadseenasteadydeclineinWarsawfromthedoubledigitdaysfrom1995to2002.Theybrokethe10%markforthefirsttimein2003andwentontoshedroughlyapercentagepointperyearuntil2007whendealsaslowas

5.5%werestruckforthebestperformingproperties,andprimeofficeyieldshoveredbetween6and6.5%.

Capitalizationratesin2016generallyhoveredat5.5%-7.5%forprimepropertiesor9-10%forvalue-addedoneswhichhavebeengainingmoreandmoreattentionamonginvestors,duetoasmallernumberofprimeassetsavailableforsale.

Major office building transactions in Poland, 2016

Building Location Seller Buyer

OfficeportfolioofEchoInvestment(A4BusinessParkI&II,AstraPark,MaltaOfficePark,Oxygen,ParkRozwojuI&IIWestGate)

Katowice,Kielce,Poznań,Szczecin,Warszawa,Wrocław

EchoInvestment RedefineProperties

Q22 Warsaw EchoInvestment InvescoRE

GdańskiBusinessCentre(A-B) Warsaw HBReavis

SavillsInvestmentMgmt,EPF

WiśniowyBusinessPark Warsaw PeaksidePoloniaManagement ValadEurope

KonstruktorskaBusinessCentre Warsaw HBReavis GoldenStar

Group

DominikańskiSquare Wrocław SkanskaAB Union Investment

PrimeCorporateCentre Warsaw Golub&Co Warburg-HIHInvest

PlacMalachowskiego WarsawSilversteinPropertiesKulczykInvestment

WhiteStarRE,EuropaCapital

IntelAllconPark Gdańsk AllconInvestment IntelCorp

ZaułekPiękna Warsaw InvescoRE GLL RE Partners

Source: EY



Retail propertiesSignificantinvestmentsintheretailmarketdidnotstartuntil2001.ThefirstmajortransactionswereinvestmentsbyRodamcoinGaleriaMokotówandinZłoteTarasyandtookplacein2003,withcapitalizationratesatthelevelof9–10.5%.

SincethattimenearlyeverysignificantpropertyinWarsawandotherPolishcitieshasbeenthesubjectofatransaction.By2005capitalizationrateswerepusheddownwardtoroughly8%andcontinuedthisdownwardtrendthroughQ3’2008whentheyrangedbetween5.7%and6.5%.Duetothecrisisthecapitalizationrateshaveincreasedbyapproximately1–1.5percentagepointtofallagainin2015becauseoftheincreaseddemandontheretailmarket.

Theheadlineretaildealin2016wastheacquisitionoftheEchoInvestmentRetailPortfoliobyRedefineProperty,valuingatapprox.EUR920m.ThesecondsignificantdealwasacquisitionoffourshoppingcentresbyRockcastle,including:BonarkaCityCenterinKrakówforEUR361millionat5.4%yield,GaleriaWarmińskainOlsztynforEUR150millionat6.0%yieldandFocusMallsinZielonaGóraandPiotrkówTrybunalskiforEUR161million.

Approx.40%oftotalretailvolumewasrecordedinWarsawandregionalcities,whereastheremainingpartinsmallercities,withfollowingexamples:JantarShoppingCenter(Słupsk),FerioShoppingCentre(Konin),AtriumBiała(Białystok),NovaPark(GorzówWielkopolski),GaleriaCorso(Świnoujście).


Major modern retail transactions, 2016


10retailschemesfromtheEchoInvestmentRetailPortfolio(Amber,OutletParkSzczecin,PasażGrunwaldzki,GaleriaEchoinKielce,BełchatówandPrzemyśl,GaleriaSudecka,GaleriaOlimpia,Galaxy,Veneda)

Kalisz,SzczecinWrocław,Kielce,Bełchatów,Przemyśl,JeleniaGóra,Łomża

EchoInvestment

RedefineProperties

BonarkaCityCenter Kraków TPGCapital RockcastleGlobal RE

RetailPortfolioofAvivaInvestor(FocusMalls)

ZielonaGóra,PiotrkówTrybunalski

AvivaInvestor RockcastleGlobal RE

GaleriaWarmińska Olsztyn LibraProject RockcastleGlobal RE

Source: EY


Warehouse propertiesThewarehousemarkethashistoricallybeenperceivedastheleastmatureoftherealestatesectors,withonlyafewsignificanttransactionsclosed.

However,overthelastseveralyearsthewarehousesectorhasbecomeoneofthemostdynamicandrapidlyexpanding.Mainreasonsofthisphenomenonwere:substantialinfrastructuraldevelopment,growthofe-commerce,friendlybusinessenvironment,aswellashighlyqualifiedandrelativelycheaplaborforceencouragingalargenumberofmanufacturerstorelocateproductionfacilitiestoPoland.

ThenumberofindustrialtransactionsincreasedtoarecordhighvolumeofoverEUR700millionin2014followedbyacorrectionin2015atapprox.EUR500million.In2016EURthetotaltransactionvolumeamountedtoapprox.EUR760million.

Thelargesttransactionsin2016includedacquisitionoftheP3LogistcsPortfoliobyGIC,purchaseoftheHillwoodIndustrialPortfoliobyCBREGlobalInvestors,saleofNBGIindustrialportfoliotoHinesandacquisitionofAmazoninPoznańbyGLLREPartners.

Capitalizationratesforthemodern,propertiesarearound7.0-8.0%,exceptionalassetstradingbelow6.5%.


Major warehouse space transactions, 2016


P3LogisticsPortfolio acrossPoland TPG Real Estate GIC

HillwoodIndustrialPortfolio(8properties)

Wrocław,Gdańsk,OżarówMazowiecki,BielskoBiała,Bramki,Gdańsk,Bronisze,

Hillwood CBREGlobalInvestors

NBGIIndustrialPortfolio(5properties)

Legnica,Mysłowice,Toruń,GrodziskMazowiecki,Garwolin

NBGIPrivateEquity Hines

AnnapolBusinessPark Warsaw ECIGroup Hines Poland

Amazon Poznań Amazon GLLREPartners

ŁopuszańskaBusinessParkandSilesiaLogisticPark

Warsaw,Częstochowa Immofinanz LogiCor

PrologisParkWrocław Wrocław NorgesBank(NBIM) Prologis

DCGreenyard Warsaw Greenyard CPA:17

KCIParkTechnologiczny Kraków KCIS.A.CentrumNowoczesnychTechnologii

Source: EYPoland.Therealstateofrealestate|41


Key points:• Thetotalvolumeoftransactionsin

2016amountedtoEUR4.55billion–thesecondhighestresultinthehistoryofPolishinvestmentmarket.

• In2016majorinvestmentactivitywasrecordedintheretailsector(43%),followedbyofficeandwarehousemarket(39%and17%respectively).

• Warsawremainsthecorerealestatemarketbutregionalcitiesaregrowinginimportance.

• Acquisitionof75%ofEchoPrimePropertyPortfoliobySouthAfrican

investorRedefinePropertieswasthebiggesttransactionin2016onthePolishinvestmentmarket.Thecommercialportfolioof8officebuildingsand10retailschemeswasvaluedatEUR1.248billion.ThiswasthelargesttransactiononthePolishmarketever.

• Newrecordlowcapitalizationratesforprimeassetswereestablishedin2016.Thelowestcapitalizationratesin2016wereatthelevelof5.25%intheofficesector(Warsaw),5.00%inretailand6.50%forexceptionalindustrialassets.



1.7. Key cities in Poland


WARSAWPopulation 1,749,000

Unemployment 2.8%

Majorindustries Tradeandservices

Majorcompanies

Accenture,BankPekao,BGŻ,mBank,BritishAmericanTobacco,Budimex,Bumar,Citibank,Coca-Cola,ColgatePalmolive,Deloitte,EY,FranceTelecom,GeneralMotors,GrupaŻywiec,GTC,HutaArcelorWarszawa,IBM,ING,KompaniaPiwowarska,KPMG,KraftFoodsPolska,Nestle,PGNiG,PKOBP,PLLLOT,Polkomtel,Procter&Gamble,PwC,PZU,RBS,RWE,SamsungElectronicsPolska,Shell,Skanska,Strabag,Unilever

OFFICE SECTOR

Rental level (m2/month)

CentralBusinessDistrict:EUR18.0–23.0; Non-central:EUR11.0–15.0

Totalofficestock 5.05millionm2ofmodernspace

Currentsupply(selectedbuildings)

AdgarPlaza,Ambassador,Atrium1,AtriumComplex,BusinessGarden,CatalinaOfficeCenter,CristalPark,DomaniewskaOfficeHub,EMPARK,Equator,Eurocentrum,FlandersBussinesPark,Focus,GdańskiBusinessCentre,HarmonyOfficeCenter,HorizonPlaza,FeniksOfficeBuilding,Focus,IO-1,JerozolimskieBusinessPark,KarolkowaBusinessPark,KonstruktorskaBusinessCenter,KopernikOfficeBuidlings,LipowyOfficePark,Lumen,MarynarskaBusinessPark,MarynarskaPoint,Metropolitan,MilenniumPlaza,MokotówBusinessPark,MokotówNova,MokotówPlaza,Nefryt,NorthGate,OkęcieBusinessPark,ParkPostępu,PlatiniumBusinessPark,PoleczkiBusinessPark,PlacUnii,Rondo1,RoyalWilanów,SaskiCrescent,SaskiPoint,Senator,Skylight,TrinityPark,TulipanHouse,WarsawFinancialCenter,WarsawTradeTower,WilanówOfficePark,WiśniowyBusinessPark,WolfMarszałkowska,ZebraTower,AstrumBusinessParkI,Atrium2,EurocentrumOfficeComplexII,Grzybowska43,HalaKoszyki,ProximoI,PrimeCorporateCenter,Q22,WestStation,Wołoska24,WarsawSpire




Futuresupply(selectedbuildings)

ArtNorblin,AstrumBusinessParkII,BalmoralBuisinessCentre,BusinessGardenIII-VII,Cedet,CentrumMarszałkowska,ECPowiśle,EQlibrium,FlandersD,GenerationPark,GrójeckaOffices,Infinicity,LibertyTower,LincolnPark,MennicaTower,MokotówOne,Neopark,PlatiniumBPVI,RomaTower,SiennaTowers,SilverTower,SouthPark,SpinnakerTower,Vector,WestPoint,VarsoTower,TheWarsawHub,Spark,Wronia31,CentrumMarszałkowska,ProximoII,P4,BusinessLiner,EquatorIV,D48,Graffit,NowogrodzkaSquare,Bobrowiecka8,Neopark

Generalvacancylevel 14.4%

RETAIL SECTOR


EUR90–130forprimeshoppingcenterunitsEUR70–95forprimestreetunitsEUR40–70forshoppingcenterunitsEUR9–12forretailparkunits

Totalretailstock 2.2millionm2ofmodernspace

Currentsupply

Arkadia,BlueCity,CHBemowo,CHJanki,AtriumReduta,AtriumTargówek,CHWileńska,DomTowarowyBraciJabłkowskich,FortWola,GaleriaMokotów,KingCross,Klif,M1Marki,AtriumPromenada,PlacUniiShoppingCenter,SadybaBestMall,WolaPark,WolfBracka,ZłoteTarasy,AuchanŁomianki,GaleriaBrwinów,FactoryOutletUrsus,GaleriaRembielińska,FashionHousePiaseczno,FactoryOutlet,Annopol,FerioWawer,FactoryUrsus,PlacVogla,GaleriaGondola,GaleriaWołomin

Futuresupply GaleriaPółnocna,ParkHandlowyMarywilska44

WAREHOUSE SECTOR

Rental level (m2/month) EUR2.0–5.0

Totalwarehousestock 3.1millionm2


CurrentandplannedsupplyinWarsawarea

AnnopolLogisticPark,CityPoint,DiamondBusinessParkPiaseczno,DiamondBusinessParkWarsaw,EuropolisParkBłonie,KrakowskaDistributionCenter,ŁopuszańskaBusinessPark,ManhattanBusinessandDistributionCenter,MilleniumLogisticParkPruszków,PanattoniParkOżarów,PanattoniParkBłonie,PanattoniParkGarwolin,PanattoniParkPruszków,PanattoniParkTeresin,PlatanPark,ProLogisParkBłonie,ProLogisParkNadarzyn,ProLogisParkSochaczew,ProLogisParkTeresin,ProLogisParkWarsaw,SegroBusinessPark(Ożarów,Nadarzyn,Pruszków),TulipanParkWarszawa,ŻerańPark,GoodPoinPuławska,DiamondBusinessParkRaszyn,DLInvestSłomczynGrójec,Hilwood(Marki,Pruszków),IdealIdea(III&IV),PointofView(GóraKalwaria,Kawęczyn,Piaseczno),WestPark(Ożarów,Pruszków)

KRAKÓWPopulation 762,400

Unemployment 3.7%

Majorindustries Tourism,steelworksandmetallurgy,tobacco,pharmaceuticals,IT

Majorcompanies

BP,CanPack,Capgemini,Coca–ColaNiepołomice,ComArch,Delphi,Google,HSBC,ArcelorMittalPolandOddziałwKrakowie,InternationalPaper,Motorola,PhilipMorris,Teva,Shell,StateStreet,UBS,VistulaGroup,Wawel

OFFICE SECTOR


EUR13.5–14.5(class–Aspace) EUR11.0–13.0(class–Bspace)

Totalofficestock 910,000m2ofmodernspace


AlejaPokoju5,AlmaTower,AlstarOfficeCenter,Avatar,AzbudBusinessCenter,Bonarka4Business,BramaBronowicka,BumaSquare,CBiICopernicus,CentrumBiuroweEuromarket,CentrumBiuroweKazimierz,CentrumBiuroweLubicz,CracoviaBusinessCenter,DiamantePlaza,Edison,EnterprisePark,Fronton,G21,Galileo,GreenOffice,KazimierzOfficeCenter,KrakówBusinessPark(Zabierzów),Meduza,Newton,NowaKamienica,Onyx,Pascal,Portus,QuattroBusinessPark,RondoBusinessPark,VinciOfficeCenter,O3BusinessParkI,Axis,Topos,Bonarka4Business,GOCenter




FuturesupplyBonarka4BusinessG,DotOffice,ZabłocieBusinessParkParkII,Astris,EnterprisePark,ZabłocieBusinessPark,Principio,HighFive,Kotlarska11,UnityCentre


RETAIL SECTOR



Totalretailstock 755,000m2ofmodernspace

CurrentsupplyLogisticCenterKrakówI,II,III,KrakówAirportLogisticsCentre,MARRBusinessPark,MKLogisticsPark,PanattoniParkKraków,LogicorKraków,MARRBusinessPark,MGLogistic,RBLogistic,PanattoniParkKrakówII

WAREHOUSE SECTOR

Rental level (m2/month) EUR3.0-4.1

Totalwarehousestock 250,000m2

Currentandplannedsupply

LogisticCenterKrakówI,II,III,KrakówAirportLogisticsCentre,MARRBusinessPark,MKLogisticsPark,PanattoniParkKraków

POZNAŃPopulation 541,600

Unemployment 2.0%

Majorindustries Foodprocessing,electrotechnical,chemical,automotive,retail,services(includingfinanceandbanking),constructionindustry,locationofmajortradefairsinPoland



Majorcompanies

AluplastAustria,Beiersdorf,Bridgestone,Carlsberg,CPCInternational,Enea,FranklinTempletonInvestments,GlaxoSmithKline,IKEA,JeronimoMartins,KompaniaPiwowarska,LorensBahlsen,MAN,McKinsey,Microsoft,MiędzynarodoweTargiPoznańskie,Nestle,Unilever,Volkswagen,Wrigley,Wyborowa

OFFICE SECTOR





AndersiaBusinessCentre,AndersiaTower,BusinessGardenPoznań,CentrumTulipan,CityPark,Delta,DwórHamburski,GaleriaMM,Globis,JetOffice,KupiecPoznański,Kwadraciak,MaltaHouse,MaltaOfficePark,NickelTechnologyPark,NobelTower,NoweGarbary,NoweJeżyce,Okraglak,Omega,PGKCentrum,PoznańFinancialCenter,PoznańskieCentrumBiznesu,Rataje164,RBHouse,SkalarOfficeCenter,SzyperskaOfficeCenter,Temida,UbiqWinogradyBusinessCenter,MaratonI&II,ZaBramką

Futuresupply BałtykTower,ZajezdniaPoznań,Pixel2


RETAIL SECTOR


EUR65–70forprimeshoppingcenterunitsEUR40-60forprimestreetunitsEUR35–50forshoppingcenterunitsEUR7–12forretailparkunits


Currentsupply

StaryBrowar,PoznańPlaza,KingCrossMarcelin,KupiecPoznański,Auchan–SwadzimandKomorniki,ETC–Swarzędz,CHM1,IKEA,CHFranowo,GaleriaPanorama,CHPiątkowo,FactoryOutlet–Luboń,GaleriaPodolany,GaleriaPestka,CHMalta,GreenPoint,GaleriaSucholeska,GaleriaMalta,PoznańCityCenter,ParkHandlowyFranowo,GaleriaMM,Posnania

Futuresupply GaleriaA11


WAREHOUSE SECTOR




CLIPPoznań,DoxlerBusinessPark,MillenniumLogisticParkPoznań,PanattoniPoznańI,II,III,PanattoniRobakowo,ParkMagazynowyLogit,PointParkPoznań,ProLogisParkPoznańI,II,III,ProLogisParkWrześnia,TulipanParkPoznańI,II,SegroLogisticParkPoznań,AmazonWarehouse,GoodmanPoznańIILogisticCenter,GoodmanPoznańIIILogisticCenter,MLPPoznańSouth&West

TRI–CITYPopulation 747,400

Unemployment 3.7%

Majorindustries Maritimeindustry,fuelindustry,construction,foodprocessing,tourism,IT

Majorcompanies

BayerSSC,BlueMedia,DGT,GdańskieMłynyiSpichlerzeDrCordesmeyer,ElektrociepłowniaWybrzeże,Elektromontaż,Energa,ZPCBałtyk,GdańskaStoczniaRemontowa,GdańskieZakładyNawozówFosforowych,BankBPH,GrupaLotos,IKEA,IntelTechnologyPoland,JyskPolska,LidoTechnologyPoland,LPP,LufthansaSystems,MetroAG,MostostalGdańsk,Neste,PepsiCo,Satel,Shell,StoczniaPółnocna,ThomsonReuters

OFFICE SECTOR







Akwarium,AlfaPlaza,Alchemia,AmbraTower,ArkońskaBusinessPark,BCBBusinessPark,CentrumBiuroweHossa,CentrumKwiatkowskiego,CentrumBiuroweNeptun,CityArkade,GarnizonIdalHouse,Grunwaldzka413,Grunwaldzka417,Grunwaldzka48-50,Ka5,ŁużyckaOfficePark,MorskiParkHandlowy,Nordika,OfficeIsland,OliviaBusinessCentre,OperaOffice,PasażPrzymorze–Kołobrzeska32,PianoHouse,PomeraniaOffice,TrytonBusinessHouse,WAN–Śląska,ŁużyckaPlusSadowaBusinessPark,Sanipor,Vigo,Waterside,TensorOfficePark,C200,ForumGdańsk


RETAIL SECTOR




Currentsupply

Smallshopsandboutiquesalongshoppingstreets(ŚwiętojańskainGdynia,DługaandGrunwaldzkainGdańskaswellasMonteCasinoinSopot).Modernshoppingcenters:GaleriaBałtycka,AuchanPortRumia,CHKlif,Batory,CityForum,KrewetkaCinemaCity,AlfaCenter,MadisonShoppingGallery,CHManhattan,CentrumKwiatkowskiego,CHWzgórze,MatarniaRetailPark,OsowaShoppingCenter,CentrumRodzinneWitawa,FashionHouseGdańsk,Castorama,Real,Tesco,SelgrosCashandCarry,TescoChełm,IKEA,CHOliwa,GaleriaPrzymorze,CentrumHaffnera,SzperkGdynia,CHRiviera,MorskiParkHandlowy,CentrumKowale,GaleriaMorena,GaleriaZaspa

Futuresupply ForumGdańsk,CHAuchan

WAREHOUSE SECTOR

Rental level (m2/month) EUR2.5–3.5




Totalwarehousestock 385,000m2


ProLogisParkGdańsk,CentrumLogistycznePruszczGdański,PanattoniParkGdańsk,SEGROLogisticsPark,7RLogisticParkGdańsk,PortGdyniaWarehouse,GdańskPomeraninaLogisticCenter,DiamondBusinessPark

ŁÓDŹPopulation 698,000

Unemployment 8.1%

Majorindustries Textile&clothes,foodprocessing,mechanicalengineering,chemicalproduction,tradefairs

Majorcompanies

ABB,Amcor,Bosch–SiemensHausgeräte,HP,CacaoBerry,Coca–Cola,Dell,GrupaAtlas,Fujitsu,Idesit,Infosys,Nordea,Phillips,PolishPharmaceuticalGroupPollena–Ewa,SanitecKoło,Textilimpex,Vistula&Wólczanka

OFFICE SECTOR

Rental level (m2/month) EUR11.5–13.0(class–A/Bspace)



AleksanderPlaza,ArmadaBusinessPark,Aviator,BusinessHouse,CentrumBiuroweZenit,CentrumBiznesoweFaktoria,CentrumBiznesoweStanley,CentrumBiznesuPracownia,CentrumBiznesuŁódź,Cottonhouse,CrossPointŁódź,FabrykaLnu,Gdańska,GreenHorizon,Inter-Mar,JaraczaPrestige,Kopcińskiego,MediaHub,OrangePlaza,OrionBusinessTower,Papiernicza,ParkBiznesuTeofilów,PrometeonŁódź,PrzędzalniaBraciMuehle,RealOffice,RedTower,Synergia,Unicity,UniversityBusinessPark,Wólczańska,Łódź1

Futuresupply SymetrisBusinessPark,UniversityBusinessParkII,NowaFabryczna,CrossPointB,Ogrodowa8Office




RETAIL SECTOR


EUR45-50forprimeshoppingcenterunitsEUR22–40forprimestreetunitsEUR23–35forshoppingcenterunitsEUR7–13forretailparkunits


Currentsupply

SmallboutiquesalongPiotrkowskastreet,Modernshoppingcenters:Manufaktura,GaleriaŁódzka,TulipanCenter,PasażŁódzki,CHM1,E.Leclerc,CHCarrefourPrzybyszewskiego,OBI,Praktiker,Castorama,LeroyMerlin,MakroCash&Carry,SelgrosCash&Carry,CHPtakinRzgów,CHGuliwer,CHTescoBałuty,CHTescoWidzewska,PortŁódź,PtakOutlet,VisavisStreetMall,CHCarrefourKolumny,Sukcesja

WAREHOUSE SECTOR

Rental level (m2/month) EUR2.0–3.8formodernspace


CurrentandplannedsupplyinCentralPolandregion

BusinessParkŁódź,DiamondBusinessParkŁódź,DiamondBusinessParkStryków,PanattoniBusinessCenterŁódź,PanattoniŁódźEast,PanattoniParkŁódźSouth,ParkridgeBusinessCenter,ProLogisParkStryków,TulipanParkŁódź,TulipanParkStryków,SEGROLogisticsParkStryków,PanattoniCastorama,PanattoniParkStryków,LogicorŁódź(I,II,III),ŁódźBusinessPark,MLPŁódźWest

WROCŁAWPopulation 637,100

Unemployment 2.8%

Majorindustries automotive,IT,businessprocessoffshoring,pharmacy/medicalassortment,finances,medicalmachineryproduction,electrical,metallurgy,houseappliancesandfoodprocessing



Majorcompanies

3M,Alcatel,AmRest,Bosch,BZWBK,Mondelez,CreditAgricole,Eurobank,EYSSC,CreditSuisse,Google,GKKogeneracja,GKImpelHewlett–Packard,IBM,KRUK,LG,MacoPharma,Nokia,PPG-Polifarb,Siemens,Toyota,Ultimo,USPharmacia,Volvo,Wabco,Whirlpool,UBS

OFFICE SECTOR





AquariusBusinessHouse,ArkadyWrocławskie,AscoBusinessCentre,BemaPlaza,BetaCentre,CuprumNovum,DługoszaBusienssPark,Dominikański,Dubois41,FocusPlaza,GlobisWrocław,GreenTowers,GrunwaldzkiCenter,HeritageGates,HubskaOfficeCenter,LegnickaPark,MillenniumTower,NewPointOffices,Oniro,OławskaPrestige,PasażPkoyhof,Platon,PromenadyEpsilon,QuattroForum,RacławickaCenter,RenaissanceBusinessCentre,SilverForum,SilverTower,SkyTower,SzwedzkaCentrum,WratislaviaTower,WrocławskiParkBiznesu,WestHouse,WestGate,NobilisBusinessHouse,BusinessGardenWrocławI,KauflandHQ,Pegaz,PromenadyZita,Twelve

Futuresupply SagittariusBusinessHouseI&II,RetroOfficeHouse,Green2Day,GreenTowers,BusinessGardenWrocławII,CuprumSquare


RETAIL SECTOR






Currentsupply

PasażGrunwaldzki,ArkadyWrocławskie,MagnoliaPark,FactoryOutlet,CHKorona,BielanyRetailPark(IKEA),AuchanRetailParkBielany,GaleriaDominikańska,SzewskaCenter,Kaufland,CHBorek,TGG,Tesco,E.Leclerc,IKEA,CHMarino,Renoma(aftermodernization),SkyTower,FerioGaj,RetailParkMłyn,FamilyPoint,AlejaBielany

Futuresupply Wroclavia,TarasyGrabiszyńskie,OlimpiaPark,N-Park

WAREHOUSE SECTOR


Totalwarehousestock 1.49millionm2ofmodernspace


ProLogisParkWrocławI,III,IV,V,VI,ParkridgeBusinessCenter,TinerLogisticCenter–Pietrzykowice,PrologisParkWrocławI,III,IV,V,PanattoniBTSforLear,PanattoniforAmazon,GoodmanforAmazon,PanattoniParkWrocławV,BTSBombardierWrocław,HilwoodWrocławI,II,III,SegroIndustrialParkWrocław,TinerLogisticPark,WrocławBusinessPark,MountParkWrocław,WrocławBielanyBusinessPark,MLPWrocław

KATOWICEPopulation 299,000

Unemployment 2.9%

Majorindustries Coalmining,metallurgical,steel,machinery,electrical,ceramic,automotive,printing,informationandIT

Majorcompanies

Capgemini,DuPont,ElectrabelPolska,ZPUE,GKFarmakol,GKFamur,GKKopex,GKTauronPolska,IBM,ING,KatowickiHoldingWęglowy,PolskiKoks,PowertrainPolska,PwCSSC,Roca,Unilever,Węglokoks

OFFICE SECTOR







Altus,ApissCenterPoint,ArmiiKrajowej6,Atrium,CentrumBiuroweFrancuska,CentrumBiuroweKatowice,Chorzowska50,Euro-CentrumKatowice,GórnośląskiParkPrzemysłowy,JesionowaBusinessPoint,Kostki,MillenniumPlazaKatowice,NoweKatowickieCentrumBiznesu,RawaOffice,RevitaPark,A4BusinessPark,SilesiaStar,SilesiaBusinessParkI&II

Futuresupply SilesiaBusinessParkIII,.KTW


RETAIL SECTOR


EUR49–60forprimeshoppingcenterEUR25–47forprimestreetunitsEUR20–35forshoppingcenterunitsEUR9–11forretailparkunits

Totalretailstock 1.3millionm2ofmodernspace

CurrentsupplySilesiaCityCenter,3Stawy,CHDąbrówka,Castorama,OBI,MediaMarkt,RetailParkRAWA(IKEA),DomHandlowyZenit,GaleriaAuchan,GaleriaKatowicka,RawaParkHandlowy,GaleriaSkarbek,GaleriaNowyRóździeń

Futuresupply GaleriaLibero,GeminiParkTychy,CentrumSkałka

WAREHOUSE SECTOR





CurrentandfuturesupplyintheUpperSilesiaregion

TulipanParkGliwice,PanattoniParkGliwice,ProLogisParkBędzinI&II,ProLogisParkSosnowiec,ProLogisPark–DąbrowaGórnicza,ProLogisParkChorzów,ProLogisParkUjazd,DiamondBusinessParkGliwice,CrossPointDistributionCenterŻory,MilleniumLogisticParkTychy,AllianceLogisticCenterSilesia,PanattoniParkCzeladź,PanattoniParkMysłowice,PanattoniParkBielsko-Biała,PanattoniParkSosnowiec,SegroBusinessParkGliwice,SegroIndustrialParkTychy,SegroLogisticsParkGliwice,SegroBusinessParkGliwice,CityFlexBusinessPark(Gliwice,Bytom,Katowice,Sosnowiec),PrologisParkRuda,MLPGliwice



Legal and tax aspects of investing in real estate

ThisChapterconsidersthemostimportantlegalandtaxissuesarisingduringeachofthefollowingfivestagesofarealestateinvestment:

• Financing

• Acquisition

• Developmentandconstruction

• Operationandexploitation

• Sale

TheChapterisarrangedsothateachoftheaboveaspectsisdealtwithinaseparatesection(2.3.–2.8.),consideringlegalimplicationsfirst,followedbyanassessmentofrelatedimportanttaxconsequences.

Thesection2.1.onthelegalbackground(below)willintroducethereadertocertainconceptsandtermsthatmaynotbecommonplaceintransactionselsewhereinEurope.ThisshouldbereadasageneralintroductiontothelegalenvironmentinPoland.Thechapteralsocontainssection2.2.oninvestmentvehiclesandstructurespresentinginformationonthemostcommonstructuresusedinrealestateinvestmentsinPoland.Takentogether,theyformthebasisforunderstandingthemostrelevantlegalandtaximplicationsofinvestinginrealestateinPoland.

Legal,financialandtaxduediligencearealsofundamentaltoanyinvestmentcycleandgiventheimportanceofduediligencetoanytransaction,wediscusstherelevantproceduresandkeyconsiderationsindetailinsection2.9.


2.1.1. GeneralremarksIngeneral,Polishrealestatelawprovidesquiteclearandstableruleswhichallowpotentialinvestorstomakewell-foundeddecisionsaboutenteringintorealestatetransactions.Additionally,therearemeasuresandinstitutionswhichenableinvestorstosafelyconcludetransactionsadaptedtotheirneedsandexpectations.Inparticular,mostrealpropertydeeds(sale,contributioninkind,othertransfers,establishingofamortgage)mustbeexecutedbeforeanotarypublic.Apubliccredibilitywarrantyofthelandandmortgageregisterisanadditionalinstrumentwhichprotectsthepurchaseragainstthirdpartyclaimsandguaranteesthevalidityofthetitleacquired(aslongasthepurchaseractedingoodfaith).Moreover,since1July2016,anotarypublicshallimmediatelyafterconcludingrealpropertytransferagreementinaformofnotarialdeedprepareanelectronicapplicationtothelandandmortgageregisterandthusmakeanentryintheregister,whichalsoenhancesaprotectionofthepurchaserandtransactionsecurity.

BelowwepresentsomekeyinformationonrealestatelawinPolandwhichshouldbethebaseforothercommentsinthischapter.

2.1. Legal background


2.1.2. Legal titles to real estateThebasicsourceofrealpropertylawinPolandistheCivilCodeof23April1964(withmanyamendmentssince;hereinafterreferredtoastheCivilCode).Althoughitdoesnotregulatethisbranchoflawexhaustively,itconstitutesabasisforotherregulationsregardinglegaltitlestorealestateandtheirlimitationsormodifications.

ThemostcommonlegaltitlestorealestateinPolandaretheownershipright,theperpetualusufructright,andobligationrights,suchaslease,tenancyorleasing.Polishlawalsoprovidesseverallimitedpropertyrightssuchaseasementsandusufruct.

Ownership rightOwnership(prawowłasności)isthebroadestrighttorealestateinPoland,equivalenttoafreehold.Asarule,ownershipconveystherighttopossessanduserealestateforanunlimitedperiodoftime(withtheexceptionofownershipofanybuildingsconnectedwiththeperpetualusufructright;seeourcommentsbelow)andtransferorencumbertherealestate.Theownershiprightmaybelimitedbystatutorylaw,principlesofcommunitylifeandthesocioeconomicpurposeoftheright.Themostcommonlimitationsresultfromconstructionlawandlocalspatialdevelopmentplansadoptedbylocalauthorities(municipalities).

Right of perpetual usufructPerpetualusufruct(użytkowaniewieczyste)isarightofusetherealestatewhichmaybegrantedbytheStateinrelationtotheState-ownedlandorbyalocalauthority

inrelationtotheauthority-ownedland.Ineithercasetherespectiveentity(theStateorthelocalauthority)remainstheownerofthe land.

Theperpetualusufructrightissimilartotheownership,however,thereareseveralcrucialdifferences:

• Theperpetualusufructrightiscreatedforadefinedpurpose(developingaprojectorconductingaspecificactivity)setoutinthecontract.Iftheperpetualusufructuaryisinbreachoftheseprovisions,thismayleadtoanincreaseintheannualfeesoreventerminationofthecontractbythecommoncourt.

• Theperpetualusufructrightiscreatedforaspecificterm,inprincipleforaperiodof99years.

However,whentheeconomicpurposeoftheperpetualusufructofpropertydoesnotrequirelettingthelandforalongerperiod,ashorterperiodofnolessthan40yearsisallowed.Theholderoftherightmayapplyforextendingthetermoftheperpetualusufructforafurtherperiodof40to99yearsfollowingthelapseoftheinitialperiod.Refusaltoprolongthetimelimitisadmissibleonlyonaccountofimportantsocialinterest.

Oncecreated,theperpetualusufructrightcanbeinherited,transferredtothirdpartiesorencumbered(i.e.mortgage,easements).Theholderoftheperpetualusufructrightenjoystherighttousetherealpropertyandtodrawbenefitsfromit,e.g.rentalincome.

Currently,theperpetualusufructrightmaybecreatedbycontract,whichgenerallyrequiresputtingthelandupforatender



(thereareseveralexceptionsprovided).Thewinningbiddersignsanotarialdeedwiththeowneroftherealestateestablishingtherightofperpetualusufruct.Theright,however,doesnotcomeintoexistenceuntilitisregisteredinthelandandmortgageregister.Otherissuesinvolvingtheestablishmentandtransferoftheperpetualusufructareaccordinglygovernedbytheregulationsregardingthetransferofownershipofrealestate.

Thecontractunderwhichthelandistransferredforperpetualusufructmaylaydownpotentiallimitationsontheuseofrealpropertyandindicatethemannerinwhichtherealestateistobeused.

Iftherealestatetransferredforperpetualusufructisapieceofdevelopedland,thebuildingsandotherconstructionserectedthereonaresoldtotheperpetualusufructuaryinadditiontotheestablishmentoftheperpetualusufructright.Ifthebuildingsareerectedaftertheperpetualusufructrightisestablished,theyalsobecometheperpetualusufructuary’sproperty.Separateownershipofthebuildingsduetotheperpetualusufructuaryisarightstrictlyconnectedwiththerightofperpetualusufructand,inconsequence,thebuildingssharethelegal“lot”oftheland.Inparticular,theownershipofbuildingsmaybetransferredonlywiththerightofperpetualusufruct.Oncetheperpetualusufructrightexpires,theholderoftherightisentitledtoareimbursementcorrespondingtothecurrentmarketvalueofthebuildingsandotherimprovementslegallyimplementedonthelandthatisthesubjectoftheperpetualusufructright.

Theperpetualusufructuaryisobligedtopaytotheowneraone-offinitialfeewhichamountsfrom15%to25%ofthetotalmarketvalueofthelandandthenanannualfeeofupto3%ofthetotalmarketvalueoftheland.Therateof3%isthebasicrateprovidedbythelaw;however,therecanbeotherrates(0.3%,1%,2%)appliedtotherealestateassignedforspecificpurposes,strictlylistedinthelegalprovisions(e.g.1%forresidentialpurpose).Thevalueofthelandasestablishedforthepurposeofcalculatingtheannualfeeissubjecttoindexation(notmorethanonceforthreeyears).Theperpetualusufructuaryhastherighttoquestionanewvaluationbeforethelocalappealcommitteeand,ifunsuccessful,beforeacommoncourt.

Theperpetualusufructuarymayrequesttoupdatetheannualfeeforperpetualusufruct,ifthevalueofthepropertyhaschanged.Theburdenofproofthattherearereasonstoupdatetheannualfee(e.g.declineinrealpropertyvalue)remainswiththeperpetualusufructuary.

Conversionoftheperpetualusufructintoownershipingeneralrequiresconsentofanownerofarealestate(theStateoralocalauthority)andisexecutedinacivillawsaleagreement(buyout).However,certainperpetualusufructuaries(inparticularnaturalpersons),subjecttocertainconditions,maydemandperpetualusufructbeconvertedintoownershipinasimplifiedadministrativeprocedure.

Theconversionissubjecttoafeewhichisequaltothedifferencebetweenthevalueofownershipandthevalueoftheperpetualusufruct.



Ingeneral,legalpersonsorentrepreneursarenotentitledtodemandtheconversioninthesimplifiedadministrativeprocedureunderjudgmentoftheConstitutionalTribunal(dated10March2015).Theymayonlypursuethebuyoutunderastandardsaleagreement.

Attheendof2016,thePolishgovernmentpublishedadraftofanactontheconversionofperpetualusufructofdevelopedlandforresidentialpurposesintotheownershipright.Thedraftactenvisagesthattheperpetualusufructrighttothelanddevelopedwithresidentialbuildingswillbetransformedautomatically,withoutnecessitytofileanyapplications,bytheforceoflaw,intotheownershipright.Theownersofthepremisesinbuildingsdevelopedonthelandheldunderperpetualusufructrightwillbecomeaco-ownersoftheland,insteadofholdingsharesinperpetualusufructright.Theownersofpremisseswillpay,upto20years,aspecialfeeforconversion,intheamountofthelastannualfeeforperpetualusufruct.Accordingtotheneweststatementsofthegovernment,itisplannedthatthisconversionofperpetualusufructintoownershipwillbecomeapplicableon1July2017.

Leases and TenanciesPolishlawdistinguishesbetweentwotypesofleases:lease(najem)andtenancy(dzierżawa).Leasesareusedmainlyforcommercialandresidentialpremises.Tenanciesareusedespeciallyforindustrialandagriculturalproperty.Underaleaseagreement,thelessorundertakestohandovertherealpropertyforthelessee’suse

forafixedornon-fixedterm,andthelesseeundertakestopaythelessoranagreedrent.Thetenancycontract,however,providesforthelesseeadditionalrighttocollectprofitsfromtherealestate.

LeasingByaleasingcontract,thefinancingparty,whoisanentrepreneur,undertakestoacquiretherealestatefromaspecifiedtransferoronthetermsandconditionssetforthinthatcontractandtogiveitovertotheuserforuseorforuseandcollectionofprofitsforaspecifiedperiod.Theuser,however,undertakestopaythefinancingparty,byinstallments,amonetaryremunerationequaltoatleasttheremunerationorthepriceatwhichthefinancingpartyacquiredtherealestate.

TherearetwotypesofleasingthatcanbeexecutedinPoland:

• operatingleasing,inwhichcasetheleaseholdisanassetofthelessorwhomakesdepreciationwrite-offsandthelesseehasanoptiontopurchasethepropertyattheendoftheleasingterm;

• financialleasing,inwhichcasetheleaseholdisanassetofthelesseewhomakesdepreciationwrite-offsandthetransferoftheownershipofarealestateattheendoftheleasingtermmaybestipulateddirectlyintheleasingagreement.

Thelesseeshouldchoosethetypeofleasingaccordingtohisrequirementsandneedswithrespecttotaxsettlementsandtheperiodofusingtheleasehold.



EasementsEasements(służebności)overlandarelimitedpropertyrightswhichmaybegrantedoverapieceofrealestate(encumberedproperty)forthebenefitofanotherpieceofrealestate(masterproperty).Dependingonthecontentofaneasementdeed,theholderofthemasterpropertymaybeentitledtoalimiteduseoftheencumberedproperty(activeeasement),ortheholderoftheencumberedpropertymayberestrictedintheexerciseofhisownrightsforthebenefitofthemasterproperty(passiveeasement).

Polishlawdistinguishesbetweentwotypesofeasements:

• groundeasements,whichareestablishedforthebenefitoftheownerorperpetualusufructuaryofthelandandaretransferredtogetherwiththeproperty(whetherthatencumberedorthemasterproperty);

• personaleasements,whichareestablishedforthebenefitofanaturalpersonandarenon-transferrable(norcantherighttoexercisethembetransferred).

TheCivilCodealsolistsaseparatecategoryofeasement,i.e.utilityeasementwhichmaybeestablishedforthebenefitofentrepreneursbeingutilityproviders.Autilityprovidermayaskthelandownertoestablishaneasementoverhislandinordertoinstall(andthenoperateandmaintain)e.g.electricitycables,installationsservingtosupplyandtochannelliquids,gas,steamorotherfacilities.Iftherealestateownerrefuses,theutilityprovidermaydemand

thataneasementbeestablishedinreturnforanappropriateremuneration.

Inpractice,realestatemaybeencumberedwithmorethanoneeasementorotherlimitedpropertyright.Insuchacase,asarule,arightthataroselatercannotbeexercisedtothedetrimentoftheearlierright;however,therearealsoregulationswhichspecifypriorityinadifferentmanner.

Inparticular,ifoneoftherightsisenteredinthelandandmortgageregister,itbenefitsfrompriorityagainsttherightwhichisnotenteredintheregister,regardlessofthedatesoftheirestablishment.

Itshouldbenoted,however,thateasementsarenotalwaysdisclosedinthelandandmortgageregister.

Inconsequence,thepotentialinvestorshouldverifywhethersuchrightsarenotbeingexecutedbycarryingoutanon-siteinspection,i.e.duringaduediligencereview.

UsufructUsufruct(użytkowanie)ofrealestateisalimitedpropertyrightwhichallowsitsholdertousetherealestateandcollectbenefitssimilartothosetowhichtheownershipholderisentitled.Thescopeoftheusufructmaybelimitedbyspecifiedprofitsbeingexcluded,ortoadesignatedpartoftherealestate.Usufructiscreatedbyacontract.Usufructisnon-transferable,strictlyconnectedwiththeusufructuary,sotherightexpiresontheusufructuary’s



death(orliquidation,inthecaseoflegalentities).Moreover,ausufructexpiresifnotexercisedfortenyears.

Usufructissimilartotenancy,yetitslegalnatureisdifferent.Usufruct,asalimitedpropertyright,iseffectiveergaomnes(itiseffectiveinrespectofthirdparties)andtenancyiseffectiveonlybetweenthepartiestoanagreement.

2.1.3. Real property registersTherearetwotypesoflandregistersinPoland:thelandandmortgageregister(księgawieczysta),whosemainpurposeistoregistertitlesandencumbrancesoverrealestateandthelandandbuildingsregister(ewidencjagruntówibudynków),themainpurposeofwhichistodescribethephysicalfeaturesandtheuseofthelandand buildings.

Land and Mortgage RegisterLandandmortgageregistersarekeptbydistrictcourtsandprovideinformationonthelegalstatusofrealestate,e.g.thelocationofparcelsofland,theownershipstatusofland,encumbrancesontheland,mortgages.

Thefollowingrealestaterightsareregisteredinthelandandmortgageregister:ownership,perpetualusufructandlimitedpropertyrightssuchascooperativemember’srighttoanapartment,cooperativemember’srighttocommercialpremises,righttoasingle-familyhouseinaresidentialcooperative,mortgage,easementandusufruct.Asarule,registrationstakeplaceattherequestofthepartyconcerned.

Landandmortgageregistersarepubliclyavailableforreviewbyanybody(eventhosewithnolegalinterest)andmaybealsoreviewedon-line,viaITsystem.

Asfaraslandandmortgageregisterfiles(includingmaps,deeds,courtdecisions)areconcerned,onlypartieswithalegalinterestmayinspectthem.Legalinterestisinterpretedquitenarrowlyandcomesdowntothosepartieswhoserightsareregisteredinagivenregister.

Entryofarightinthelandandmortgageregisterispresumedtoreflecttheactuallegalstatusoftherealestate.Shouldtherebeanyinconsistencybetweenthelegalstatusofrealestate,thecontentoftheregisterprevailsinfavorofthepersonwhohasacquiredtherightofownershiporanotherpropertyrightbyperforminganactinlawwithapersondulyregisteredastheholderoftherightandentitledaccordingtothepubliccredibilitywarrantyofthelandandmortgageregister(rękojmia wiary publicznej ksiąg wieczystych). In consequence,ifapurchaseracquiresapropertyingoodfaithfromanon-ownerregisteredasowner,theacquisitionisvalidandthetrueownercannotrenderthetransferinvalid.Hisonlyrecourseisanindemnityclaimagainstthevendor.Inconsequence,anexcerptfromthelandandmortgageregisteristhekeydocumentthatshouldbeobtainedandanalyzedbeforeadecisiontoacquirerealestateismade.

Thepubliccredibilitywarrantydoesnotconferprotectionongratuitousdispositionsorthosemadeinfavoroftheacquirerinbadfaith.Itisalsoexcludedbyanmentioninthelandandmortgageregister



concerninge.g.filled,butunexaminedapplicationforentryintheregisterorlodgingacomplaintagainstacourtdecision.

Land and Buildings RegisterThelandandbuildingsregisteriskeptbystarostasofthepoviats(orpresidentsoftownswiththerightsofapoviat)andisauniformcollectionforthewholecountryofsystematized,updateddataonland,buildingsandpremises,theirownersandothernaturalpersonsandcorporatebodiesholdingtheland,buildingsandpremises.

Informationonland,buildingsandpremisesisavailabletothepublicandcommonly

accessible.However,feesarecollectedfordisseminateddatasetsanddistributedextractsfromtheregistersanddirectoriesaswellasforcopiesofcadastralmaps.Additionally,thepartyintendingtoinspecttheregistershouldprovehis/herlegalinterestifthedemandedextractincludespersonaldata.Thepubliccredibilitywarrantydoesnotapplytothelandandbuildingsregister,hence,theregisterdoesnotprovidethepersonacquiringtherightofownershiporanotherrealpropertyrightwiththeprotectionwhichisprovidedinthecaseoflandandmortgageregistersheldbycourts.



2.2.1 GeneralremarksFurthertothePolishCommercialCompaniesCodeof15September2000(hereinafterreferredtoastheCommercialCompaniesCode)thelegalentities,referredtotherein,canbedividedintotwogroups:partnershipsandcompanies.Therearetwomaindifferencesbetweenthem:(i)generally,partnersinapartnershiptakefullresponsibilityforthepartnership’sliabilities(subsidiaryresponsibility)and(ii)partnershipsarenotlegalpersons,however,theymayacquirerightsandincurobligations.

Investinginrealpropertyisgenerallycarriedthroughspeciallycreatedentities–socalledspecialpurposevehicles(SPV).Polishlegalregulationsdonotimposeanyspecificlegalformforsuchanentity.Consequently,anentityorganizedinanyformlegallyacceptedinPolandmayserveasanSPV.TheSPVmayoperatebothasapartnershipandasacompany.

AmongallthelegalformsoforganizingtheentityprovidedforintheCommercialCompaniesCode,wewouldliketopresentthreethatarethemostcommonlyusedbytheinvestors:alimitedliabilitycompany,alimitedpartnershipandapartnershiplimitedbyshares.

2.2.Investmentvehicles and structures


ThechoiceofthelegalformfortheSPVwilldeterminethestructureunderwhichsuchanentitywillbeoperating.TheforeigninvestormayeitherbeadirectshareholderintheSPV,remainaparentcompanyforaforeign/PolishcompanycontrollingtheSPV,orarrangeanyotherstructurethatwouldsuititsneedsfromthelegalandtaxperspective.

TherearetwowaysforaninvestortointroducetheSPVintoitscapitalstructure:theSPVmaybeboughtorestablishedbytheforeigninvestor.Therearenumerousservicefirmsofferingthesaleofestablishedcompaniesorpartnerships(so-called“shelfcompanies”),thatcanbeusedstraightaway.However,thisisalwaysmoreexpensivethansettingupanewentity.

Apartfromthelegalformsmentionedabove,aforeigninvestormayalsooperateinPolandandinvestinrealproperty:

• directlythroughitsbranch;

• byenteringintoajoint-venture.

Formorecomplexanddiversifiedinvestmentsaformulaofaclosed-endfund(FunduszInwestycyjnyZamknięty;FIZ)couldbeused,whichhoweverbecomelessattractiveduetorecenttaxchangesimplemented.

2.2.2.LimitedliabilitycompanyAlimitedliabilitycompany(spółka z ograniczoną odpowiedzialnością)iscommonlyusedastheSPVforrealestateinvestmentsordevelopmentprojects.

Thefeaturesofthelimitedliabilitycompany

aresetoutintheCommercialCompaniesCode,themostimportantofthembeing:

• itmaybecreatedbyoneormorepersonsforanypurposeallowedbylaw(itmaynotbeformedsolelybyanothersingle-shareholderlimitedliabilitycompany);

• liabilityoftheshareholdersislimitedtotheircontributiontothesharecapitalofthecompany;

• thesharecapitalofthecompanyshallamounttotheminimumofPLN5,000(ca.EUR1,200)andisdividedintosharesofequalornon-equalnominalvalue;

• thesharecapitalcanbecoveredbyacontributionin-kind;

• limitedliabilitycompanyisalegalpersonandassuch,itisapartytospecificrightsandobligations;

• itactsthroughitsbody,i.e.themanagementboard;themembersofthemanagementboard,ingeneral,arenotliableforthecompany’sliabilities.

TheCommercialCompaniesCodeprovidesforaninstitutionofa“companyinorganization”.Thismeans,thatalimitedliabilitycompanysetupbysigningthearticlesofassociationmayacquirerightsonitsownbehalf,includingtherightofownershipofrealestateandotherrights,incurobligations,sueandbesuedevenbeforeitsregistrationwiththeregistrycourt.

ItisalsopossibletoregisteralimitedliabilitycompanywiththeregistrycourtviatheInternet.Theprocedureissimplifiedincomparisontothestandardprocedureand



requirestheregistrationofthecompanythroughadedicatedwebsiteoftheMinistryofJustice(https://ems.ms.gov.pl/).However,duringtheonlineregistrationofthelimitedliabilitycompanyitisnotpossibletomakeanin-kindcontribution,hence,theentiresharecapitalmustthereforebepaidincash.

TheSPVsmaybesetupdirectlybytheforeigninvestor,beingtheonlyshareholder(bearinginmindthelimitationsindicatedabove).ItisobviouslypossibletointroduceseveralSPVsestablished(orpurchased)bythesameshareholderinordertodividetheinvestmentriskbetweenthem.However,depending on the intentions of the investorandbearinginmindpossibletaxeffectivenessofthescheme,asimpleonestepstructuremaybeenlargedandinvolve,forexample,settingupaholdingcompany,abroadorinPoland,whichholdsthesharesoftheSPVs.

One step structure with several SPVs, allowing

diversification

Foreign Investor

A structure with a holding company,

gathering several SPVs

Foreign Investor

SPVs

SPVs

Hold Co

2.2.3 Partnerships

Themainfeaturesofpartnershipsarethefollowing:

• partnersactinthenameofthepartnership;

• partnersareresponsiblefortheliabilitiesofthepartnership;

• theassetsofthepartnershipincludeanypropertycontributedtothepartnership;

• therearenominimumcapitalrequirements(excludingthepartnershiplimitedbysharesincaseofwhichtheminimumsharecapitalamountstoPLN50,000,i.e.ca.EUR12,000);

• althoughitisnotclassifiedasalegalperson,apartnershipmayacquirerightsonitsownbehalf,includingtherightofownershipofrealestateandotherrights,incurobligations,sueandbe sued.

Inrecentyearsthenumberofpartnershipsusedforthepurposesofinvestmentstructuressignificantlygrew.

Limited partnershipAlimitedpartnership(spółkakomandytowa)isapartnershipofwhichatleastonepartnerisliabletothecreditorsfortheobligationsofthepartnershipwithoutlimitation(thegeneralpartner-komplementariusz)andtheliabilityofatleastonepartner(thelimitedpartner-komandytariusz)islimitedtothevaluedefinedinthepartnershipagreement.

Thisfeatureofthelimitedpartnershipresultsinthespecificstructurethatneeds



tobeimplemented.Rightsandobligationsinthepartnershipshouldbesplitbetweentwoentities(limitedpartnerandgeneralpartner).Itisacommonpracticethattheinvestortakestheroleofthelimitedpartnerinordertoavoidthefullliability,whereasanadditionallimitedliabilitycompanyisestablishedtoserveasageneralpartnerintheSPV.Asmentionedwithrespecttothestructuresinvolvinglimitedliabilitycompanies,alsoincaseoflimitedpartnershipsvariousstructuresmaybeinvolved,dependingonthespecificneedsoftheinvestor.Mostcommonlyhowever,thelimitedliabilitycompanywillpossessaminoritypositionintheSPVandshallbea100%subsidiaryoftheinvestor,neverthelessitmaytakespecificfunctionsintheSPV-e.g.managementduties.

Structure with limited partnership

Foreign Investor(limited partner

SPV

LLC(general partner)

Partnership limited by shares

Apartnershiplimitedbyshares(spółkakomandytowo-akcyjna)isapartnershipthepurposeofwhichistoconductabusinessenterpriseunderitsownbusinessname,whereatleastonepartner(generalpartner

komplementariusz)shallbearunlimitedliabilitytowardsthecreditorsforobligationsofthepartnershipandatleastonepartnershallbeashareholder(akcjonariusz).

Partnershiplimitedbysharesistheonlypartnershipincaseofwhichthereareminimumsharecapitalrequirements,i.e.thesharecapitalhastoamounttoatleastPLN50,000(ca.EUR12,000).

Thespecificfeaturesofthisentityresultsintwokindsofinvolvementinthepartnership,thegeneralpartneractslikeapartnerinanyotherpartnership-i.e.representsthepartnershipandtakessubsidiaryresponsibilityforthepartnership’sobligations,whiletheshareholderactslikeashareholderinajoint-stockcompany,i.e.hisinvolvementispurelyofafinancialnature.

ThepartnershiplimitedbysharesissubjecttosomeadditionalrestrictionsprovidedforbytheCommercialCompaniesCode:

• incaseofin-kindcontributionstheauditor’sopinionisrequired,

• profit-sharingoccursingroups(separatelyshareholdersandgeneralpartners).

Tax advantages

Till31December2013bothlimitedpartnershipandpartnershiplimitedbyshareswereconsideredtransparentforthepurposesofcorporateincometaxandthereforecommonlyusedasSPVsinrealpropertyinvestments.

DuetoCITlawchangesfrom1January2014partnershipslimitedbysharesare



nolongerconsideredtaxtransparentandbecamecorporateincometaxpayers.

Inthecaseoflimitedpartnership,taxablerevenuesandcostsgeneratedbythepartnershipareallocatedtothepartners(bothlimitedandgeneral)andrecognizedforcorporateincometaxpurposesonanon-goingbasisattheirlevel(i.e.limitedpartnershipsaretaxtransparent).

Partnershipspayothertaxes,suchasVAT,realestatetax,andcivillawtransactiontax,andtheymaypaywithholdingtaxes(e.g.withholdingtaxoninterestandroyaltiesaswellaswithholdingtaxonremunerationpaidtoindividuals,asataxremitter).

Thetablebelowcomparesthebusinessandtaxationaspectsofthelimitedpartnershipsandlimitedliabilitycompanies:

Limited liability company Limited partnership

possesseslegalpersonality YES NO

canbeestablishedbyasingleshareholder/partner

YES (NO if to be established by aLLC,whichhasonlyone

shareholderitself)

NO

canacquirerealproperty YES YES

theshareholders/partnersarepersonallyliableforthecompany’sdebt

NO generalpartner–YES limitedpartner–NO

minimalsharecapital 5.000 PLN (ca.EUR1,200) NO

managementboard obligatory NO

supervisoryboard voluntary* NO

Taxationofincome(fromexploitationorsaleofassets)

19% atthecompanylevel

19% atthelevelofthepartners

Taxationofthedistributionofincometoshareholders/partners

19% undercertainconditionstherecanbereliefforshareholders

whoarelegalpersons(basedinPolandorintheEU/EEA). Reducedratesforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)

NO



Limited liability company Limited partnership

Civillawtransactiontaxonshareholder/partnerloans NO

0.5% on the value of the loan

payablebythepartnership

Applicabilityofthincapitalizationrules YES

NO althoughinterestpaidtothepartnerbeingthelendercannotberecognizedasatax

deductiblecostofthispartner(ontheother

hand,interestreceivedconstitutestaxableincome

ofthispartner)

Abilitytooffsetprofitsandlossesfromvariousprojects(carriedoutinseparatecompanies/partnerships)

NO onlyinthecaseofestablishing

ataxcapitalgroup

YES profitsandlossesare

compensatedatthelevelofpartners

TaxationinPolandofthesaleofsharesinthecompany/partnership

19% possiblereliefforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)

19% itisnotclearwhether

thesamereliefpossible inthecaseofpartnerships

Themainadvantagesofusingalimitedpartnershipinaninvestmentstructureareasfollows:

• profitdistributionsarenottaxed:thereisonlyoneleveloftaxation;

• limitationofliabilityvis-à-viscreditorsforthelimitedpartner(whoisliableonlyuptotheamountagreedbythepartnersinthearticlesofassociation,calledthecommendamsum);

• theabilitytooffsetprofitsandlossesondifferentprojectsconductedatthelevelofthepartners.

Alimitedliabilitycompanycanbetransformedintoalimitedpartnership,althoughsuchaprocessmayattracttaxationinPoland.Adetailedanalysisisrequiredineachcase.

2.2.4. Joint venturePolishlegalregulationsdonotprovideanydefinitionofajointventure,nevertheless,itisausefulsolutiontocombineentrepreneurs’effortsinachievingthecommongoal.



Thetermjointventuremaybeunderstoodasacooperationoftwoentitiesresultinginsettingupanewcompany(theinvestmentonsuchbasisiscarriedthroughthegivencompany,asdescribedbefore)oritmaybeonlyaveryclosecooperationbetweenthetwoentities,whichallocatecapitalforactivitiesimplementedjointlybysharingcostsandrevenuesunderajointventurecontract,withoutcreatingaseparatebusiness entity.

Theobjectivesforthecreationofjointventuresare:

• gainingaccesstonewmarkets,

• synergies,

• riskdiversification,

• achievingeconomiesofscale,

• gainingaccesstocheapersourcesofsupplyandcheaperfinancing,

• jointdevelopmentandsharingoftechnology,

• overcomingbarriersandadministrativedutiescreatedbythecountryofoneofthepartners.

2.2.5 InvestmentFund-closed-end fund

ThePolishInvestmentFunds’activityiscomprehensivelyregulatedbytheActof27May2004onInvestmentFunds(hereinafterreferredtoastheActonInvestmentFunds).AccordingtothatAct,thesoleobjectoftheinvestmentfund’sactivityistoinvestthemoniesacquiredfromtheparticipantsinshares,securities,moneymarketinstrumentsandotherpropertyrights–includingrealproperty.

Investmentfundsdifferfromregularlegalentitiessuchascapitalcompanies,asaninvestmentfundmerelyformsanassetpoolconsistingofthepaymentsoftheparticipantsandtheassetsacquiredforthesaidpayments.

TheActontheInvestmentFundsdifferentiatesingeneralbetweenOpen-EndInvestmentFundandClosed-EndInvestmentFund(hereinafterreferredtoasFIZ).

FIZisalegalperson.TheprimaryprincipleoftheFIZisthefixednumberofparticipationtitles(investmentcertificates)issuedinexchangeforcontributionsmadebyitsparticipants(investmentcertificate-holder).FIZdoesnotissueparticipationtitlesoneverydemandofaninvestorasisthecasewiththeopen-endinvestmentfunds,butratherindiscretionaryperiodsoftime.Inordertosubscribeforinvestmentcertificates,theparticipanthastomakeacontributiontotheFIZ.Generally,theparticipantsmaycontributetotheFIZcash,sharesorrealestate.

TheFIZ’sbodiesaretheManagementCompany,theBoardofInvestors(controllingbody)andGeneralInvestor’sMeeting.

TheManagementCompany(Towarzystwo Funduszy Inwestycyjnych)isalegalentityseparatefromtheInvestmentFund.Accordingtothelegalprovisionsonlyajoint-stockcompanywithitsregisteredofficeinPolandholdingauthorizationtoconducttheactivitiesrelatedtocreatinginvestmentfundsandmanagingthemissuedbythePolishFinancialSupervisionAuthority(Komisja Nadzoru Finansowego),



maybeaninvestmentfundmanagementcompany.ThismeansthattheManagementCompanycarriesoutitsactivitiesonthebasisofthepermitissuedbythePolishFinancialSupervisionAuthorityandunderitssupervision.

AManagementCompanymaybeformedbyaninvestor,however,itiscommonpracticethatalreadyexistingManagementCompaniesareengagedtotakethisrole.InsuchacaseaninvestormakesanagreementwithaManagementCompany.Consequently,theinvestoronlyholdsinvestmentcertificatesintheFIZandthroughthisstructureinvestsinparticularproperty.

TheManagementCompanyfulfilstwoprimaryfunctions:(i)atthebeginning-itactsasafounderoftheFIZ,(ii)whentheFIZisestablishedandregistered-itbecomesitsgoverningbody(representsFIZintransactionswiththirdparties).

InaccordancewiththeActonInvestmentFunds,theManagementCompanyshallbeliabletotheparticipantsintheFIZforallthedamagecausedbythefailuretoperformorimproperperformanceofitsdutiesasregardsthemanagementoftheFIZanditsrepresentation.

TheaboveshowsthatthestructureneededtoimplementFIZiscomplexandrequires:

a) engagingaManagementCompany,

b) establishinganFIZ,

c) establishingtheoperatingcompanies,whichmayacquiretherealproperty.

Nevertheless,establishinganFIZstructurehasimportantadvantages.Firstofall,itallowsforadditionalfinancingfor

theinvestmentstoberaisedbysellinginvestmentcertificates.Thismaybeveryusefulinenteringinlarger,long-termrealpropertyinvestments.

Untilrecentlytheuseofthisstructure,ifproperlyimplemented,couldleadtothedeferral,orevenexemptionfromtaxation,oftheoperatingandcapitalgainsgeneratedfromrealestateasFIZwasgenerallyexemptfromCITinPoland.

Similarly,aforeigninvestmentfundestablishedintheEUorEEAcountrycouldbeused(thePolishCITlawinforcefrom1January2011providesforsuchapossibilityexplicitly).

However,starting1January2017,incomeofFIZoraforeigninvestmentfundresultingfrom:

• ashareinprofitgeneratedbytaxtransparententities;

• interestonloansissuedtotaxtransparententitiesandinterestonthoseentities’otherliabilitiestowardsthefund;

• interestonashareintaxtransparententities;

• donations/giftsorotherfreeorpartiallyfreebenefitsfromtaxtransparententities;

• interest(discount)onsecuritiesissuedbytaxtransparententities;

• transferofsecuritiesissuedbytaxtransparententitiesorsharesinsuchentities;

isnolongerCITexempt.Set-upofthestructuredesignedforrealestateholdingwhichcouldbenefitfromtheCITexemptionis,therefore,evenmorecomplexexercisethanbefore.



Example of a FIZ structure

Foreign Investor

FIZ

SPV

Management Company

investment certificates

2.2.6 Realestateinvestmenttrusts

General remarksRealestateinvestmenttrust(hereinafterreferredtoasREIT)isafundinvestingincommercialrealestate,guaranteeingaregulardividendforinvestors.AccordingtotheEuropeanPublicRealEstateAssociation,theaveragedividendfundsinEuropefortheperiod2010-2015amountedalmost5percent.Worldwide,REITsofferinvestorsmanyadvantages:highliquidityandrateofreturn,exemptionfromcorporateincometaxand,finally,aregulardividendofupto90-100percentofprofit.

However,sofar,thisformofinvestmenthasnotbeenregulatedbythePolishlaw.InOctober2016,thePolishgovernmentpublishedadraftofanewactonrealestateinvestmenttrusts(inPolish: spółka rynku wynajmu nieruchomości).

Accordingtothedraftregulation,aREITmustbeapubliccompanylistedontheWarsawStockExchange,createdforanindefiniteperiodoftime.Itssharecapital

mustbeatleastPLN60million.Atleast70%ofitsassetvaluemustbecomprisedofrealpropertiesorsharesinotherREITsoritsspecial-purposevehicles,andconsequentlyatleast70%ofitsnetsalerevenuesmustbegainedfromtheleaseofatleastthreerealpropertiesorthesaleofrealproperties.

Itshouldbenotedthatundertheproposedregulation,aREITmostprobablywillnotbeabletoinvestinundevelopedrealestateorinresidnetialassets.

Anotherimportantprovisionisthatatleast90%ofREIT’sprofitmustbepaidoutasannualdividendstoitsshareholders-unlesstheshareholdersdecidetoallocateitforre-investmentontherealestatemarket.Finally,aREIT’sliabilitiesmaynotexceed70%ofitsassets.

ThePolishgovernmentexpectedthenewlawtoenterintoforceon1January2017,buttheworksonnewregulationweredelayed.Accordingtothelatestinformations,thegovernmentconsidersallowinginvestmentinhousingrealestatebyREITs.Furtherworkonthisdraftlawshouldbecloselymonitoredbytheinvestors.

Tax remarksAccordingtothebill,aREITisexemptfromCITonincomefromtheleaseandsaleofrealestateaswellassaleofsharesofotherREITsandsocalledrealestatesubsidiaries(thatmustalsomeetcertaincriteria).Realestatesubsidiariesthatmeetcriteriaandare95%heldbyREITscanalsoenjoyataxexemptiononcertainrealestaterelatedsourcesofincome.



2.2.7 Public-private partnership

General remarksPublic-privatepartnership(hereinafterreferredtoasPPP)isoneoftherisingformsofcooperationbetweenpublicauthoritiesandtheprivatesector.Itallowsforanincreaseintheefficiencyofpublicservicesthroughtheuseofprivatesectorexperienceandforthesharingofriskbetweenpublicandprivateentities.

PPPenablesamutualadvantageforthepublicandprivatesector–forpublicentitiesitguaranteesanadditionalsourceofcapitalandasaconsequenceprovidesthepublicsector-withfundstoallocateforotherpurposes.Ontheotherhand,thepublicsectormayprovidetoprivateinvestorsthelong-termcertaintyofcashflowsfrompublicsources.

InPolishlawthelegalframeworkforPPPisestablishedbytwoactsthatregulatethecooperationbetween

publicentitiesandprivatepartners:

• theActof19December2008onPublic-PrivatePartnership,hereinafterreferredtoastheActonPublic-PrivatePartnership,

• theActof21October2016onConcessionforWorksandServices,hereinafterreferredtoastheActonConcessions,whichhasreplacedthepreviousActof9January2009onConcessionforWorksandServices.

ThemainsimilaritiesbetweentheActonPublic-PrivatePartnershipandtheActonConcessionsareasfollows:

• cooperationbetweenapublicandprivatepartner,

• privatepartnersreceivepaymentsfortheservicerendered,

• constituteaspecialformoftenderagreements.

Selection of the private partnerTheActonPublic-PrivatePartnershipbasicallydistinguishestwowaysofselectingtheprivatepartner.Thewaysofselectiondependonthetypeoftheprivatepartner’sremunerationandareasfollows:

• IftheremunerationoftheprivatepartnerisrepresentedbytherighttoexploittheworkorservicesthatarethesubjectofthecontractorinthatrighttogetherwithpaymentselectionoftheprivatepartnershallbedoneapplyingtheActonConcessionssubjecttoprovisionsoftheActonPublic-PrivatePartnership.

• Inothercases,theselectionoftheprivatepartnershallbedoneapplyingtheprovisionsoftheActofJanuary29,2004onPublicProcurementLaw(hereinafterreferredtoasPublicProcurementLaw)subjecttoprovisionsoftheActonPublic-PrivatePartnership.

IncaseswheretheActonConcessionsandPublicProcurementLawdonotapply,theselectionoftheprivatepartnerismadeinawaythatensuresthemaintenanceoffairandfreecompetition,aswellastheprinciplesofequaltreatment,transparencyandproportionality.Ifthepublicpartnerbringsinrealestateasitsowncontribution,theprovisionsoftheActofAugust21,1997onthePropertyManagement



(hereinafterreferredtoastheActonPropertyManagement)mustbetakenintoaccount.

Implementation of PPPPursuanttotheActonPublic-PrivatePartnershippublicandprivateentitiesconcludeanagreementunderwhichtheprivatepartnercommitsitselftoimplementtheprojectatanagreedremunerationandtocoverinwholeorinparttheexpendituresforprojectimplementation,orcoverthemthroughathirdparty,whilethepublicentitycommitsitselftocollaborateforthepurposeofachievementoftheprojectgoal,inparticularbymakingitsowncontribution.ThePPPcontractcanalsoprovidethatforthepurposeofitsperformance,thepublicentityandtheprivatepartnershallestablishacompany,alimitedpartnershiporapartnershiplimitedbyshares.

Financial restrictionsThetotaljointamountuptowhichbodiesofgovernmentadministrationcancontractfinancialliabilitiesonthebasisofcontractsofPPPinagivenyearisspecifiedintheBudgetAct.

However,asarule,thefinancingofaprojectfromtheStatebudgettotheamountexceedingPLN100millionrequiresaconsentissuedbytheministerresponsibleforpublicfinance.Whenissuingtheconsenttheministerresponsibleforpublicfinanceshallconsidertheinfluenceoftheplannedbudgetexpendituresonthesafetyofpublicfinance.

The concession contract – legal basicsTheActonConcessionsspecifiestherulesandproceduresforcontractingconcessionsforworksorservicesandthelegalprotectionmeasures.

Thedurationofaconcessioncontractshouldtakeintoaccounttherecoveryoftheconcessionaire’sexpenditureincurredwithreferencetotheperformanceoftheconcession.Aconcessioncontractisconcludingforalimitedperiod.

Theconcessionaireundertheconcessionsignedwiththeconcession-grantingauthorityisobligedtoperformthesubjectofconcessionforremuneration,whichconstitutesincaseof:

• theconcessionforworks–exclusivelytherighttoexploittheworksthatarethesubjectofthecontractorinthatrighttogetherwithpaymentbyconcession-grantingauthority;

• theconcessionforservices-exclusivelytherighttoexploittheservicesthatarethesubjectofthecontractorinthatrighttogetherwithpaymentbyconcession-grantingauthority.



2.3.1.ModesoffinancingtheSPVs/investments

Themostimportantthinginstartinginvestments,istoprovidefinancingfortheSPVs,sotheycanoperateandacquirerealproperty.

Thereareseveralmethodsoffinancingthecompany,somefundscanbereceivedfromoutside,butsomemaycomefromthecapitalgroup–e.g.fromtheparentcompany.Inmanycasesbothsolutionsarepossible.

Loan and credit agreementByloanagreementalenderundertakestotransfertheownershipofacertainamountofmoneyorgoodstoaborrower,whileaborrowerundertakestoreturnthesameamountofmoneyorthesameamountofgoodsofthesamekindandthesamequality.Loanscanbegrantedbyanyentity/personandmayberelativelyfreelyregulatedbytheparties.

Acreditagreementisaspecifickindofexternalfinancing,whichisregulatedbytheBankingLawof29August1997andcanbegrantedonlybybanks.Byacreditagreementabankagreestoprovideaspecificamountofmoneyforaspecificpurposeandtime,andtheborroweragreestousethecreditforitsintended

2.3. Real estate financing


purpose,andpaybacktheamountofcreditalongwithduerewardintheformofbankinterest.

Onthefinancialmarketthereisawidechoiceofbankcreditsandtheirpricedependsonvariousfactorsas:duration,securitiesavailable,financialconditionoftheborrower.Additionally,banksmaychargetheborrowerapreparationfeeforallworkconnectedwiththepreparationofthecredit.

Banksalsogenerallyrequiresecuritiesforthecredits.Amongothers,themostpopularare:

• mortgages;

• sharepledges;

• assetandbankaccountpledges;

• powersofattorneytobankaccounts;

• securityassignmentsofreceivablesoftheborrower;

• submissionstoexecution;

• subordinationagreements.

AmortgageisthecommonformofsecurityrequiredbyPolishbanks–especiallyrequiredinrealestatefinancingtransactions.

Mortgageshallbedefinedasaright,underwhichthelender(creditor)maysatisfyhisclaimsfromtheproperty,regardlesswhoisthecurrentowneroftheproperty,andwithpriorityoverotherpersonalcreditorsoftheborrower,whosecreditsarenotsecuredwithmortgage.

AmortgagebecomeseffectiveafterenteringintheLandandMortgageRegister.Theentrytakeseffectatthedateoffiling,soeventhoughtheregistrationmaytake

severalmonths,marketpracticeissuchthatbankspayouttheamountofthecredituponreceiptofconfirmationoffilingoftheapplicationforregistration.

Amortgageisaverysecuresolutionforthebank,asinthecaseofthedebtornotbeingabletopayoffhisdebt,therealpropertymaybesoldinapublicauctionandthus,thebankmayretrievethewholeamountofdebt.

Shareholder’s loanAloanfromshareholdershastwoimportantadvantagesoverthebankloan.First,itisingeneralacheapersolutionandwhatismore,itdoesnotbaretheriskofenforcementincaseofdifficultfinancialsituationoftheborrower.

Itisimportanttomentionthespecificrulesresultingfromart.14§3oftheCommercialCompaniesCode,whichprovidesthatshareholder’sclaimresultingfromaloanshallbeconsideredtobehiscontributiontothecompanyincaseofdeclarationofbankruptcywithintwoyearsfromthedateoftheloanagreement.However,theabovedoesnotconstituteanincreaseinthesharecapitalofthecompany,andthecontributionistreatedasmadeonthesupplementarycapital.Thisprovisionisintendedtoprotectcreditorsofthebankruptcompany.

BondsBondscanbeissuedbyajoint-stockcompany,alimitedliabilitycompanyandapartnershiplimitedbyshares.Bondscanbedefinedassecurities,whichobligetheissuer(thecompany)togivecertainbenefitsincashorinkindtothebondholder



(thebuyerofthebonds).Companiescanissueregisteredorbearerbonds.

Theadvantageofthisformoffinancingistheabilitytofairlyfreelydeterminethebenefitsthatareassociatedwithbonds.Theconstructionofthesecuritydoesnothavetobelimitedtoasimplefinancialbenefitintheformofrepaymentofthebondsplusinterestrepresentinganincomeofthebondholder.Whileissuingbonds,thecompanyisfreetoformulatethegratificationtobeprovidedtobondholders,suchasthepossibilityofparticipatinginprofitsofthecompany,ortheconversionofbondsintoshares.

Thebondsmaybedistributedonanopenmarket,insearchforanoutsidefinancing,orserveasamodetotransferfundsfromanotherrelatedcompany.ItshouldbenotedthatthereareseveralcompaniesintherealestatesectorlistedonthePolishbonds’openmarket.

InthecaseofSPVswhichaimtoobtainfinancingfromtheshareholders,thegratification(amutualbenefit)totheparentcompanyasabondholderwillbeofsecondaryimportance.ApracticalsolutionisthatiftheSPVgeneratefutureearningsfromrealproperty,bondscouldentitlebondholderstoparticipateintheprofit.Duetothehighdegreeoffreedomintheframeworkofthisinstrument,itisveryrecommendedasanoptimalwaytobringthefundsdownwards.

Wewouldliketonote,however,thattheissuingofbondscreatesadditionalobligationsforthebondissuer,relatedtoprovidingdatatoassessthefinancialconditionofthatentity.Additionally,ifthe

issueroperatesformorethanayear,itisrequiredtoprovidefinancialstatementspreparedasatthebalancesheetdate,noearlierthan15monthsbeforethedateofthepublicationofthetermsofissuingthebonds,alongwiththeauditor’sopinion.

Promissory notesInordertoobtainfinancingSPVsmayissuepromissorynotes.

Apromissorynotemayincludeadeferredpaymentdate.Itshouldhaveaclearlydefinedduedate,intheformofacalendardate.Thereareexemptionsfromthisrule–e.g.an‘avista’promissorynote-whichprovidesthatthepaymentismadeondemandfromthepayeeorwithinacertainperiodafterthedemand.Additionally,an‘inblanco’promissorynoteallowsapayeetofillin(atitsowndiscretion)-theconditionsofsuchpromissorynote(e.g.dateofpayment)withinthescopeforeseenbyamutualagreement.

Theobligationfromthepromissorynotedoesnothavetobeaccompaniedbyanyotherlegalrelationshipthatitsecures.Itmeansthattheholderhasanunquestionableclaimfrompromissorynote,evenif,forexample,promissorynoteliabilitywasnotbasedonanyotherparticularobligations-suchasloans.

Similarlyasinthecaseoftheloanagreement,theissuerofapromissorynotebecomesadebtor.Withtheuseofapromissorynote,SPVscaneasilyobtainfundsfromtheparentcompanyinalessformal,quickerwayandeasilysettlethedebtinanysuitabletimeframes.



Increase of share capitalRaisingcapitalisacommonwayoffinancingcompanies.Itcanbecarriedbyincreasingthenominalvalueofthesharesexistingorcreatingnewones;bothwaysleadtoanincreaseofthesharecapital.

Thisprocessisassociatedwitheitherchangesinarticlesofassociation(aformalmodethatrequiresfilingthechangesinthearticlesofassociationwiththeNationalCourtRegister)oranincreasebasedonthecurrentprovisionsofthearticlesofassociation(informalmode).Theaimistochangethecapitalstructureofthecompanybydefiningthesharecapitalatahigherthancurrentlevel.Tocovertheincreaseofthesharecapital,thefundsmaybepaidincashorin-kindcontributionscanbemade.

Itshouldbenotedthatthesharecapitalincreaseneedssomeadditionalexpenses.TheseincludethefeeforchanginganentryintheNationalCourtRegister(ca.EUR60),afeeforthenotificationintheCourtandEconomicMonitor(ca.EUR25),notaryfeefortheminutesdocumentingthecapitalincreaseandforthepreparationofadeedcontainingastatementofacquisitionofsharesinthefullamount(notaryfeesdependonthevalueofincreaseandarelimitedbylegalprovisions).

Thecapitalincreaseisamoreformalprocessincomparisontotheadditionalcontributions(referredtobelow)andloans,buttheadvantageofthisformoffinancingistheabilitytocontributeinvariousforms,suchascashorin-kind.

AsignificantdrawbackofthismethodoffinancingSPVsisrelativelydifficultprocessofwithdrawingtheinvestedcapital.

Thisiscarriedthroughthereductionofsharecapital(Articles263-265oftheCommercialCompaniesCode),whichinvolvesagainadditionalcosts(notification,registration)andistime-consuming(e.g.includesthreemonthsforobjectiontothereductionthatcanbebroughtbycreditors).

Additional contributionsThismethodoffinancingisprovidedbytheCommercialCompaniesCode,butitisapplicableonlytothelimitedliabilitycompany.Accordingtotheprovisions,thearticlesofassociationofthecompanymayrequirethepayments(additionalcontributions)fromtheshareholdersinaspecificamountpaidbytheshareholdersinproportiontotheirshares.Infact,itisworthnotingthatpartnershipagreementscanalsoobligethepartnerstoadditionalpayments–suchasolutionispossiblebasedonthefreedomofcontractprinciple.

Paymentsofadditionalcontributionsinalimitedliabilitycompanydonotaffectthevalueofsharesinthesharecapitalofthecompany,andthereforethesharecapitalofthecompanyremainsunchangedaftertheadditionalcontributions.Thepaymentsincreasethecompany’sownfunds,whicharethusquitefreelyallocatedforthespecificneed,andthisiscertainlybeneficialfortheSPV.Theamountandtimingofpaymentsisdecidedbytheshareholders’meeting.

Asmentionedabove,thegeneralobligationtoadditionalcontributionshastobestipulatedinthearticlesofassociation(ifsucharticlesdonotcontainsuchprovisions,itwouldbenecessarytoamendthem,asotherwiseadditionalcontributions



arenotpossible).However,itisnotenoughtocreateanactualobligationfortheshareholderstomakecontributions.Aresolutionoftheshareholder’smeetingtakenbyanabsolutemajorityofvotesisrequired.Afterthisstepiscomplete,theactualobligationarises.

PursuanttotheprovisionsoftheCommercialCompaniesCode,theadditionalcontributionsmayberefunded,providedthatfundsgatheredfromthosecontributionsarenolongerrequiredtocoverthelossesreportedinthefinancialstatements,andnotearlierthanonemonthafternoticeinwriting,announcingtheintendedrefund.Rulesontherefundmaybedifferentlyregulatedbythearticlesofassociation,whichmeansthatthisinstrumentisrelativelyflexible.Shareholdersmayinfactdecide,contrarytotheprovisionsoftheCommercialCompaniesCode,thatadditionalcontributionmayberefunded,evenifthecompany’sfinancialstatementsshowaloss,inlessthanamonthfromthedateofpublication,orevenwithouttheneedtoannouncetherefund.

Additionalcontributionsarealwaysmadeincashandcannotbefulfilledbyprovidingthecompanywithnon-cashbenefits.Paymentscanbeusedfordifferentpurposes,andtheapplicableregulationsdonotcontainrestrictionsinthisregard.

2.3.2.Taximplications

Equity financingWhenaPolishcompanyisfinancedthroughequity,thefundsrequiredfortheinvestmentarereceivedinexchangefor

thesharesinthecompany.Equityfinancingisgenerallysubjecttoa0.5%civillawtransactiontaxwithcertainexceptionsforrestructuringandreorganizationtransactions.Contributionstoareservecapital(sharepremium)shouldnotbesubjecttocivillawtransactiontax.

Generally,forPolishcorporateincometaxpurposes,acontributioninkind(exceptforthecontributioninkindofabusinessoranorganizedpartthereof)isataxableeventforthecompanymakingthecontribution,andissubjecttothestandardcorporateincometaxrate,currently19%.However,foreignentitiesmaybeexemptfromPolishtaxationundertherelevanttaxtreaty.

Sharesinthecompanygiveshareholderstherighttocontrolthecompanyandtherighttofinancialbenefitsfromthecompany.Theincomeofthecompanygeneratedthroughitsoperationsissubjecttocorporateincometax.Anyafter-taxprofitscanbedistributedtoshareholdersintheformofdividends.Theshareholdersarenotonlyentitledtodividendsbutalsotoashareofanyproceedsuponliquidationinproportiontotheirshareholdings.

Additionalpaymentsarecontributionsmadebytheshareholder(s)ofalimitedliabilitycompanywherenosharesareissuedinexchange.Usuallythesepaymentsaremadewhenthecompanyhasmadeafinanciallossanditslevelofequityislowerthanthenominalvalueofitsissuedsharecapital.Ifthecompany’sarticlesofassociationallowsuchadditionalpaymentstobemade,andlaterrepaidtotheshareholders,thenreceiptandrepaymentisnotsubjecttoincometaxation.Compensationformakingtheadditional



paymentsmaybepaidtotheshareholdersintheformofinterestpayablebythecompany.Whenpaid,suchinterestshouldbetreatedasanon-taxdeductiblecost.

Taxation of dividendsDividendsdistributedbyaPolishcompanytoaforeignowneraregenerallysubjecttoa19%withholdingtaxinPoland.Thistaxmustbewithheldbythecompanydistributingthedividendonthedividendpaymentdate,andpaidtothetaxofficebeforetheseventhdayofthemonthfollowingthemonthinwhichthetaxwaswithheld.The19%ratecanbereduced(toalowerpercentage)iftherecipientisataxresidentinacountrywithwhichPolandhasconcludedataxtreaty.PolandhasconcludedmanytaxtreatiesandtherearejustasmanywaysinwhichthePolishwithholdingtaxcanbereduced.Usuallythetreatywithholdingtaxratesondividendsvarybetween5%and15%.

Appropriatetaxplanningintheinitialphaseoftheinvestmentshouldbecarriedouttodetermineinwhichcountrytherecipientofthedividendsshouldbelocatedinordertoreduceoravoidtheinternationaldoubletaxationofdividends(seetheAppendixattheendofthisbookforalistofwithholdingtaxratesunderPoland’svarioustaxtreaties).DoubletaxationoccurswhenthePolishwithholdingtaxcannotbereducedto0%byvirtueofatreatyandthedividendisalsosubjecttoincometaxinthecountrywheretherecipientisataxresident.Thetreatiesorunilateraltaxrulesinmostcountriesprovideacreditsystemtoavoidsuchdoubletaxation.

Inaddition,sincetheimplementationoftheEUParent–SubsidiaryDirective,anexemptionondividendspaidtocompaniesfromotherEEAcountriesandSwitzerlandapplies.ThisisprovidedthattheentityreceivingthedividendistaxedinanotherEEAcountry(orinSwitzerland)onitsworldwideincome(andisnotsubjecttotaxexemptiononitstotalincome)andhasheldorwillholdatleast10%(inthecaseofacompanyresidentfortaxpurposesinSwitzerland,atleast25%)ofthesharesinthePolishcompanypayingthedividendforatleasttwoyears.Thisconditioncanbealsometprospectively,i.e.aftertheactualdividendpayment.Iftheconditiontoholdtheamountofsharesforanuninterruptedperiodoftwoyearsisnotsatisfied,withholdingtax(asaruleat19%)togetherwiththepenaltyinterestforlatepaymentwillbedue.

Dividendspaid(orreceived)asof1January2016wouldnotbenefitfromtheEUParent-SubsidiaryDirectivebasedtaxexemptionifdividendsareconnectedwithanagreement,atransaction,oralegalactionoraseriesofrelatedlegalactions,wherethemainoroneofthemainpurposeswasbenefittingfromthesetaxexemptionsandsuchtransactionsorlegalactionsdonotreflecttheeconomicreality.Forthepurposeoftheaboverule,itisconsideredthatatransactionoralegalactiondoesnotreflecttheeconomicrealityifitisnotperformedforjustifiedeconomicreasons,butresults,inparticular,intransferringtheownershipofsharesofadividendpayingentityorinearningrevenuebythatentitywhichisthenpaidasadividend.Asthereisnowell-groundedpracticeregardingactualapplicationofsimilarprovisions,detailsof



eachstructureshouldbeanalyzedcarefullytodetermineandaddresspotentialissueswithtaxationofdividends.

Itisuptothecompanypayingthedividendtodeterminetheapplicablewithholdingtaxrate.ThePolishwithholdingtaxsystemisnot“apayandrefundsystem”.ThePolishcompanydistributingthedividendcanbeheldliableformistakes,e.g.ifitappliesanincorrecttaxrate.AcertificateissuedbyaforeignlocaltaxofficeconfirmingthetaxresidenceoftheforeignshareholderreceivingdividendpaymentsfromPolandmustbeobtainedbythePolishcompanyinordertoallowapplicationofthelowerwithholdingtaxrateorexemption.AnadditionalrequirementisthatthePolishentity paying dividends should also hold awrittenconfirmationfromtherecipientthatthelatterdoesnotbenefitfromtaxexemptiononitsworldwideincome,iftheexemptionistoapply.

DividendspaidbetweencompanieswhichareresidentinPolandfortaxpurposesareexemptfromwithholdingtaxprovidedthatthedividendrecipienthasheldorwillhold(onorafterthedaywhenthedividendisreceived)atleast10%ofsharesinthedividendpayingcompanyforatleasttwoyears.Iftheaboveconditionsarenotmet,non-creditablewithholdingtaxisleviedondividendsattherateof19%.

Redemption of shares and liquidation distributionsTheredemptionofsharesandthereturnofequitytoshareholdersarepermittedunderPolishlaw.Theformalprocedureis

time–consumingandusuallytakesseveralmonths.

Standard,voluntaryredemptionofsharesissubjecttothesametaxtreatmentasdisposalofshares.ItmeansthatasarulesuchredemptionwillbesubjecttotaxinPoland,unlessrelevantdoubletaxtreatyprovidesfortaxexemption.

Otherthanvoluntaryredemptionofshares(compulsoryredemptionofshares)aswellasliquidationistaxedinthesamewayasdividendsandissubjecttotheapplicablewithholdingtax(takingintoconsiderationtheappropriatetaxtreaty)orwithholdingtaxexemptionbasedonthePolishCITlawprovisionsimplementingtheEUParent–SubsidiaryDirective.

Asof1January2015thePolishCITprovisionsexplicitlystatethatincaseofinkindremunerationforsettlingtheliability(e.g.uponsharesredemptionorinkinddividendpayment)thevalueofliabilitysettledinsuchawayconstitutesataxablerevenueofthepayingentity.Thisappliesrespectivelyalsotolookthroughentities.Liquidationproceedsarealsolikelytosharethistreatment,eventhoughliquidationisnotexplicitlymentionedinthisprovision.

Debt Financing (Loans): civil law transaction taxLoansaregenerallysubjecttocivillawtransactiontaxatthelevelof2%oftheloanprincipal.Thetaxmustbepaidwithin14daysofthedateoftheloanagreement,andthetaxliabilityrestswiththeborrower.

Nevertheless,thefollowingtypesofloansareexemptfromtaxation:



• loansgrantedbyshareholderstoalimitedliabilitycompanyorjointstockcompany;

• loansgrantedbyforeignentitieswhichareengagedincreditandfinancingactivities(suchasgrouptreasurycompanies);

• loansrecognizedasanactivitysubjecttoPolishorforeignVAT(e.g.bankloans);

• financinggrantedasapartofbusinessactivityisrecognizedasafinancialservicespecificallyexemptfromVAT;therefore,nocivillawtransactiontaxapplies;

• Bondsissuanceisgenerallynotsubjecttocivillawtransactiontax.

Withholding tax on interestGenerally,interestpaidfromPolandtoaforeignlenderissubjecttoa20%withholdingtax.ThisratemaybereducedoreliminatedbasedonrelevanttaxtreatyorPolishimplementationofEUInterest–RoyaltyDirective.PleaseseeAppendixforalistofwithholdingtaxratesunderPoland’svarioustaxtreaties.Underthetaxtreaties,itisgenerallystipulatedthatifwithholdingtaxispayableitcanbecreditedagainstthecorporateincometaxoftheforeignlender.Asinthecaseofdividends,inordertoapplyatreatyrate,acertificateconfirmingthetaxresidenceoftheforeignlendermustbe obtained.

AfterjoiningtheEuropeanUnion,PolandimplementedtheEUDirective2003/49/EConthecommonsystemoftaxationapplicabletointerestandroyaltypaymentsmadebetweenassociatedcompaniesof

differentMemberStates.OneofthemainpurposesoftheDirectiveistoabolishwithholdingtaximposedbythecountryfromwhichpaymentsofinterestandroyaltiesoriginatewhensuchpaymentsaremadebetween“qualifyingEUentities”,i.e.paymentsmadebetweenparentandsubsidiary,subsidiaryandparentandbetweendirectsistercompanies(inallcasesaminimum25%stake,2yearholdingperiodisrequired).Asaresultofthat,awithholdingtaxexemptiononinterestpaymentsmadebetweenparentandsubsidiary,subsidiaryandparent,andbetweendirectsistercompanies(inallcasesaminimum25%stakeand2yearholdingperiodisrequired)iscurrentlyavailable.The2-yearholdingperiodconditioncanbealsometprospectively,i.e.aftertheactualinterestpayment.Iftheconditiontoholdsharesforanuninterruptedperiodof2yearsisnotsatisfied,outstandingwithholdingtax(asarule20%)togetherwiththepenaltyinterestforlatepaymentwillbedue.Penaltyinterestischargedfromthedayfollowingthatthedayonwhichtheaboveperiodexpires.

Inordertobenefitfromthatfavorabletreatmentthepayershouldholdrecipient’scertificateoftaxresidence.Anadditionalrequirementisthatthepayershouldalsoholdtherecipient’sconfirmationthattherecipientdoesnotbenefitfromthetaxexemptiononitsworldwideincome.Therecipientshouldalsobeconsideredabeneficialownerofthepayment.Withholdingtaxexemptiononlyappliestoarm’slengthlevelofinterest.



Tax deductibility of interest paid on loansGenerally,interestonloansisdeductiblefortaxpurposeswhenactuallypaidorcompounded(addedtotheprincipalsothatitconstitutesabasisfornewinterestcalculation),i.e.accruedinterestmaynotbetreatedasataxdeductiblecostuntilitisactuallypaidorcompounded.

Ingeneral,itshouldbepossibletotreattheinterestonloansdrawntoacquiresharesinaPolishcompanyastaxdeductible.Carefultaxplanningis,however,alwaysrequiredinall“debtpushdown”structures.

Itisimportanttonotethatinterestaccruedduringthedevelopmentofrealestateonthepartoftheloanusedtofinancethatdevelopmentisnotdirectlydeductible.Thecostofsuchinterestshouldbeaddedtotheinitialvalueofthenewlydevelopedrealestate(i.e.thenewbuilding)inordertoincreasethebasisofitsfuturedepreciationfortaxpurposes.However,thisruleappliesonlytorealestatewhichisthecompany’sownfixedasset.Itdoesnotapplytoprojectsconstructedforresale(e.g.residentialprojects).Insuchcases,basedonthepracticeofthePolishtaxauthoritiesinterestmaybetreatedastaxdeductibleunderthegeneralrules(althoughthepracticewaschanginginthisrespectovertheyears).

Level of interestThePolishtaxauthoritiesareusuallyinterestedintheconditionsofloanagreementsconcludedbetweenrelatedparties.Theseconditionsshouldbethesameas,orcomparableto,thesortof

financingconditionswhichnon–relatedpartieswouldagreeupon,inaccordancewith“thearm’slengthprinciple”.ToohighaninterestratecouldleadtoanadjustmentofthePolishborrower’staxableincome.Inaddition,otherconditionsintheloanagreementwhichareunjustifiableorunfavorabletotheborrowercouldresultinfurthertaxadjustments.Accordingtoregulationsgoverningthedocumentationoftransactionsbetweenrelatedparties,taxpayersarerequiredtopreparespecifictransferpricingdocumentationorriskpayinga50%rateonanyadditionaltaxableincomeassessed(pleasenotethatstarting2017therewasachangetothetransferpricingdocumentationrequirementsincreasingthereportingobligationssubstantially).

Restrictions on the tax deductibility of interest paid on loansThePolishthincapitalizationruleshavebeensignificantlyamendedasof1January2015.

Accordingtothetransitionalprovisionsnewrulesapplytointerestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerasof1January2015orlater.Therefore,asregardsinterestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerbeforethatdate–oldrulesapply.

Old rulesThePolisholdthincapitalizationrulesrestrictthetaxdeductibilityofinterestontwotypesofloans(credits)grantedbycertainentities:



• loans(credits)grantedtothetaxpayingcompanybyitsshareholderholdingnotlessthan25%ofthevotingrightsinthecompanyorloans(credits)fromshareholdersholdingjointlynotlessthan25%ofthevotingrightsinthecompany(“mothercompany”loans);

• loans(credits)grantedtothetaxpayingcompanybyanothercompany,ifthesameshareholderholdsnotlessthan25%ofthevotingrightsineachofthesecompanies(“sistercompany”loans);

wherethedebttoequityratio(theratioofthevalueofthedebtpayabletocertainentitiestothevalueofthesharecapital(seebelowfordetails)exceeds3:1atthedateoftheinterestpayment.Interestontheloans(credits)exceedingtheratioisnottaxdeductible(theterm“loans(credits)”alsocoversbondsanddeposits).

Forthepurposesofthecalculationofthedebttoequityratio,thedebtincludes:

• inthecaseof“mothercompany”loans:

• ►debtpayabletodirectshareholder(s)holdingatleast25%ofthevotingrightsintheinterestpayingcompany;and

• debt payable to entities holding at least 25%ofthevotingrightsintheabovementioneddirectshareholders.

• inthecaseof“sistercompany”loans:

• debtpayabletodirectshareholder(s)holdingatleast25%ofthevotingrightsintheinterestpayingcompany;and

• debt payable to entities holding atleast25%ofthevotingrightsintheabovementioneddirectshareholders;and

• debtpayabletotheentitygrantingtheloan(credit).

Inbothcases“equity”includesthesharecapitalstatedinthecompany’sdeedofassociationandequaltothenominalvalueofthesharesissued,excluding:

• ►capitalnotpaidinfull;

• capitalconvertedfromshareholderloans(credits)and/orrelatedinterest;

• capitalformedbyacontributioninkind,whichisanintangibleassetnotsubjecttodepreciation(e.g.goodwill).

Examplesofhowtheoldthincapitalizationruleswork:

Example 1

Investment Company

Polish Real Estate Company

CorporateInvestor

160

40

Assumption:

PolishRealEstateCompany’s(PREC)Nominalsharecapitalis: 50

Debtlimitis: 150

Totalloans: 200

Partofloansexceedingthreshold 50



Example 2


CorporateInvestor

40

100 60

Investment Company A

Investment Company B

Assumption:

PREC’snominalsharecapitalis 50

Debtlimitis 150

Total loans 200


Example 3

Polish Company


CorporateInvestor50

50

100

Investment Company

Assumption:

PREC’snominalsharecapitalis 50Debtlimitis 150

For shareholder loan:Total loans 100Loansexceedingthreshold 0

For sister company loan:

Total loans 200


= minimal 25% voting right relationship

= loans subject to thin-cap

= loans qualifying for calculation of debt limit

New rulesThenewrulesrestrictdeductibilityofinterestonabroaderrangeofloansthantherulesinforceuntiltheendof2014.Asof1January2015,generallyinterestonallintra-grouploans(alsothosefromindirectlyrelatedentities)maybesubjecttodeductibilityrestriction.

Underthenewthincapitalizationrules,ifthevalueofdebtowedtospecifiedrelatedpartiesexceedsequity(netassets)oftheborrower(1:1debttoequityratio),part(calculatedbasedonaproportion)ofinterestpaidonaloanfromarelatedpartyisnotdeductiblefortaxpurposes.Forthepurposesoftheserules,equityisdeterminedonthelastdayofthemonthprecedingthemonthofinterestpaymentwithouttakingintoaccountrevaluationreserveandsubordinatedloans.Thevalueofequityisfurtherdecreasedbythevalueofthesharecapitalthatwasnotactuallytransferredtothiscapitalorwascoveredwithshareholder’sloans’receivablesandintangiblesthatarenotsubjecttoamortization.

Debttakenforthedebttoequityratiocalculationisdecreasedbyloansgrantedbytheborrowertotheentities,loansfromwhichwouldbesubjecttothincapitalization



restrictions(onlynetdebtistakenintoaccount).

Thedefinitionofaloancoversanyformofdebtfinancing,includingtheissuanceofbonds,creditsandbankandnonbankdeposits.Thedefinitiondoesnotcoverderivatives.

Thethin-capitalizationrulesapplytointerestonloansgrantedbyPolishandforeignqualifiedentities.Theycoverthefollowingloans:

• loansgrantedbyanentitythatholdsdirectlyorindirectlyatleast25%ofthevotingrightsintheborrower,

• loansgrantedjointlybyentitiesthatjointlydirectlyorindirectlyholdatleast25%ofthevotingrightsintheborrower,

• loansgrantedbyonecompanytoanothercompanyifthesameentityholdsdirectlyorindirectlyatleast25%ofthevotingrightsinboththelenderandtheborrower.

Forgeneralpartnersinalimitedjoint-stockpartnership,theconditionsconcerningtheminimumshare(votingrights)arefulfilled,regardlessofthegeneralpartner’sshare.

Asof1January2015thetaxpayershavealsoarighttooptforanewalternativethin-capitalizationcalculationmethod.Ifchosenbythetaxpayer,theabovementionedmethodappliestointerestpaidtobothrelatedandunrelatedparties.TherecognitionofsuchinterestcostfortaxpurposesislimitedtotheamountoftheNationalBankofPoland’sreferencerateplus1.25percentagepointandthetaxvalueofassetswithinthemeaningofAccountingAct(excludingintangibleassets).

Thevalueofinterestrecognizedfortaxpurposescannotbehigherthanthevaluecorrespondingto50%oftheprofitfromoperatingactivities(thisconditiondoesnotconcern,generallyspeaking,banksandfinancialinstitutions).

Interestnotdeductedinagiventaxyearcanbedeductedinthefollowingconsecutive5taxyears.Ifataxpayerdecidestousethismethoditshouldbeusedforatleast3consecutivetaxyears.

Tobeentitledtoapplytheaboverules,taxpayersaregenerallyobligedtofilerelevantnotificationwiththetaxauthoritiesnotlaterthantilltheendoffirstmonthoftheirnewtaxyear.

Foreign currency financingAstheforeigncurrencyliabilitiesarereportedforaccountingpurposesinPLN,foreignexchangedifferences(gainsorlosses)accrueintheaccountingbooksofthePolishcompany.ForeignexchangedifferencesaccruealsoonloanliabilitiesinPLNdenominatedinforeigncurrencies.Thesegainsorlossesarerecognizedfortaxpurposesonlywhenrealized,i.e.whentherelatedliabilityispaidorsetoff(orwhenthedueinterestiscompounded).However,auditedcompaniescanreportforeignexchangegainsorlossesinaccordancewithaccountingstandardsuponnotifyingthetaxauthorities,providedthatsuchreportinginaccordancewithaccountingstandardswillcontinueforaperiodofatleastthreetaxyears.



2.4.1.GeneralremarksAsmanyotherjurisdictions,Polishlawprovidesdifferentmethodsofacquiringrealestatebyaninvestor,amongwhichanassetdealandasharedealarethetwomostcommonlyused.

Bothmethodsbearvariouslegalandtaxconsequenceswhichhavetobeconsideredinanygivencaseandthereforethereisnogenerallyacceptedrulewhenasharedealoranassetdealshallbeapplicable.Theinterestsofthesellerandthebuyer,theparticularsofthecaseandthepowerofeachpartytonegotiatehavetobeconsideredwhilechoosingoneofthesetwoforms.

Inpractice,ifasharetransactionisproperlystructured,thiscanbethemosttaxefficientdisposalmethodtouse.Inawell–organizedcorporatestructure,taxesoncapitalgainscanbeentirelyavoidedorinsomecasesdeferred.

Fromthebuyer’sperspective,itisusuallymoretaxefficienttobuythepropertydirectlythantobuysharesinacompanyholdingtheproperty.Thebuyercanthendepreciateasmuchastherealmarketvalueofthebuildingfortaxpurposes.Ontheotherhand,ifthesharesareboughtatahigherpricethanthebookvalueofthecompany’s

2.4. Acquisition of real estate – asset deal and share deal


assets,goodwillpaidinreturnforthesharescanberecognizedforaccountingpurposes.Unfortunately,suchgoodwillcannotbeamortizedfortaxpurposes.Furthermore,acompanyowningrealestatewithalowbookvaluehasadeferredtaxexposurewithrespecttoanyfuturecapitalgainsmadeonthedisposalofthatrealestate.Thus,thebuyerofshareswillmostlikelytrytonegotiateadiscountonthetransactionpricetoeliminatethisnegativetaxaspect.

Thepurposeofthischapteristooutlinethemainfeaturesofthesetwotypesofrealestatetransactionfrom

boththelegalandtaxperspectives,andtoexaminetheconsequencesofeachstructure.

2.4.2. Legal aspects

Definition of a share deal and asset dealDespitethefactthatthesharedealandassetdealareequallypopular,theirobjectandmannerofconductingaredifferent.Thekeydifferencesbetweenthesetwomethodsofacquisitionconcerntheextensionandnatureofpurchaseditemsandarepresentedbelow.

• Asharedealisdefinedasatransactioninvolvingacquisitionofsharesinacompanyasaresultofwhichthebuyerpurchasesthewholeorapartofthesharesinthesharecapitalofthecompany(i.e.thetargetcompany).Thus,insuchtransaction,thepurchaserbecomestheownerofthesharesanddoesnotobtainanydirectrightsto

theassets(i.e.forinstancerealestate)whichremainthepropertyofthetargetcompany.Sinceinthistransactionaninvestorpurchasessharesinthetargetcompany,italsoacquirestheriskrelatedtotheliabilitiesofthiscompany(e.g.undisclosedliabilities,taxliabilities).Thus,anextensiveduediligenceofthetargetcompanyprecedingthepurchaseofsharesisrequiredandrecommendable.

• Anassetdealiswherethepurchaseracquiresallorsomeoftheassetsofthecompany.Unlikeasharedeal,inan asset deal it is possible to divide out certainelements,suchasrealestateandacquireonlythoseparts.Therefore,inanassetdeal,aninvestorpurchasesthepropertyitselfandattheendownstheassetsofthetargetcompanyonly.Sinceincaseofthistransactionitisnotnecessarytoexaminethetitletothecompany’ssharesorthecompany’scorporatestructure,theduediligenceprecedinganassetdealisgenerallyshorterandlessextensiveincomparisontotheduediligenceprecedingasharedeal.However,theassetsbeingacquired(suchasrealestate)mayrequireamoredetailedanalysis.

Oneofthemostsignificantdifferencesbetweenthesetwotypesoftransactionsistheguaranteeofthevalidityofthepurchasedtitle.PursuanttothePolishlaw,intheassetdealtheinvestor’sacquisitionofthelandfromatitle-holderwhoisregisteredintheLandandMortgageRegisterguaranteesthevalidityofthepurchasedtitle.Thisappliesonlywhenthepurchaseractedingoodfaith(i.e.onedoes



notactingoodfaithifknew,orshouldhaveknown,thatthelegalstatusofthepropertyisdifferentthantheoneresultingfromtheregister).Suchaguaranteedoesnotapplytothepurchaseunderasharedeal,inwhichthevalidityofthecompany’stitletothepropertyissupportedbytheseller’srepresentationsandwarrantiesthatareincludedinthesharepurchaseagreement.

Representations and warrantiesInordertosecurethepurchaser’sinterestextensiverepresentations,warrantiesandrelatedindemnitiesshouldbeincludedinthesharepurchaseagreement.Thisisusuallyoneofthemostimportantpartsoftheagreementsubjecttoextensivenegotiations.ThescopeofwarrantiesandrepresentationsaswellasdetailedlegalconsequencesoftheirbreachhavetoberegulatedinthesaleagreementindetailsasPolishlawdoesnotprovideforaspecificlegalregulationofthisissue.

Pleasenotethatrepresentations,warrantiesandaccompanyingindemnitiesincludedintheassetsaleagreementareusuallylessextensivethaninasharepurchaseagreement.

• Inanassetdeal,theseller’srepresentationsandwarrantiesconcern,inparticular,thevalidityoftheseller’stitletotherealestate,theinformationregardingencumbrances(ifany),thestatementconfirmingthatthedevelopmenthasbeencarriedoutinaccordancewiththebindingprovisionsoflawandtechnicalplansandthatrelevantpermitsarevalid.

• Theseller’srepresentationsandwarrantiesinasharedealusually

includetherepresentationsandwarrantiestypicalforanassetdealregardingrealestate,butalsoextensiverepresentationsandwarrantiesrelatingtoallaspectsofthecompany’sactivity:inparticulartax,employment,accounting,corporateandcontractualmatters.

Itisrecommendedthatthesaleagreementprovidesforspecificinstrumentssupportingtheenforceabilityoftheindemnitiessecuringtherepresentationsandwarranties.Inmarketpractice,partofthepurchasepriceisretainedinanescrowaccountorabankguaranteeisobtainedfromtheseller.

Types of agreementsThereisanumberofdocumentsrelatedtobothtransactions.Usually,inordertoclearlystatetheintentions,goalstoachieveduringnegotiationsandthekeyprinciplesofthetransaction,thepartiessignaletterofintentpriortosigningtherealestatepurchaseagreement.Suchletterisagoodsolutionforpartieswhointendtoconductmulti-stagenegotiationsandtothosewhowouldliketoagreeonminordetailsofthetransaction.Insuchacase,partiesmaydeterminethetimeframeofthenegotiationsandthemomentoftheircompletion,aswellasallissuesthathavetobediscussed.

PursuanttothePolishlaw,thelegaltitletothepurchasedpropertyorsharesofacompanyholdingtherealestateistransferredonthebasisofanagreementexecutedintherelevantform.

Incasewhencircumstancessurroundingthetransactionarestraightforward,such



agreementmaybeexecutedimmediately,withoutundertakinganyadditionalactions.However,insomecasespurchaseofarealestateorsharesmaybeeffectedbyexecutingtwoseparateagreements,i.e.apreliminaryagreementfollowedbyafinalagreement.Thetransactionstructuredintwoseparatestagesisespeciallyrelevantwhenthereisaneedtoobtainconsentsforthetransactionortofulfillcertainconditions.ThePartiesusuallyconcludesuchanagreementoncealetterofintenthasbeendrawnupandbeforethefinalpurchaseagreementhasbeenexecuted.Inordertobevalid,thepreliminaryagreementmustincludetheessentialcontentofthefinalagreement(i.e.thesubjectofthesaleandthepurchaseprice).Inpractice,thepreliminaryagreementregulatesallissuesrelatedtotherealpropertyorshares.

Pleasenotethat,ingeneral,pursuanttothePolishlaw,eachtransferofpropertyisregistered,asthemortgageregistersysteminPolandaimstohaveallpropertiesregistered.However,thefunctionofsuchobligationismerelyinformativeanddoesnotdeterminethetransferoftheownershiprightstothepurchasedproperty.Nevertheless,certainpropertyrights,suchastheperpetualusufructrightcanonlybetransferredifthereisanentryintheLandandMortgageRegistermade.Thus,theagreementisnotsufficienttotransfertheperpetualusufructrightandthedateoftheaboveentrydeterminesthedateofthetransfer.

Thetransferoftherealestatemustbeunconditionalwhichmeansthatbeforeittakesplace,allconditionsforeseenby

apreliminaryagreementneedtobefulfilledortheobligationtosatisfytheseconditionsneedstobedisclaimed.Inthatcase,theexecutionofanunconditionalagreementcompletesthetransaction.

Transfer of the property-related rightsInmanytransactions,itisnecessarytoobtainvarioustypesofconsentsorpermitsregardingthetransferoftherightsrelatedtotheproperty,thelackofwhichmayaffectthelegaleffectoftheentiretransaction.

Inthesharedealthepurchaserdoesnotobtainanydirectrightstotheassetsastheseremainthepropertyofthetargetcompany.Consequently,theproperty-relatedrightsandobligations(suchasleases,propertymanagementagreements,warrantyclaimsunderconstructioncontractsandcontractsofinsurance,permits)remainwiththecorporateentityholdingtherealestateandnoformalassignmentisrequired.

Intheassetdeal,theproperty-relatedrightsandobligationsarenotautomaticallytransferredasaresultofthesaleagreement.Incaseofcontractsasfortheformalassignmentitis,ingeneral,necessarytoobtaintheconsentoftheotherpartyofeachcontract.Incaseoflicenses,decisionsetc.itshouldbeanalyzedcasebycasewhatactionshavetobeundertakeninordertotransferthemtothepurchaser.Thismeansthattheabilitytoassigntheproperty-relatedrightsorassumingtheobligationsisexaminedindividually,inlightofspecificregulations




orcontractualprovisions,whichmaypreventorrestricttransferability.

Therefore,asharedealisatypeoftransactionusuallyconsideredbyinvestorswhenthetargetcompanyconductsregulatedactivityasallpermitsrequiredforitsoperationstayinthecompany.

Formalities• Purchase Agreement content

PursuanttothePolishlaw,theassetpurchaseagreementandthesharepurchaseagreementshoulddescribeatleastsuchelementsastheobjectofthesaleandtheprice.Inpractice,theagreementsarecomplexandprovideforthefollowingmaininformation:

a) thedetaileddescriptionofthepropertyorthesharesthataresubjectofthetransaction(thesaleobject);

b) thepriceandmechanismofpayment(includingdownpaymentifany,aswellasthepriceadjustmentmechanism);

c) securityinstruments(tobedeterminedbytheparties,e.g.amortgageovertheproperty,aregisteredpledgeovertheshares,thebankguarantee);

d) representations,warrantiesandindemnities;

e) othermatterssuchasincaseofanassetdealthetransferofrightsandobligationsrelatedtotherealestate,themethodofresolvingadisputeetc.

• Other requirements

Therequirementsregardingform,languageandgoverninglawoftheagreementdependonwhetherwedealwithanassetorasharedealtransaction.

Theformofanotarialdeedisrequiredfortheexecutionofarealestatepurchaseagreement,whilesuchrequirementisnotnecessaryfortheexecutionofthesharepurchaseagreement.Thesharepurchaseagreementrequiresthenotarialcertificationofthesignaturesoftheparties.

Consideringtheabove,sincetherealestatepurchaseagreementmustbeexecutedinaformofanotarialdeed,itmustbealsoconcludedinPolish.Bycontrast,inasharedealapurchaseagreementdoesnotrequiretheformofanotarialdeedbutjustnotarialcertificationofsignaturesand,therefore,itcanbeexecutedinaforeignlanguage.However,thePolishcommercialregistrycourtthatwillregisterthetransferofsharesmayrequestasworntranslationofsuchagreement.

TherealestatepurchaseagreementcanbegovernedbyPolishlawonly.Suchrequirementdoesnotapplytothesharepurchaseagreementwhichcanbegovernedbyaforeignlaw(providedthatconclusionoftheagreementisconnectedwiththelawofatleasttwodifferentcountries).



• Costs

Propertypurchaseagreementrequiresthenotarialdeedform,whichissubjecttoanotarialfee,depending on the value of the transaction,butnotexceedingPLN10,000foreachagreement.ThefeeforthecertificationofsignaturesismuchloweranddoesnotexceedtheamountofPLN300forcertificationofeachsignature.

Merger controlDuediligencereviewprecedinganyassetorsharedealshouldanswerthequestionwhetherthelegislationgoverningmergercontrolwillbeapplicable,inparticular,whetheranotificationofthetransactiontotheOfficeofCompetitionandConsumerProtectionisrequired.Shouldsuchnotificationberequired,theclosingofthetransactionmustbesuspendeduntilthepermitoftheOfficeofCompetitionandConsumerProtectionisissued.

AnotificationontheplannedtransactiontotheOfficeofCompetitionandConsumerProtectionisrequiredifanyofthefollowingconditionsismet:

• thecombinedworldwideturnoverofundertakingsparticipatingintheconcentrationinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR1billion,or

• thecombinedturnoverofundertakingsparticipatingintheconcentrationintheterritoryofPolandinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR50million.

However,thePolishantitrustlawprovidesforcertainexceptionsfromtheobligationofnotificationeveniftheaboveconditionsaremet,inparticular,whentheturnoveroftheundertakingoverwhichthecontrolistobetakendidnotexceedintheterritoryofPolandinanyofthetwofinancialyearsprecedingthenotification,theequivalentofEUR10million;theconcentrationarisesasaneffectofinsolvencyproceedings,excludingthecaseswherethecontrolistobetakenoverbyacompetitororaparticipantofthecapitalgrouptowhichthecompetitorsoftheto-be-takenundertakingbelong;theconcentrationappliestoundertakingsparticipatinginthesamecapitalgroup.

The pre-emption rightsItmayhappenthatthepublicauthoritieshaveastatutorypreemptiverighttorealestatewhichisabouttobesold.Therightofpre-emptionisarighttoacquirethepropertybeforeitcanbepurchasedbyanyotherpersonorentity.Wheretherealestateissubjecttoarightofpre-emptionheldbyStateTreasuryorlocalauthority,itmayonlybesoldtoathirdpartyundertheconditionthatthebeneficiaryofthatrightdoesnotexerciseit.Ifsuchapropertyissoldwithoutobservingthisright,thesaleisconsideredtobenullandvoid.

ThenotaryexecutingtheconditionalagreementwillsendacopyofittotheStateTreasuryorlocalauthority,whichmaythenexerciseitspreemptiverightwithinonemonthofreceivingtheconditionalagreement.Ifthepublicauthoritydoesnotexerciseitspreemptiverightwithinthatperiod,thepartiescanconcludethefinal


agreement,whicheffectstheunconditionaltransferofthetitletotherealestate.

Restrictions in acquiring of real estate Asageneralrule,foreigners(orPolishentitiescontrolledbyaforeigner)arerequiredtoobtainaspecialpermitoftheMinisterofInternalAffairsforacquiringarealestateinPoland.Thepermitisnecessarywhenacquiringownershipofrealestateorperpetualusufructonthebasisofanylegalevent(e.g.purchase,in-kindcontribution,mergerwithaPolishentity,takingupsharesinPolishentities).

Thepermitisissueduponawrittenrequestofaforeigner,providedthat:

• aforeigner’sacquisitionofrealestatedoesnotposeathreattotheState’sdefense,nationalsecurity,publicorderandisnotcontrarytothesocialpolicyandpublichealthconsiderations;

• theforeignerprovesthattherearecircumstancesconfirminghisbondswithPoland(i.e.forexamplethebuyerhasPolishoriginsorisconductingbusinessoragriculturalactivitiesintheterritoryofPolandunderthePolishlaw).

TheMinister’sdecisionconcerningrealestateacquisitionshouldbeissuedwithinonemonth(twomonthsinparticularlydifficultcases).Thepermitisvalidfortwoyearsfromthedayofissuance.

Theacquisitionofrealestatewithoutapermitisinvalid.AforeignerintendingtoacquirerealestateinPolandmayapplyforapromiseofthepermit.Thepromiseofthepermitisvalidforoneyear.Duringthis

periodapermitcannotberefusedunlesstheactualcircumstancespertinenttothedecisionhavechanged.

TheaboverestrictionsdonotpertaintoacquiringrealestateorsharesincompaniesbyentitiesfromEuropeanUnion,EuropeanEconomicAreaorSwitzerland(orPolishentitiescontrolledbysuch).

On1May2016,thepreviouslyexistingobligationtoobtainthepermitforacquisitionofagriculturalorforestlandbyentitiesfromEU,EEAorSwitzerlandwasabolished.

Inconnectionwiththeabove,anewlegislationrestrictingtradeofagriculturallandwaspassedandcameintoforceasof30April2016.ThenewregulationrestrictstradeofagriculturallandforbothPolishandforeign(EUandnon-EU)entities.

Underthenewlawonshapingtheagriculturalsystem,agriculturallandisthelandusedforagriculturalpurposesorlandthatmaybeusedforsuchpurposes,excludinglandintendedforotherpurposesinapplicablelocalspatialdevelopmentplans.

Thenewlawprovidesformajorrestrictionsinsaleofagriculturallandsuchas:

• 5yearsmoratoriumonsaleofagriculturallandownedbytheStateTreasury(AgriculturalPropertyAgency);themoratoriumdoesnotpertaini.a.toagriculturallandoftheareabelow2haorlandsdesignatedforotherpurposesinthezooningdecision,localspatialdevelopmentplanorstudy,landsinspecialeconomiczones;the



landmayalsobesolduponobtainingMinisterofAgriculturepermit,

• agriculturallandmaybeacquiredonlybyindividualfarmershavingagriculturaleducationandresidinginthesamemunicipalitywherethelandislocatedforatleast5years,

• anobligationtoobtainapermitoftheChairmanoftheAgriculturalPropertyAgencyforsale/acquisitionofanagriculturallandto/bypersonsotherthanindividualfarmers,includingcompanies,underpainofinvalidity,

• generalprohibitiononsaleortransferringpossession(e.g.underleaseagreement)ofanagriculturallandwithin10yearsfromitspurchase;inill-fatedreasonsacommoncourtwillbeentitledtoallowthesale,

• agriculturallandacquiredunderChairmanoftheAgriculturalPropertyAgencyconsentwithin10yearsfromitspurchase;incaseasaleortransferofpossessionisnecessaryduetomisfortunereasonsbeingbeyondthebuyer’scontrol,acommoncourtisentitledtoallowfortheconclusionoftherelevantagreement,

• AgriculturalPropertyAgencypossessapre-emptionrighttoagriculturallandregardlessofthearea(previouslythisrightappliedonlytoareasofatleaset5ha),

• AgriculturalPropertyAgencywasgivenawiderbuyoutrightincaseotheracqusitionsthatacqusitionsundersaleagreemente.g.merger,divisionortransformationofacurrentowner(perpetualusufructuary)oftheland,

• AgriculturalPropertyAgencywasgivenarighttobuyofanagriculturallandincaseofpartnerschangeinpartnerships,

• AgriculturalPropertyAgencywasgivenapre-emptionandbuyoutrighttopurchasesharesincompaniesowninganagriculturalland,e.g.incaseofsharepurchaseagreementsorshareswap(excludingsharesinpubliclistedcompanies).

Acquisition of real estate from public entitiesInPoland,realestateisoftenacquiredfromtheStateorlocalauthorities.Suchtypeofacquisitionisconsideredtobesafeandanattractivealternativetoacquisitionofrealestatefromprivateowners.Nevertheless,inpractice,acquisitionofrealestatefrompublicentitiesissubjecttoadditionalspecificrequirementssuchasanobligationtodisposethelandviapublictenders.

AninvestorinterestedinacquiringrealestatefromtheStateorlocalauthoritiesshouldasktheauthoritiesforinformationonthecontemplatedpropertytobeacquired.Unfortunately,itisnotpossibletopurchasesuchrealestateonthespot,asthereisaspecialprocedureofsellingrealestateheldinpublicentities’possession.Withonlyafewexceptionsprovidedbythelaw(e.g.realestatebeingsoldtoitsperpetualusufructuary),realestateheldbytheStateorlocalauthoritiesmaybedisposedbywayofpublictender,afteralengthyprocedureiscompleted.



2.4.3.TaximplicationsAsmentionedabove,realestatecanbesoldeitherthroughadirectsaleoftheproperty(anassetdeal)orindirectlythroughasaleofthesharesinthecompanyowningtheproperty(asharedeal).ThesetwotypesoftransactionsareaffordeddifferenttreatmentbythePolishtaxregulations.

Asset dealTherevenuesgeneratedonthesaleofrealestatearesubjecttothestandardtaxationrulesofPolishcorporateincometax.Taxablerevenuesarereducedbythenetbookvalueoftheproperty.Effectively,onlythe“capitalgain”istaxedattherateof19%.Therevenuefromthesaleofrealestatemustbevaluedatthepricesetinthesalecontract.However,ifthepricedifferssubstantiallyandwithoutajustifiedreasonfromthemarketvalueoftherealestate,therevenuemaybeassessedbythetaxauthoritiesaccordingtothemarketvalue.Thistransactionpriceadjustmentmaybeappliedtotransactionsbetweenrelatedandunrelatedentities.Adjustmentstriggernotonlyahighertaxburdenbutalsopenaltyinterest.

ThePolishtaxsystemdoesnotincludeareplacementprovision.Therefore,thecorporatesellercannotdefertaxationofacapitalgain.

Costsincurredbythebuyerfortheacquisitionofrealestate:purchaseprice,transactioncostsincludingadvisory,civillawtransactiontax–ifapplicable,financialcostsaccruedtillthepurchase,etc.,formtheinitialvalueoftherealestateandarerecognizedastaxdeductiblecosts

throughdepreciationwrite-offsoruponsale.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofanybuildingsorstructureseparately.

VAT on the acquisition of real estateThesupplyofbuildings,infrastructure,orpartsofbuildingsorinfrastructureisgenerallyVATexempt,exceptfor:

• thesupplyofabuilding,infrastructureorpartofabuildingorinfrastructureinthecourseofitsfirstoccupationorpriortoit;and

• thesupplyofabuilding,infrastructureorpartofabuildingorinfrastructuremadewithintwoyearsofthefirstoccupation;

inwhichcasesthesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructurearegenerallysubjecttoVAT.

“Firstoccupation”meanshandingoverabuilding,infrastructureorpartofabuildingorinfrastructurewithinthecontextoftheperformanceofVAT-ableactivities(subjecttoVATorVATexempt)tothefirstacquireroruser,afterthe:

• initialcompletion;or

• improvement(iftheexpensesincurredfortheimprovementconstitutedatleast30%oftheinitialvalue)

ofthatbuilding,infrastructureorpartofabuildingorinfrastructure.

TaxpayersmaychoosenottoapplytheexemptionandchargeVATif:



• bothbuyerandsellerareVATregistered;and

• beforethedayofsupplytheysubmittheappropriatejointstatementtothetaxofficeofthepurchaser.

Thesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructurewhichshouldbesubjecttoVAT(i.e.supplyinthecourseoffirstoccupationorwithintwoyearsofthefirstoccupation)mustbeVATexempt(nooptiontotaxallowed)if:

• thesellerwasnotentitledtodeductinputVAT;and

• thesellerdidnotincurimprovementexpensesonwhichhehadrighttodeductVAT,orsuchexpensesdidnotexceed30%oftheinitialvalueofthebuilding,infrastructureorpartofabuildingorinfrastructure(unlesstheimprovedrealestatewasusedfortaxableactivitiesfornolessthan5years).

ThediagrambelowoutlinesVATrulesonthetaxationofthesupplyofbuildings,infrastructureorpartsofbuildingsorinfrastructure.

TAXATION

YES

YES

NO

NO

NO

Did the supplier have the right to deduct input VAT in relation to the building, infrastructure or part of a buildingor infrastructure?

Did the supplier incur improvement expenses higher than 30% of the initial value of the building, infrastructure or part of a building or infrastructure?

EXEMPTION

Did the supplier have the right to deduct the input VAT in relation to the improvement expenses?

EXEMPTION

EXEMPTION

Had the improved building, infrastructure or part of a building or infrastructure been used to execute taxable activities for at least 5 years?

TAXATION

Did a period shorter than two years elapse between the point of first occupationand the supply of the building, infrastructure or part of a building or infrastructure?

Is the supply of the building, infrastructure or part of a building or infrastructure being carried out in the course of the first occupation or prior to it?

EXEMPTIONWITH AN OPTION OF TAXATION

NO

YES

NO

NO

YES

YESYES

Generally,theVATtreatmentofownershiptitletolandoraperpetualusufruct(RPU)overlandfollowstheVATtreatmentofthebuildingsandinfrastructuredevelopedonthe land.

AnexceptiontotheaboveruleiswhenanRPUisacquiredforthefirsttimefromtheStateorlocalauthority,inwhichcase,theRPUisalwayssubjectto23%VAT,eventhoughthebuildings/infrastructuredevelopedonthelandmaybeexemptfromVAT.

Thesupplyofownershiptitle/RPUtoundevelopedlandqualifiedaslandfordevelopmentpurposesissubjectto23%VAT(supplyofagriculturallandisasaruleexemptfromVAT).



IfsubjecttoVAT,thesupplyofrealestateissubjectto23%VAT.However,thesupplyofresidentialbuildingsandseparateapartmentsissubjecttoareduced8%VAT,exceptforpartofresidentialbuildingswhoseusablefloorspaceexceeds300m2 andapartmentswhoseusablefloorspaceexceeds150m2.Insuchacaseonlythepartofresidentialbuildingand/orapartmentwhichfitswithintheabovelimitsbenefitsfromthe8%VATrate,whereasthepartexceedingthethresholdsissubjecttoastandard23%VATrate.Dependingonthelegalcaseunderlyingthetransaction,saleofaparkingspacesoldjointlywiththeapartmentbutconstitutingaseparatelegalproperty,canbesubjecttoastandard23%VAT.

Starting1January2014,asarule,VATtaxpointarisesinthemonthofdeliveryofgoodsorrenderingtheservicestothepurchaser.Theinvoiceshouldbeissuedbythesellernolaterthanuntilthe15thdayofthemonthfollowingthemonthinwhichthegoodsweredeliveredortheserviceswererendered.

IfthesupplyofrealestateisVATexempt,itissubjecttocivillawtransactiontaxpayablebythebuyer.Theapplicablerateis2%ofthemarketvalueoftherealestate.

IfthebusinessofthePolishcompanyorpartofitsbusinessissoldasagoingconcern,thetransactionfallsoutsidethescopeofVAT.Theassetsofthebusinessorpartthereofwillbesubjecttocivillawtransactiontaxpayablebythebuyerattherateappropriateforaparticularitem(2%forland,buildingsandothertangibleproperty,1%forintangibles,includinganygoodwillthatwouldcrystallizeon

suchtransfer).Civillawtransactiontaxconstitutesanadditionalcostofthetransactionandisnon-recoverable.

Therehasbeensomecasesrecently,whenthetaxauthoritieschallengedthequalificationofarealestate(shoppingcenter)fromanassetdealperformedonpiece-mealbasis(whichissubjecttoVAT)intoasaleofagoingconcern(subjecttocivillawtransactiontax),evenwhenataxrulingwasobtainedupfront.Asthereisalotofuncertaintyinthisrespectthesedays,adetailedanalysisofeachparticulartransactionisrecommended.

Recoverability of input VATInputVATisrecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhicharesubjecttoVAT(e.g.leaseofthecommercialrealestate).InputVATwillnotberecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhichareVATexempt.Ifthisisthecase,theinputVATwillincreasetheinitialtaxbasisoftherealestate.

Forexample,certainfinancialactivitiesperformedbybanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT:theseinstitutionshaveno(orlimited)outputVATandthereforetheyarenotentitledtorefundsoranyotherkindofrecoveryofinputVATincurredinthecourseoftheirVATexemptfinancialactivities(incertaincasestheremaybealimitedrecoveryavailable).

Ifbusinessactivitiesarepartlyexempt,therecoveryofanyinputVATwhichcannotbematcheddirectlyeithertoVAT-ablesalesorVATexemptsalesshouldbeeffectedinlinewiththeproportionofthenetvalue



ofthetaxedsuppliestothetotalvalueofallsupplies(asocalledproratarecovery).Duringacalendaryear,theproportioniscalculatedbasedonthevolumeofsuppliesmadeinthepreviousyear.Attheyearend,theamountofdeductionsisadjustedtotheactualpercentagecalculatedforthewholeyear.Inthecaseoftangibleorintangibleassetssubjecttodepreciationfortaxcalculationpurposes,thepercentageofinputVATwhichmaybedeductedissubjecttoadjustmentsovertheperiodof5oreven10years(inthecaseofrealestate).

CalculationofthepercentageofinputVATtobedeductedisnecessaryonlyifitisnotpossibletomatchinputVATwithtaxedactivitiesorexemptactivitiesdirectly.

Asof1January2016taxpayersalsoneedtotakeintoaccountsocalledpreliminarypro-ratathatlimitsinputVATrecoveryonpurchases,iflinkedbothwiththeeconomicactivityofthetaxpayerandotheractivitiesnotrelatedwithbusinessoperations.

TherecoveredinputVATalsohastobeadjustediftheliabilityresultingfromtheinvoicedocumentingtheexpenseincurredisnotsettledwithinthespecifieddeadlines(asarule150days).Additionalsanctionsmayapplyifnoadjustmentismade(i.e.additionaltaxliabilityupto30%oftaxresultingfromthenotsettledinvoices,whichhasnotbeenaccordinglyadjusted).

Date of input VAT recoveryTherighttorecoverinputVATarisesintheperiodwhen–withrespecttotheacquiredgoodsorservices–thetaxpointarose(i.e.inthemonthinwhichtheserviceswererenderedto,orthegoodswereacquired

bythepurchaser).Itcannotbe,however,recoveredearlierthanintheperiodinwhichthetaxpayerreceivestherespectiveinvoice(prepaymentinvoicesdonotfallunderthisrule:theymustbepaidinorderforinputVATtobereclaimable).

Direct refund of input VATAdirectrefundofanysurplusinputVATincurredshouldbemadewithin60daysofthesubmissionoftheapplicationfortherefund(theVATreturn)onconditionthatthetaxpayerperformedVAT-ablesupplyintheperiodforwhichtherefundisclaimed.

Pleasenotethatthisdeadlinecanbeshortenedto25daysatataxpayer’srequestiftheinputVATtoberefundedresultedfrominvoicesthathavebeenpaidinfullbut–duetothechangesasof1January2017–thisshortenedrefundperiodoptionwouldrathernotapplytothepurchaseofrealestate.

ItispossibletogetarefundofinputVATevenifVAT-ablesuppliesarenotmadeintheperiodforwhichtherefundisclaimed.However,insuchacasetheperiodfortherefundisextendedto180days,unlessaformofsecurity,e.g.abankguaranteeisprovided(inwhichcasetherefundmustbemadewithin60days).

Share dealAcapitalgainonthesaleofsharesissubjecttoPolishcorporateincometaxatthestandardrateof19%.

Ifthesellingpartyisaforeignshareholder,theapplicabletaxtreatyinfluencesthetaximplicationsofsuchatransaction.UndermosttaxtreatiesconcludedbyPoland



therighttoimposetaxesonthesaleofsharesincorporateentitiesisallocatedtothecountrywheretheshareholderisataxresident.InsuchcasesPolishincometaxrulesarenotapplicableandthefiscalrulesofthecountryinwhichtheshareholderisataxresidentgovernthetransaction.Insomecountriescapitalgainsonsharesareexemptfromtaxation.Therationalebehindthisexemptionisthatthetaxationofcapitalgainsonsharesconstitutesdoubletaxation:theprofitwithinthecompanyistaxedusingthenormalincometaxrateand,therefore,theprofitonthesharetransactionshouldnotbetaxedagain.IninternationaltaxationterminologythisexemptionisknownastheParticipationExemption.SomecountrieslimitthisParticipationExemptiontocapitalgainsonsharetransactionsinvolvingdomesticsharesonly.OthercountriesenabletheParticipationExemptiontobeapplicabletotransactionsinvolvingthesharesofforeigncompaniesaswell.

SignificantpartofPolishtaxtreaties(e.g.withSpain,France,Denmark,Sweden,Germanyand–followingrecentchangesofPolishtaxtreaties-alsoLuxembourgthatusedtobeapreferredjurisdictionforholdingstructures)providethatasaleofsharesinacompanyholdingmainlyrealestateassetsshouldberegardedasasaleofrealestate.Consequently,incomeearnedonthesaleofsharesinthePolishcompanywillbetaxedinPoland(thesocalledRealEstateClause).

ThesaleofsharesinthePolishcompanyissubjecttoa1%civillawtransactiontax(onthefairmarketvalueofshares)payablebythebuyer.Thisisirrespectiveofwherethetransactiontakesplaceorwheretheparties

tothetransactionareresidentfortaxpurposes.AsharetransactionisnotsubjecttoPolishVAT.However,whereasharetransactionistreatedasbeingmadeinthecourseofbusinessactivity(ratherthanasaone–offtransaction),itmaybeclassifiedasaVAT-ableevent.However,itwillstillbesubjecttocivillawtransactiontax.

Costswhichmustbeincurredinordertoacquireshares(e.g.purchasepriceandnotarypublicfees)mayberecognizedastaxdeductiblecostsuponthesaleofshares.

Othercostsindirectlyconnectedwithacquisitionofsharessuchasfinancingcostsmayberecognizedastaxdeductiblecostswhenincurred(incertaincasesrecognitionovertimemayoccur).

Cross-border structureTypically,foreigninvestmentsarestructuredinsuchawaythattheoverallleveloftaxationofthefinancing,exploitation,andpotentialcapitalgainiskeptaslowaspossible,seekingtoavoiddoubletaxation.Internationaltaxplanningshoulddeterminethefinalstructureoftheinvestment.Commonly,astructureinvolvingmorethantwojurisdictionsisusedtooptimizetheoveralltaxposition.ThetaxtreatmentofalltherelevantlegaltransactionsinvolvedinaPolishrealestateprojectdiffersaccordingtotheotherjurisdiction(s)involved.ThetaxtreatiesconcludedbyPolandshouldpreventdoubletaxation.Investigatingthetaxtreatiesandtheapplicablerulesinthedifferentrelevantjurisdictionswillhelptodeterminewhatstructure,giventhespecificcircumstances,shouldbearranged.Therefore,itisfairtosaythatthereisnotypicalcross–border



investmentstructure,andthateachinvestmentprojectisunique.

Nevertheless,thefollowingpointsshouldbeconsideredwhendesigningthemostefficientstructure:

• interestpayableinrespectofanydebtfinancingoftheinvestmentshouldbefullytaxdeductible;

• interestincomeshouldbereportedastaxableincomeinajurisdictionwitharelativelymodesttaxrate;

• theexploitationandoperationalcostsoftherealestateshouldbetaxdeductibletothelargestextentpossible;

• profitsfromtheexploitationofrealestateshouldbetaxedatthelowestratepossible;

• after–taxprofitsshouldbeeasilydistributed;

• Polishwithholdingtaxshouldbereducedasmuchaspossible;

• revenuesfromthefuturesaleofrealestateorthesharesofacompanyshouldbetaxedatthelowestratepossibleorshouldbeexemptfromtaxation;

• allstrategiesforthedeferralofthetaxpaymentdateshouldbeexplored;

• levelofsubstancewhichcanbemaintainedinagivenjurisdiction.

Addressingthesepointswillhelptodesignandimplementatailor–madestructure.

Additionally,bearinginmindthegeneralantiavoidanceregulationthatisconsideredtobeintroducedtothePolishtaxregulationsandintroducedasof1January2015CFC(“ControlledForeignCompany”)rules,thecrossborderinvestmentsshould


beeachtimecarefullyexaminedandproperlystructuredalsofromthebusinessperspectivetoensuretheireffectivenessfromthetaxpointofview.

CFC RulesTheimplementedfromJanuary2015CITregulationsregardingCFCdefineCFCas:

1. aforeigncompanyseatedinataxheaven(asofficiallyblacklistedbythePolishMinistryofFinance)or

2. aforeigncompanyhavingitsseatorplaceofmanagementinthecountryotherthanmentionedinpoint1),withwhich:

a) Polandhasnotconcludedaninternationalagreement,inparticulardoubletaxtreaty,or

b) EUhasnotconcludedaninternationalagreement

• beingabasisforrequestingtaxinformationfromtaxauthoritiesofthatcountry,or

3. aforeigncompanywhichjointlyfulfillsthefollowingconditions:

a) thePolishtaxpayerhasadirectorindirectshareholding(foranuninterruptedperiodofatleast30days)ofatleast25%sharesor25%votingrightsora25%stakeinprofitsoftheCFC;

b) atleast50%ofannualrevenuesoftheCFCconsistofapassiveincome,i.e.:

• dividendsandotherincomefromsharingprofitsoflegalpersons



• disposalofshares,receivables

• interestorbenefitsfromalltypesofloans,securitiesorguarantees

• copyrightsorintellectualpropertyrights–includingdisposalofthoserights

• disposalorexerciseofrightsfromderivatives;

c) atleastoneofthesourcesofpassiveincome(listedinpointb)isnotsubjecttotax,istaxexemptorissubjecttotaxatalowerratebyatleast25%thanthePolishstatutoryCITrate(now19%)intheCFCscountryofresidence(unlessthetaxexemptionresultsfromoftheParentSubsidiaryDirective).

CFCprovisionsshouldnotapplyinthecasewhere:

• theCFC,whichissubjecttotaxationonitstotalincomeinoneoftheEU/EEAMemberStates,carriesoutactualbusinessoperationsinthisstate,or

• theCFCrevenuesinataxyeararebelowEUR250000;or

• theCFCcarriesoutactualbusinessoperationsoutsideoftheEUorEEAMemberStatesinwhichitissubjecttotaxonitstotalincomeanditsnetincomedoesnotexceed10%ofrevenuesearnedfromtheactualbusinessoperationsinthisstate–

subjecttotheconditionthatthereisalegalbasisresultingfromtheagreementbetweenPolandorEUandarespectivestate,basedonwhichthePolishtaxauthoritiesmayrequestinformationfromthetaxauthoritiesofthatparticularstate.

ThePolishcompaniesareobligedtoholdregistersoftheCFCcompanies.

Step-up of initial tax basis of assetsPolishtaxregulationsinsomecasesprovidedanopportunitytoincreasetheinitialtaxbasisofassets,whichwasusedtogenerateataxshield(byincreasingtheabilitytomaketaxdepreciationwrite-offsandtominimizetaxablecapitalgainsuponsale).Carefultaxanalysiswasalwaysrequiredbeforecarryingoutsuchatransactionbutitshouldbenotedthattheenvironmenthassignificantlychangedduetoimplementationofgeneraltaxanti-abuserule(GAAR)asof15July2016.TheintentionwastopreventthecreationanduseofartificiallegalconstructstoavoidpaymentoftaxinPoland.TheruleappliestotaxbenefitsexceedingPLN100kobtainedfollowingtheimplementationofthenewregulation,howeverthisincludesalsotaxbenefitsthatresultsfromartificialstructuresset-upbeforeGAARcomeintoforce.


2.5.1 Legal aspects

2.5.1.1LanddevelopmentissuesLanddevelopmentissuesareimportantforrealestateinvestors,astheydeterminethepossiblemethodofinvestinginagivenarea.Regulationsonlanddevelopmentmayinfluencetheshapeoftheplannedbuilding,butsometimestheyalsopreventtheinvestorfromtheinvestment.

Legal backgroundLanddevelopmentissuesrepresentoneofthemaindifficultiesintherealestateinvestmentprocessinPoland.AsaresultoftheintroductionoftheSpatialPlanningandDevelopmentActof27March2003(hereinafterreferredtoastheSpatialPlanningandDevelopmentAct),alllocalspatialdevelopmentplansadoptedbefore1January1995expiredasof1January2004.Forthisreason,aswellasduetothecomplexprocedureforadoptingalocalspatialdevelopmentplan,currentlyonlyapartoftheterritoryofPolandiscoveredwithlocalspatialdevelopmentplans,mostlywithintheboundariesofbiggercities.

TheSpatialPlanningandDevelopmentActsetsouttheprinciplesforthelanddevelopmentprocess.Inparticular,it

2.5.Developmentand construction


grantsauthorizationtotherelevantlocalauthoritiestodevelopandmanagespatialpolicy.TheSpatialPlanningandDevelopmentActalsosetsforththeprocedureunderwhichspatialplanninganddevelopmentactsaretobeadoptedbytheseauthorities.Thetwomainspatialplanninganddevelopmentactsdetermininglanddevelopmentwithinagivenmunicipality(commune)arethespatialdevelopmentconditionsanddirectionsstudyandthelocalspatialdevelopmentplan.However,frominvestors’perspective,thelocalspatialdevelopmentplanisofhigherimportance,asitdeterminestheirrightsandobligations,whilethespatialdevelopmentconditionsanddirectionsstudybindsthelocalauthoritiesonly.Inthecasewherenolocalspatialdevelopmentplanhasbeenadoptedforagivenarea,theinvestormayapplyforadecisiononlanddevelopmentandmanagementconditions(hereinafterreferredtoasthezoningdecision).Whereabuildingpermitisrequiredforaninvestment,eitheralocalspatialdevelopmentplanorazoningdecisionarerequiredtostartthedevelopmentoftherealproperty,since,asarule,nobuildingpermitmaybeissuedwithoutthem.

Therefore,beforebuyingtherealproperty,itiscrucialforinvestorstoverify:

• whethertherealpropertyinquestioniscoveredbyalocalspatialdevelopmentplan(orwhethersuchaplanwillbeadoptedsoon);

• intheeventthereisnolocalspatialdevelopmentplan,whetherazoningdecisionhasbeenissuedfortherealpropertyinquestion;and

• whethertheprovisionsofthelocalspatialdevelopmentplanorzoningdecisionallowfortheimplementationoftheirinvestmentplans.

Spatial development conditions and directions studyAspatialdevelopmentconditionsanddirectionsstudyisaninternaldocumentissuedbyeachmunicipality(commune),whichcoversthewholeterritoryoftherelevantcommune.Aspatialdevelopmentconditionsanddirectionsstudyprovidesthebackground/guidelinesfordraftingalocalspatialdevelopmentplan.Asaninternaldocument,aspatialdevelopmentconditionsanddirectionsstudydoesnotbindinvestorsbutonlythelocalauthoritieswhichdesignandadoptlocalspatialdevelopmentplans.Localspatialdevelopmentplansmaynotbecontrarytotheassumptionsofaspatialdevelopmentconditionsanddirectionsstudy.Therefore,spatialdevelopmentconditionsanddirectionsstudiesmaybeagoodsourceofinformationfortheinvestoronthefuturedirectionsofagivenarea’sdevelopment.

Local spatial development planThelocalspatialdevelopmentplanisadoptedbythecommunecouncilandisbindingforthirdparties(investors)asanactoflocallaw.

Eachlocalspatialdevelopmentplandeterminesthemannerofdevelopmentoftheterritorycoveredbythatplan.Inparticular,itdeterminesthedesignationofplots(landuse–agricultural,forest,buildingpurposes,etc.),developmentconditionsandtypesoffacilitieswhichcanbelocatedontheplots.Theprocedurefor




adoptingalocalspatialdevelopmentplanisrathercomplexandtimeconsumingasthedraftlocalspatialdevelopmentplanissubjectto“publicconsultation”withthepartiesconcernedaswellasopinionsissuedbytherelevantadministrativebodies.

Theprovisionsofthelocalspatialdevelopmentplanarecrucialforinvestors,astheplanneddevelopmentoftheplotscoveredbysuchaplanmustcomplywithitsprovisions,inparticular,regardingthedistanceofabuildingfromtheplot’sborderortheheightofabuilding.Sometimestheprovisionsofalocalspatialdevelopmentplanmayrenderthedevelopmentofthegivenplotimpossible.Moreover,largeretailunitswithasalesurfaceexceeding2,000m2canonlybeconstructedifalocalspatialdevelopmentplanprovidingforretaildevelopmenthasbeenadoptedforagivenarea.

Therefore,tobeabletoimplementtheirinvestmentplans,sometimesinvestorsstartaprocedureofamendingthelocalspatialdevelopmentplan,whichmayprovetoberathertimeconsuming.

Zoning decisionInthecasewherenolocalspatialdevelopmentplanhasbeenadoptedforthegivenarea,aninvestormayapplyforazoningdecision,whichsetsoutalltherequiredconditionsforthedevelopmentofthatarea.Beforethebuildingprocessisstartedonthegivenplotunderabuildingpermit,theplotmustbecoveredeitherbyalocalspatialdevelopmentplanorbyazoningdecision(therefore,itcanbesaidthatazoningdecisionsubstitutesalocalspatialdevelopmentplanforaninvestor).

Azoningdecisionisissuedbythegoverningauthorityofthecommune.Theprocedureforissuingzoningdecisionsincludesperformanceofazoninganalysisbythelocalauthority’sarchitecturedepartmentanditmay,therefore,takeevenuptoseveralmonths.

Ifalocalspatialdevelopmentplanisbeingadoptedforarealproperty,zoningdecisionsrelatedtothisareaexpireiftheprovisionsofthelocalspatialdevelopmentplandifferfromthoseofthezoningdecision.However,thisshallnothappenifafinalbuildingpermithasalreadybeenissuedfortherealpropertyinquestion.Therefore,inthecasewherethereisnolocalspatialdevelopmentplanforagivenrealproperty,priortoinvestmentplanningtheinvestorshouldmonitorthestageofworksrelatedtothelocalspatialdevelopmentplanandshouldlearnifitispossibletoacquireafinalbuildingpermitbeforethelocalspatialdevelopmentplanisadopted.

Anapplicationforazoningdecisionmaybefiledwiththerelevantauthorityevenwhentheapplicantdoesnotholdanytitletothelandinquestion.Azoningdecisionmaybetransferredtothirdparties.

Thismeansthatinvestorsmayuseadecisionissuedforthesellerofarealproperty,astheydonothavetoapplyforthedecisiononceagainafteracquiringtherealproperty(theinvestoronlyappliesforthetransferofsuchadecisiontohimself).Investorsmayalsoapplythemselvesforsuchadecisionbeforedecidingontheinvestment.


liberalizedbyabolishinganobligationtoobtainabuildingpermitforseveralminorconstructions(e.g.gazebos,culverts,etc.).

Thenotificationprocedurepertainshowevergenerallytominorconstructionworksordevelopingsomeofresidential(singlefamily)buildings.

In2016PolishgovernmentbeganworkonnewUrbanPlanningandConstructionCode.Thenewregulation,replacingSpatialPlanningandDevelopmentAct,BuildingLawandminoracts,willsignificantchangetherulesofinvestmentprocess.

Undertheproposedlaw,onedocument–aninvestmentconsentwillreplacefollowingdocuments:abuildingpermit(ornotification),zoningdecisionandadecisionondivisionofarealestate.UrbanPlanningandConstructionCodeprovidesfortheclassificationofinvestmentinto6categoriesoftheinvestmentprocedure,dependentonthecomplexityoftheinvestment.

Moreover,thecodewillstrengthentheroleofdevelopmentstudy(now:spatialdevelopmentconditionsanddirectionsstudy),whichwillceasetobeapurelyinternaldocument.Intheproposedlegalframework,thedevelopmentstudywillbeconsideredintheprocessofissuingainvestmentconsent.Theactwasnotadoptedyetandtherearesmallchancestheacttobeadoptedin2017.

Usage of the buildingDependingontheindividualcase,theuseofabuildingorstructureafteritscompletionrequireseithernotifyingtheconstruction

Building permitAbuildingpermitisanadministrativedecisionissuedbyalocalauthority(starostaormayorinbiggercities)whichallowsaninvestortostartthedevelopmentprocesson the site.

Thedocumentsattachedbytheinvestortotheapplicationforabuildingpermitshouldinclude,inparticular,adeclarationofhavinglegaltitletousetherealpropertyforconstructionpurposes.Moreover,theapplicationmustalsoencloseapprovalsofthelocalauthoritiesresponsibleforlocalinfrastructure,inparticularutilities,roads,environmentalprotectionandsewagetreatment.Thebuildingpermitwillonlybegrantediftheconstructiondesignisconsistentwiththeassumptionsofthelocalspatialdevelopmentplanorzoningdecisionaswellaswiththeregulationsgoverningtechnicalconditionsforthedevelopment.

Asageneralrule,abuildingpermitexpireseitherifconstructionworkshavenotbeenstartedwithinthreeyearsofthedateonwhichthepermitbecamefinalorifconstructionworkshavebeendiscontinuedformorethanthreeyears.

Notallconstructionworksrequireabuildingpermit.ConstructionofcertainstructureswhicharelistedintheBuildingLawof7July1994(hereinafterreferredtoastheBuildingLaw)maybecommenceduponanotificationsenttotherelevantauthoritiesifnoobjectionshavebeenraisedbythemwithin30daysofthenotificationdate.

Recently,in2016,therequirementsonobtainingabuildingpermitwere



supervisoryauthoritiesthatconstructionworkshavebeencompletedoracquiringapermitforuse.

Inthecasewhereonlyanotificationisrequired,underthegeneralruletheinvestormayoccupyandusethebuildingorstructureifnoobjectionhasbeenraisedbytheauthoritieswithin14daysofthedateofnotification.

Incaseswhereapermitforuseisrequired,thebuildingmaybeoccupiedonlyafterthedecisiongrantingthepermitforuseisgranted.Thegrantingofapermitforuseisprecededbyatechnicalinspectionofthebuildingorstructuretoconfirmthatallconstructionworkshavebeenperformedincompliancewiththetermsandconditionsofthebuildingpermitaswellastechnicalrequirements.

Occupyingabuildinginbreachoftheabove-mentionedregulationsmayresultinafine.

Environmental issuesThebuildingprocesshasmanyenvironmentalaspectsthatmustbetakenintoaccount.ThePolishlawprovidesthatanenvironmentaldecisionmustbeobtainedpriortoobtainingazoningdecisionandabuildingpermitforthegivenproject.PursuanttothePolishlaw,fromtheenvironmentallawpointofview,theinvestmentsaredividedintotwogroups:

• projectsthatalwayshavesignificantimpactontheenvironment;

• projectsthatmayhavesignificantimpactontheenvironment.

Environmentaldecisionmustbeprecededbytheenvironmentalimpactassessment

proceeding(whichincludespreparationofenvironmentalimpactassessmentreport)incaseofprojectsthatalwayshavesignificantimpactontheenvironment(i.a.parkinglots,buildingsofaparticularsizeetc.).However,theenvironmentalimpactassessmentproceedingmaybealsoorderedbytheauthorityissuingtheenvironmentaldecisioninrelationtoprojectsthatmayhavesignificantimpactontheenvironment.

Despiteofthefactthatenvironmentalimpactassessmentiscarriedoutatthestageofissuingtheenvironmentaldecision,itmayalsoberepeated(incertaincircumstances)atthestageofissuingabuildingpermit.

Environmentalimpactassessmentisalegalinstrumentthatallowstodeterminetheeffectoftheplannedinvestmentontheenvironment(i.e.water,landandairqualityaswellasimpactonfloraandfauna).Environmentalimpactassessmentproceeding,beyondtheidentificationofspecificimpactsthattheproposedprojectmayhaveontheenvironment,concentratesonthewaystopreventandminimizetheeffectsoftheplannedproject.

PursuanttothePolishlaw,authoritiesmustinformthegeneralpublicabouttheenvironmentalimpactassessmentproceedingandallowthegeneralpublictosubmitcommentsandrecommendationstotheproceeding.

Moreover,Polishlawincertaincircumstancesallowsabroadaccesstotheenvironmentalimpactassessmentproceedingtonon-governmentalenvironmentalprotectionorganizations.



Environmentaldecisionmaybetransferred(aswellasthebuildingpermitissuedonthebasisofazoningdecision).

Energy efficiencyTheEUregulationswithinenergyefficiencyofbuildings,areambitious,soisthepolishlegislationkeepingupwiththenewestdirections.

AccordingtotheinformationoftheMinistryofInfrastructureandConstruction,startingJanuary2017,therealestatemarketwillbechallengedwithanewvaluesofEPenergyratiofornewlybuiltbuildingsandsomeofthecoefficientUfactorsforthermaltransmittanceofexternalwallsofbuildings.Thenewlaw,incorporatedbackin2014isenteringintoforcegraduallyinordertomakepolishlegalsystemcompliantwiththeEuropeanDirectiveontheenergyperformanceofbuildings,accordingtowhich,until31December2020eachandeverynewlybuiltbuildingshallbenearlyzero-energy.

Theregulationwillcoverallofthearchitecturalandconstructiondesignswhicharegoingtobesubmittedtogetherwiththeapplicationsforaconstructionpermissionin2017.Newprovisionsintroduceagradualincreaseinthelevelofrequirementsuptotheyear2021.Suchaphasedchangesallowsmoothadjustmentoftheconstructionmarkettotheapplicablelegalrequirements.

2.5.1.2 Construction issues

Legal framework for construction works contractsTheCivilCodeincludesprovisionswhichestablishthelegalframeworkforconstructionworkscontracts.Mostofthoseprovisionsaregeneralinnatureandenablecontractingpartiestostructuretheconstructionworkscontractsinawaythataddressestheirparticularbusinessneeds.Suchaflexiblelegalframeworkallowsthepartiesveryoftentouseinternationalstandardsforconstructionworkscontracts,includingthepopularFIDICforms.However,notalltheprovisionsofinternationalstandardsforconstructionworkscontractscomplywiththerequirementsoftheCivilCodeandtheBuildingLaw.

Inparticular,amoredetailedanalysisshouldbeperformedwithrespecttocontractualclausesregardingstatutorywarrantyperiods,contractswithandliabilitytowardssubcontractorsaswellascontractor’spaymentguarantees.Belowwepresentthekeylegalregulationsinthisareas.

Legal framework for development of wind farms Withinthe2016approachtoinvestmentsofwindenergyhasfundamentallychanged.Thesechangesrefertoabovealltwomainareas,concerning:(i)supportingtheproductionofwindenergyand(ii)newrestrictionsfordevelopmentofwindfarmsandincreaseofrealestatetax(“RET”).

Theforegoingisaresultofnewlawregulationswhichenteredintoforcein



July2016,exercisingsubstantialinfluenceonwindfarmprojectefficiency,i.e.:(i)amendmenttotheActonRenewableEnergySources(“RESAct”)(ii)newActonWindfarmsInvestments(“WindfarmsAct”).Toagreatextent,thesaidrestrictionsregardonlynewwindfarmprojects,onlypartiallyapplyingtothealreadyexistingwindfarms,e.g.withrespecttoRET.

MostimportantamendmentsprovidedbyRESActinclude:(i)changestotheauctionsystem–auctionswillbedividedintodifferentgroupsdeterminede.g.bytechnology(so-called“baskets”);foreachindividualgrouptheauctionswillbeheldseparatelyand(ii)changesforlargerrenewableenergysourcesinstallationsandgreencertificatessystem,accordingtowhich,e.g.mandatoryenergypurchasebyanobligatedsellerisnolongerapplicable,thusmanylargeentitiesmaysufferfromareductionintheirrevenues.

Theabovechangesresultedinthedecreaseofpriceforgreencertificates.

Whatismore,additionalnewrestrictionsapplicableforwindfarmmarketwereintroducedbytheWindfarmsAct,including:

(i)minimumdistancerequiredbetweenawindpowerplantandresidentialbuildings,forests,andenvironmentallyprotectedareas(e.g.Natura2000,nationalorlandscapeparks),i.e.10timestheheightofawindturbinegeneratorwithrotor(approximatelybetween1,5-2km)-inmanycasesitwillbeimpossibletobuildneworexpandalreadyexistingprojects;

(ii)re-constructionrestrictions:alreadyexistingwindfarmlocatedwithinthesmallerdistancethanindicatedunder

item(i)above,willnotbeallowedtobemodernizedordeveloped(onlyregularmaintenancewillbepermitted);

(iii)planningconditions:newwindfarmscouldbelocatedonlyonthebasisoflocalspatialdevelopmentplans(individualzoningdecisionsanddecisionofpublicaiminvestmentswillnolongerbesufficient),

(iv)newdefinitionofwindturbinegeneratorwhichmayresultinincreaseofRETimposedontheownersofthewindfarms.

Takingtheaboveintoconsideration,atendencyofthePolishgovernmenttoreducesupportforthewindenergyindustryandimposenewrestrictionsregardingconditionsofdevelopmentandRETincreasecanbeobserved.

Statutory warranty periodsUnderthePolishlaw,thestatutorywarrantyperiodforacquiredrealestates,includingbuildingsisfiveyearsfromtheproperty‘shand-overdate.Theabovementionedstatutorywarrantyperiodoffiveyearsappliesalsointheconstructionworkscontracts.

Approval of a contract with a subcontractorBeforeasubcontractisconcludedbythegeneralcontractorwithasubcontractor,suchasubcontractshouldbeapprovedbytheinvestorinwriting.Uponbeingprovidedwiththedraftsubcontract,theinvestorreviewsitanddecideswhetherthesubcontractshouldbedismissedorapproved.Theinvestorshouldrespondinthematterofdismissingorapprovingthesubcontractwithin14daysofitsreceipt.



Ifnoresponseisgivenbytheinvestor,thesubcontractisdeemedtohavebeenapproved.Inthecasewhereaninvestorhasdismissedasubcontract,suchasubcontractsignedbetweenthegeneralcontractorandthesubcontractorisunenforceableagainsttheinvestor.

Liability towards subcontractorsInthecasewheretheinvestorhasapprovedthesubcontractbetweenthegeneralcontractorandthesubcontractor,theinvestorisjointlyandseverallyliablewiththegeneralcontractorforthepaymentoftheremunerationtothesubcontractor.Thepartiesmustnotchangethisruleinacontract.Therefore,contractsoftenincludeaclauseunderwhichtheinvestorisnotobligedtopaytheremunerationtothegeneralcontractorunlessthegeneralcontractorpresentsaconfirmationofpaymenttothesubcontractor.Therearealsosomeothermethodsofsecuringtheinvestor’sriskofadoublepayment(tothegeneralcontractorandtothesubcontractor),whichmustalwaysbeadjustedtothebusinessrequirementsofgiveninvestment.

Contractor’s payment guaranteeOneoftheinconveniencesforinvestorssigningconstructionworkscontractsistheobligationtograntapaymentguaranteetothegeneralcontractor.Underthisobligationageneralcontractorisentitledtoastatutoryclaimagainst

theinvestorforapaymentguaranteeuptothemaximumamountofthecontractvalue.Theinvestormaysatisfythegeneralcontractor’sclaimbyissuingapaymentguaranteeintheformofabankguarantee,aninsuranceguarantee,aletterofcreditorabank’ssuretyship.Thestatutoryclaimforapaymentguaranteemayberaisedatanytimeandcanbeextendedtoincludethevalueofanyadditionalworksagreedinwritingduringthetermoftheconstructionworkscontract.

Construction design contractsOneofthekeyelementsofthebuildingprocessisdrawingupaconstructiondesign.Aconstructiondesignisaformalrequirementforobtainingabuildingpermitformostofbuildinginvestments.UnderthePolishlawaconstructiondesignmustbedrawnupandsignedbyacertifiedarchitect,whotakesresponsibilityforthetechnicalaspectsoftheconstruction.Thearchitectshouldprepareadesignunderacontractforarchitecturalserviceswhich,dependingonitsscope,mayeithertransferthecopyrighttotheconstructiondesigntotheinvestororprovidetheinvestorwiththerighttousetheconstructiondesignforthepurposesoftherelevantinvestment.Itisworthmentioningthatacontractforarchitecturalservicesmayincludevariousrestrictionswithregardtothecopyrightortheuseofthedesign.Suchrestrictionsmaybecrucialfortheinvestmentdevelopmentprocess,inparticularwhentheyregardthepossibilityofenteringmodificationstotheconstructiondesignortransferringthecopyrighttootherentities.



Public procurement contracts

General overviewThankstoanumberofEUfundingprogramseveryyearPolishauthoritieshavebillionsofeurosattheirdisposaltobespentondevelopment.Aconsiderablepartofthisfundingwillbedesignatedforinfrastructuralprojects,inparticularroadandrailwayinfrastructure,whichisstillnotverywelldevelopedinPoland.Forthisreason,manyoftheinfrastructuralinvestmentsdevelopedonthePolishmarketwillbecarriedoutunderpubliccontracts.

Poland,asoneoftheEUMemberStates,wasobligedtoimplementregulationsgoverningpublicprocurementproceedings.TheprovisionsofEUdirectivesonpublicprocurementwereimplementedtothePublicProcurementLaw,whichconstitutesthelegalframeworkforthismatterinPoland.ThePublicProcurementLawissupplementedbyadditionallegalactswhichrelateinparticulartopublic-privatepartnershipandlicensesforconstructionworksandservices.

Themaingoalofpublicprocurementregulationsistoestablishclearandcompetitiverulesandproceduresforawardingpubliccontractstothesuppliersofworksandservicesaswellastoprovidemeasuresforsupervisionoverthepublicauthoritiesawardingpubliccontracts.ThekeyobjectiveofthePublicProcurementActistoensurethatpubliccontractsareawardedwhileapplyingequaltreatmenttoallentitiestakingpartintenderproceedingsaswellastoensureimpartialityandobjectivityofthefinaldecision.

ProcedureUnderthePolishpublicprocurementregulationstherearenumerousdifferentproceduresforawardingpubliccontracts.Theonesthataremostcommonlyappliedareopentenderingandlimitedtendering.Bothproceduresmustbefollowedbyapublicnotice.Noticeoncontractperformstheaimofprovidingproperimplementationoftheruleofequaltreatmentintheverybeginningoftheprocedure.Theobligationofpublishinganoticealsoprovidesnon-confidentialityandtransparencyoftheappliedpubliccontractsystems.

Ingeneral,opentenderingisasimpleprocedure,meaningthatentitiesfamiliarizethemselveswiththeinformationinthenoticeandinSETCand,iftheyareinterestedinsubmittingtendersinsuchprocedure,theysubmitatenderwhichshallthenbeevaluatedbyranking.

Underlimitedtenderingprocedure,entitiesinterestedinbeingawardedapubliccontractsubmitrequestsforparticipatinginthetenderandtheawardingpartydecideswhichbiddersmaysubmittheirproposals.Otherpublicprocurementproceduressuchascompetitivedialogue,negotiatedprocedurewithpublication,negotiatedprocedurewithoutpublication,singlesourceprocurement,requestforquotationsorelectronicauctioncanonlybeappliedunderspecificcircumstancesstipulatedinthebindinglaw.

Asimilarcourseofactionshouldbeappliedtotheabovemaintypesofthepublicprocurementprocedure.Eachofthemiscomprisedofpre-qualification,submissionofproposalsandselection



ofthewinningtendererphases.Inthepre-qualificationphasetheawardingpartysetsouttherequirements/criteriatobemetbythetenderers.Basedonthespecificrequirements/criteria,tenderersdrafttheirproposalsandsubmitthemtotheawardingparty.Intheproposaleachtendererdemonstratesitscompliancewithtenderrequirementsbyreferringtoitscompetencies,suchasexperience,knowledgeandfinancialcapacitytoperformthecontractedwork.Afterreviewingallsubmittedproposalstheawardingpartyselectsthebesttendererwithwhomthepubliccontractistobesigned.

However,thisisnotnecessarilytheendofthepublicprocurementprocessasthereis a possibility of appealing against the decisionoftheawardingparty.Inpractice,theappealprocedureisquitecommonlyusedbythetendererswholostapubliccontract,whichoftenresultsindelaysinthecompletionoftheinvestmentprojectconcerned.

2.5.2.Taximplications

Tax treatment of the construction costsCostsrelatedtoconstructionprocessandaccruedpriortoputtingtheassetsintouseformtheinitialvalueoftherealestateandarerecognizedastaxdeductiblecostthroughdepreciationwrite-offsoruponsale.

Costsrelatedtofutureoperation/exploitationoftheassetsshouldbe

recognizedfortaxpurposesbasedongeneralrules.

VAT and the construction processDuringtheconstructionprocess,themostimportanttaxisVAT.ThestandardrateofVATinPolandis23%.AreducedVATrateof8%appliestotheconstructionofresidentialhouses/apartmentsexceptforpartofresidentialbuildingswheretheusablefloorspaceexceeds300m2 andapartmentswheretheusablefloorspaceexceeds150m2.Insuchcasesonlyconstructionofthepartoftheresidentialbuildingand/orapartment,whichiswithintheabovelimits,benefitsfrom8%VATrate,whereasconstructionofthepartexceedingthethresholdsissubjecttostandard23%VATrate.

PurchasestheinvestorneedstomakeduringconstructionwilltypicallyincludePolishVAT.ThisinputVATcouldbedeductedfromtheoutputVATthattheinvestorhastopaytothetaxauthoritiesasaresultofhisbusinessactivities.Astheconstructionprocessusuallytakesaconsiderableperiodoftimeandrequirestheavailabilityofsubstantialfinancialresources,itisessentialthattheinputVATpaidisrecoveredduringthisprocess.RulesofVATrecoveryandrefundsarepresentedinsection2.4.3.However,duringtheconstructionprocessthetypicalsituationisthatthecompanyhastopayhighinputVAT(resultingfrompurchaseinvoices),butnooutputVATisincurred.Therefore,specificrulesneedtobeobservedtoensuretherecoverabilityofinputVATpaidduringtheconstructionprocess.




Also,itisworthmentioningthat–asof1January2017–certainconstructionservices(listedintheVATAct)providedbysubcontractorsmaybesubjecttoreversechargemechanism(i.e.self-assessmentofbothinputandoutputVAT).

Services of foreign contractorsTheplaceofthesupplyofservices(i.e.theplaceinwhichservicesaredeemedtoberenderedandshouldbetaxedaccordingly)dependsonthenatureofaparticularservice.Underthegeneralrule,servicesrenderedtoaVATtaxpayer(oralegalpersonnotbeingaVATtaxpayer)occurwheretheservicerecipientislocated.However,servicesconnectedwithrealestatearegenerallytaxedwheretherealestateislocated,i.e.inPoland.Servicesconnectedwithrealestateincludeconstructionworks,servicesofarchitectsandfirmsprovidingon-sitesupervisionandtheservicesofrealestateagentsandpropertyappraisers.

IftheplaceofsupplyofaparticularserviceisPoland,itispossibleforaforeignconstructioncompanytoregisterinPolandasaVAT–payer.ThisimpliesthattheforeigncompanywillitselfbeliableforPolishVAT.TherecipientoftheservicescanrecovertheVATpaidtotheserviceproviderasinputVATunderthegeneralrules.

IfservicesaredeemedtoberenderedinPolandandtheforeignservicesupplierdoesnotregisterandaccountforPolishVATonhisinvoice,thePolishrecipient(inthiscasetherealestatecompany)mustself–assesstheVATdueonthebasisofthereversechargemechanism.Thiscanthenbedeclaredbytherecipientasinput

VATandbedeductedfromitsoutputVAT.SuchadeductionmaybemadeinthesamemonthinwhichtheoutputVATonimportationofserviceswasrecognized(whichmeansthatthecompanysuffersnoadversecashfloweffect).

Taxes due on imported goodsImportedgoodsarealwayssubjecttoimportVATwhentheycrosstheEUborder(orintheEUdestinationcountrywhenthegoodsaretransportedunderaspecialcustomsprocedure).ThisVATiscalculatedbasedonthecustomsvalueofthegoodsincreasedbythecustomsdue.Itispossibleto offset this input VAT against output VAT inaccordancewiththegeneralVATrules.Typically,inPolandtheVATrateis23%.

ImportVATcanbesettledwithouttheneedforanupfrontcashpaymentthroughtheVATreturnratherthanbeingpaiddirectlytothecustomsofficeandthereafterreclaimed(thismechanismissometimesreferredtoas“postponedaccountingforVAT”).Thisruleappliesonlytoimportersusingthesimplifiedcustomsprocedure.

TheregulationsconcerningimportsdonotapplyifgoodsaretransportedfromanotherEUMemberState.Suchatransactionisclassifiedasanintra–CommunityacquisitionandissubjecttoVAT.Thecompanyisobligedtoself–assessVATontheacquiredgoodsattherateappropriateforthem(usually23%).Atthesametimeself–assessedtaxmaybetreatedasinputVATanddeductedfromoutputVATinthesamemonthinwhichitwasincurred,providedthattheacquirerisinpossessionofapurchaseinvoiceorwillobtainitwithin3months.



Noexcisetaxisdueontypicalconstructionequipmentandmaterials.

Taxation of a foreign construction companyInsomecasesitisnotnecessaryforaforeignconstructioncompanytodobusinessthroughaPolishcompany.TheconstructionworkcanbeperformedinPolanddirectlybytheforeignentity.InthiscasethequestionarisesastowhethertheforeigncompanyissubjecttoPolishincometaxontherevenuesgeneratedfromtheconstructionwork.Polandisindeedallowedtotaxthisincomeatarateof19%iftheactivitiesoftheforeigncompanyconstituteapermanentestablishmentinPoland.

WhetherornotthegivenforeignconstructioncompanyhasapermanentestablishmentisdeterminedbytherelevanttaxtreatywhichPolandhasconcludedwiththecountryinwhichtheforeigncompanyisbased.Ingeneral,aconstructionsitebecomesapermanentestablishmentoncethedurationoftheconstructionworksexceedsacertainperiodoftime.Usuallythisperiodis12months.Ifthe

workisfinishedwithin12months,thennopermanentestablishmenthasbeencreated.Iftheconstructionperiodtakeslonger,thenapermanentestablishmentisrecognizedandtheincomederivedfromtheworkissubjecttoPolishincometax.ItshouldberememberedthatinsuchcasesthepermanentestablishmentisdeemedtoexistfromthestartoftheconstructionactivitiesinPoland.Standardratesandtaxrulesareapplicabletodeterminethetaxdue.

PleasenotethatiftheactivitiesofaforeigncompanyinPolandextendsignificantlybeyondasinglecontract,thecompanymayberequiredtosetupabranch.SettingupabranchwillmostlikelyleadtothecreationofapermanentestablishmentinPoland.

NotethatOECDworksonBaseErosionandProfitShifting(BEPS)shouldbecloselymonitored,sinceoneoftheproposedactionsisaimedatthecaseswheretheconstructionworksareartificiallysplitintovariousstagestoavoidpermanentestablishmentstatus.


2.6.1. Legal aspects

2.6.1.1. IntroductionAccordingtotheCivilCode,partiesofthecontractmaybenefitfromtheprincipleoffreedomofcontracts,whichgivesthemanopportunitytomodifythestatutorytypesandprovisionsofthecivilcontract.However,therearesomemandatoryprovisionsandlimitations,whichhavetobeconsideredbytheparties.Amongalltypesofpropertyexploitationagreements,thebelowarethemostcommonforthePolishrealestatesector:

• Lease(najem)–regulatedinarticles659to692oftheCivilCode,

• Tenancy(dzierżawa)-regulatedinarticles693to709oftheCivilCode,

• Leasingofrealestate(leasingnieruchomości)-regulatedinarticles709(1)to709(18)oftheCivilCode,

• Propertymanagement(zarządzanienieruchomościami)-regulatedintheActonPropertyManagement.

2.6.1.2.Leaseagreement(najem)Undertheleaseagreementthelessorgrantstothelesseetherighttooccupypremises(office,residentialetc.)in

2.6. Operation and exploitation


exchangeforthepaymentofrent.Ingeneral,everythingthatcanbesubjecttotheownershipright,maybealsosubjecttothisagreement,neverthelessincaseofrealestate,themorestrictprovisionsmayapply.

DurationThedurationofaleaseagreementmaybedefiniteorindefinite.Theleaseagreementmaybeconcludedinanyform,however,incaseofaleaseofarealpropertyforaperiodlongerthanoneyear,theagreementshallbeconcludedinwriting.Incaseofalackofawrittenform,theleaseagreementshallbedeemedtohavebeenconcludedforanindefiniteperiodoftime.

Thedurationofaleaseagreementmaybefreelyfixedbytheparties,however,therearecertainrestrictions.Theleaseagreementconcludedforaperiodlongerthantenyears,is,afterthisperiod,deemedtohavebeenconcludedforanindefiniteperiodoftime.Theruleaboveisdifferentfortheleaseagreementsconcludedbetweenentrepreneurs.Inthiscasetheleaseagreementconcludedforaperiodlongerthanthirtyyearsisdeemedtohavebeenconcludedforanindefiniteperiodoftimeafterthethirtyyears’periodhaspassed.

RentPayingrentistheprincipalobligationofthelessee.Thelesseeisobligedtopayrentwithintheagreedtime.Iftheduedateisnotfixedintheagreement,therentshouldbepaidinadvance:iftheleaseisnotlongerthanonemonth-forthewholeleaseperiod,andiftheleaseislongerthanone

monthorifthecontractisconcludedforanindefiniteperiodoftime-monthly,nolaterthanonthetenthdayofthemonth.Inpractice,theleaseagreementsregulateindetailsthepaymentoftherent.

Maintenance and expenditures settlementThelessorshouldhandoverthepropertytothelesseeinaconditionfitfortheagreeduse.Itshouldbemaintainedbythelessorinthisconditionthroughouttheleaseterm.Minorrepairsconnectedwiththenormaluseofthepropertyshouldbefixedbythelessee,unlesstheleaseagreementprovidesforotherwise.Ifthesubjectofleaseisdestroyedduetocircumstancesforwhichthelessorisnotresponsible,heisnotobligedtorestoreit.If,duringtheleaseperiod,thepropertyrequiresrepairswhichencumberthelessor,thelesseemaysetthelessoranappropriatetimeforrepair.Afterthisperiodthelesseemaycarryouttherepairsneededatthelessor’scost.

Ifthelesseeimprovesthesubjectoflease,thelessormay–aftertheexpiryoftheleaseterm,atitsdiscretion,eitherdemandthatthepreviousconditionberestoredorpaythelesseeasumcorrespondingtotheimprovementvalueatthetimeofreturn.Inpractice,theseissuesareusuallycoveredbytheprovisionsoftheleaseagreements.

Subletting and disposal of the leased propertyThegeneralruleisthatthelesseemayhandoverthepropertyorpartofittoathirdpartyforfreeofchargeuseorsubletit,iftheleaseagreementdoesnotforbidit.However,whenthesubjectoflease



constitutespremisesorretailareas,handoverthepropertyorpartofittoathirdpartyforfreeofchargeuseorsubletitrequiresthelessor’sconsent.Iftheleasedpropertyishandedovertoathirdparty,boththelesseeandthethirdpartyareliabletowardsthelessorforusingthepropertyinaccordancewiththeprovisionsoftheleaseagreement.Therelationshiparisingfromacontractforfreeofchargeuseorsublettingconcludedbythelesseeisterminated,atthelatest,whenthemainleaseagreementisterminated.Inpractice,theleaseagreementsforbidsublettingthepropertytoathirdpartyorrequirethepriorwrittenconsentofthelessor.

Theleasedpropertycanbedisposedofduringtheleaseperiod.Inthiscasetheacquirerbecomesapartytotheleaseagreementasalessorinplaceoftheseller.Theapprovalofthelesseeisnotrequired.Thenewownermayterminatetheleaseagreementretainingstatutorynoticeperiods.However,thenewownerdoesnothavearighttoterminatetheleaseagreementifitisconcludedforadefiniteperiodoftime,inwrittenformwithanauthenticateddate(datapewna)andthesubjectofleasehasbeendeliveredtothelessee.If,asaresultoftheleaseagreementbeingterminatedbytheacquireroftheleasedproperty,thelesseeisforcedtoreturntheleasedpropertyearlierthanhewouldhavebeenobligedtoundertheleaseagreement,hemaydemandcompensationfromtheseller.

SecurityLessorsoftenusethespecialclausesintheleaseagreementstosecuretheirpotentialclaimstolesseessuchasmoney

deposit,promissorynote,suretyandbankguarantee.

• Moneydeposit–itisasumofmoneysubmittedbythelesseeinordertosecurethelessor’spotentialclaimsincaseofnon-fulfillmentoftheleaseagreementordamagescausedbythelessee.Asfarastheleaseofcommercialpremisesisconcerned,thereisalmostunlimiteddiscretionindeterminingthecontentoftheclause.Inthecaseofleaseofresidentialpremises,whicharethesubjecttoregulationoftheActontheprotectionoflessee’srightsof21June2001(hereinafterreferredtoastheLessee’sProtectionAct),thefreedomofpartiesformingthecontentofthisadditionalcontractualclaimislimited.Amoneydepositcannotexceedtwelvetimesthemonthlyrentforthepremisesandtherentshouldbecalculatedattherateapplicableatthedate of the lease.

• Promissorynote–promissorynoteissuedbythelesseeisaneffectivewaytoprotectthelessor’spotentialclaims.Incaseofdefaultinpaymentofrentorincaseofotherclaimsagainstthelessee,thelessorcanmakeuseofthepromissorynoteandrequestthelesseetoredeemit.Incasethelesseedoesnotfulfillitsobligationsfromthepromissorynote,thelessorcanstartthecourtprocedureagainstthelessee.

• Surety–inthecontractofsurety,theguarantorundertakestoperformcertainobligationofthelesseetowardsthelessorifthelesseedoesnotperformthem,mostlythisreferstothepaymentofdueamounts.Theliabilityoftheguarantorisequivalent,notsubsidiary.



• iftherentisdueforoneday–thecontractcanbeterminatedonedayinadvance.

Theleaseagreementconcludedforadefiniteperiodoftimemaybeterminatedonlyincasesspecifiedinthecontract.

However,theCivilCodestipulatesthatthepartiescanterminatetheleaseagreementimmediatelyifcertainconditionsdefinedbytheabovecodeoccur.Thisappliestocontractsconcludedforbothdefiniteandindefiniteperiodoftime:

• if,atthetimeofhandingitovertothelessee,thesubjectofleasehasdefectsthatmakeitimpossibletouseitinthewaydefinedintheleaseagreement,orifthedefectsoccurlaterandthelessordoesnot,despitereceivinganotice,removetheminanappropriatetime,orifthedefectscannotberemoved–thelesseemayterminatetheleaseagreementwithoutnotice;

• ifthelesseedefaultsinpayingrentforlongerthantwofullpaymentperiods–thelessormayterminatetheleaseagreementwithoutnotice(incaseofleaseofpremisesorretailareas,beforetermination,thelessorisobligedtowarnthelesseeinwritingbygivinghimanadditionalone-monthperiodtopaytheoverduerent);

• ifthelesseeusesthesubjectofleasecontrarytothetermsoftheagreementorthepurposeofthisand,despiteawarning,doesnotceasetouseitinthisway,orifalesseeneglectsittosuchanextentthatthesubjectofleaseisatriskofbeinglostordamaged–thelessormayterminatetheleasecontractwithoutnotice.

Thismeansthatthelessormayrequestapaymentfromboththelesseeandtheguarantor.

• Bankguarantee–itisaunilateralobligationoftheguarantor’sbank,accordingtowhichthebankwillprovidefundstothebeneficiaryoftheguarantee-thelessor,ifthelesseedoesnotfulfillitsobligation.Thepartiesoftheleaseagreementtypicallydetermineaperiodthathastoelapsefromthepaymentduedateandafterwhichthelessorhastherighttoexecuteabankguarantee.

TerminationAleaseagreementconcludedforanindefiniteperiodoftimemaybeterminatedbyanypartywithapriornoticeoftermination(itslengthisinpracticedefinedintheleaseagreement).Thestatutoryperiodofnoticeofterminationfortheleaseagreementconcludedforanindefiniteperiodoftimeisasfollows:

• iftherentisdueforaperiodlongerthanamonth–thecontractcanbeterminatedbygivingathree-monthnotice,effectiveattheendofthecalendarquarter;

• iftherentisdueeverymonth–thecontractcanbeterminatedwithaone-monthnotice,effectiveattheendofthecalendarmonth(three-monthnoticeincaseofleaseofpremisesorretailareas,effectiveattheendofthecalendarmonth);

• iftherentisdueforaperiodshorterthanamonth–thecontractcanbeterminatedwithathree-daynotice;



Lease of premises for residential purposesResidentialleaseagreements,duetotheirpurposearesubjecttospecialprotectionwhicharisesfromtheprovisionsoftheLessee’sProtectionAct.Thisprotectionappliesmainlytothelimitedpossibilityofterminationofthelease.Thereisalsoaspecificregulationregardingtherentincrease.

2.6.1.3.Tenancyagreement(dzierżawa)

Byatenancyagreement,thelessorcommitstohandoverasubjectoftenancytothelessee’suseandcollectionofprofitsforafixedoranon-fixedterm.Inexchange,thelesseecommitstopaytheagreedrent.Thetenancyagreementgivesnotonlytherighttousethepropertybutalsotocollectbenefitsfromit,whichiswhythetenancyagreementusuallyconcernsland.

Thedurationofatenancyagreementmaybedefiniteorindefinite.However,thetenancyagreementforaperiodlongerthanoneyearshouldbeconcludedinwriting,otherwiseitisconsideredtobeconcludedforanindefiniteterm.Alsoatenancyagreementexecutedforalongerperiodthanthirtyyearsisdeemedtobeconcludedforanon-fixedterm,afterthisperiodpasses.

UndertheCivilCode,iftherentpaymentperiodisnotspecifiedinthecontract,rentispayableinarrearsonthedatecustomarilyaccepted,andintheabsenceofsuchcustom,semiannuallyinarrears.Ifthelesseedefaultsinpaymentofrentforatleasttwofullpaymentperiodsand,inthecaseofrentpaidannually,hedefaultsin

paymentforoverthreemonths,thelessormayterminatethetenancywithoutnotice.However,thelessorshouldwarnthelesseebygivingthelesseeanadditionalthree-monthperiodtopaytheoverduerent.

Thelesseeisresponsibleforthecostsofallrepairstotheextentnecessarytokeepthesubjectoftenancyinthesamecondition.However,thepartiesareabletomodifythisruleinthetenancyagreement.Therearealsosomedifferencesbetweenaleaseagreementandatenancyagreementinthefieldofsublettingaproperty.Thelesseecannotsubletthepropertywithoutthelessor’sconsent.Iftheaboveobligationisviolated,thelessormayterminatethetenancyagreementwithoutnotice.

2.6.1.4.Leasingagreement(leasing nieruchomości)

Byaleasingagreement,thefinancingpartyundertakes,withinthescopeofoperationsofitsenterprise,toacquireapropertyfromaspecifiedtransferorandtohanditovertotheusertouseforadefinedperiod.Inexchange,theusercommitstopaytheinstallmentsagreedinthecontract.Thelessorretainsownershipoftheproperty,however,whenthecontractexpires,thelesseehasarighttotakeovertheownershipoftheproperty.Inpractice,therearetwomaintypesoftheleasingagreement:

• operatingleasing–inthistypeofleasingthesubjectofleaseagreementremainstheassetofthelessorwhomakestherelevantdepreciationwrite-offs.Aftertheendoftheleasingtermthelesseemaypurchasethesubjectoftheagreementforremuneration.An



operatingleaseiscommonlyusedtoacquireequipmentonarelativelyshort-termbasis;

• financialleasing–inthistypeofleasingthelessorremainsthelegalowneroftheasset,however,itisthelesseewhomakesthedepreciationwrite-offs.Thetransferofanownershipofasubjectofaleasingagreementafteritsterminationmaybestipulateddirectlyinthatagreement.

Thedurationofthefinancialleasingcontractisusuallylongerthantheoperatingleasingandsimilartotheeconomicutilityofthesubjectofleasing.

Thereisalsoanotherformoftheleasingagreementwhichisoftenusedintherealestatemarketcalledsaleandlease-back.Theessenceinthiscaseisthesaleofpropertybytheownertoaleasingcompany.Afterwards,theleasingagreementissignedbetweenthesamepartiesallowingthepreviousownertousethepropertyasthelessee.Thisoperationallowsthereleaseoffundsandgivestheopportunitytoinvesttheminotheractivities.Moredetailedlegalandtaxcommentsarepresentedinsection2.8.

2.6.1.5.Propertymanagementagreement

Propertymanagementisaprofessionalactivity,regulatedintheActonPropertyManagement.Managementofaparticularpropertyisbasedonthepropertymanagementagreementbetweentheowneroftherealestateandthepropertymanager.Theagreementforpropertymanagementshouldbeconcludedinwriting,otherwisenullandvoid.

Thepropertymanagerisrequiredtohaveacompulsoryinsuranceofcivilliabilityfordamagecausedinthecourseofactivities.

2.6.2. Taximplications

Income subject to taxTaxableincomecomprisestheentireincomegeneratedfrombusinessactivities(tradeorservices).TaxableincomeiscalculatedonthebasisofaccountingrecordspreparedinaccordancewithPolishaccountingstandardsaftersignificantadjustmentsrelatingtothetaxbase.Taxableincomeisasarulerecognizedfortaxpurposesonanaccrualbasis.Theapplicabletaxrateis19%.

Calculation of taxable incomeTaxablerevenuesminustaxdeductiblecostsconstitutethetaxassessmentbase.Thecostsaredeductibleiftheywereincurredforthepurposeofrevenueearningormaintaining/securingthesourceofrevenue.Fortheexploitationofrealestate,themostimportantcosts,suchasinterestpayments,thecostsofexploitationandmaintenanceanddepreciationwrite–offs,areconsideredtaxdeductible.Polishtaxrulesspecificallyexcludecertainexpensesfromtaxdeductiblecosts.Forexample,doubtfulreceivablescanonlybedeductedunderverystrictconditions.Alsobusinessentertainmentexpenses(e.g.thecostsofrepresentation)arenon–deductible.

Loss carry forward rulesPolishlegislationprovidesforcarryingforwardtaxlossesoverfiveconsecutivetaxyearsfollowingtheyearwhenthelosswas



incurred.Theamountwhichcanbeutilizedinanyofthesefiveyearscannotexceed50%ofthetotalloss,however.

Example:

Year 0 1 2 3 4 5 6

(Loss)/profit (100) 60 10 10 20 5 20

Loss utilised - 50 10 10 20 5 -

Carryforward - 50 40 30 10 0 -

Effectivetaxbase - 10 0 0 0 0 20

Total loss effectively carried forward: 95, unutilized loss: 5.

Taxlossescannotbecarriedforwardfollowingcertainlegaltransactionsinvolvingthecompany(e.g.mergerswherethelossespertaintoentitieswhichnolongerexistafterthemerger).Thereisnotaxlosscarryback.

Depreciation rate for real estateThestandarddepreciationrateformostnewbuildingsfortaxpurposesis2.5%peryear.Hence,thecostsofrealestateinvestmentaregenerallydeductedoveraperiodof40years.Newlyacquiredbuildings,usedpreviouslybyaformerowner,canbedepreciatedfortaxpurposesduringtheperiodequaltothedifferencebetween40yearsandthenumberofyearsthathavepassedsincethebuildingwasputintouseforthefirsttime(thatperiodcannotbeshorterthan10years).Landisnotsubjecttotaxdepreciation.

Ifresidentialbuildingsconstitutefixedassetsusedforbusinesspurposes(e.g.if

theyareleased)theyaredepreciatedatarateof1.5%peryear.

Undercertaincircumstancesitmaybeworthcarryingoutacostsplitanalysisofinvestmentexpenditurespriortoputtingabuildingintouse.Thisisbecausesomemachinerymay–underspecificregulations–beexcludedfromthevalueofthebuildingandbetreatedasseparatefixedassetsdepreciatedathigherrates(4.5%–20%peryear).Thiscouldleadtosignificanttaxsavingsasthecostsincurredcouldbedeductedoverashorterperiodoftime.Acostsplitanalysisshouldbealsopossibleincaseofthepurchaseofanalreadydeveloped building.

Calculation of the depreciation baseThedepreciationbaseconsistsofallcostsincurredinmakingtheinvestment:constructioncosts,buildingmaterials,designs,interestandforeignexchangedifferencesaccruedduringtheconstructionperiod,commissionandpotentiallynon–recoverableinputVATrelatedtothebuildingincurredbeforeitwasputintouse.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofthebuildingseparately.

VAT implications of renting out real estateRentalincomeissubjectto23%VAT.ThisVATisaddedtotherentdueandispayablebythelesseetothelessor.IfthelesseeisaregularVATpayer,hecandeducttheVATpaidintherentinvoicefromhisoutputVATliabilityresultingfromtaxableactivities.



IfthelesseeperformsVATexemptbusinessactivities,theinputVATontherentisirrecoverable.Forexample,theactivitiesofbanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT.

Ifthelesseeperformsexemptactivities,aswellastaxableactivities,thentheinputVATontherentcanbedeductedproportionatelyontheproratabasiscomputedforagivenyear.

Beginningof1January2016preliminaryproratamustalsobetakenintoaccount,whichmightresultinlimitedrecoveryofinputVATrelatedbothtoeconomicactivityandnon-businessactivities.

Rentalofresidentialunitsforhousing(butnottherentalofresidentialunitsforthepurposesotherthanhousing)isVATexempt.

Real estate taxRealestatetaxischargedtotheowner(orinsomecasestheholder)ofthelandorbuildingsandinfrastructurewhichareusedforbusinessactivities.Thelocalauthoritiessettherealestatetaxratesandcollectthetaxes.However,in2017localauthoritiesareboundbythefollowingmaximumPLNyearlytaxrates:

• forland,PLN0.89perm2ofland;

• forbuildings,PLN22.86,perm2 of the usablesurfaceofabuilding;

• forinfrastructure(e.g.roads,pipelines),2%ofthevalueoftheinfrastructurecalculatedaccordingtospecificregulations(initialvaluedeterminedforthepurposesoftaxdepreciation).

Localauthoritiesmaydifferentiatebetweentaxratesfordifferenttypesofactivitiesorlocationsandgrantexemptionsforcertaintypesofrealestate.



Theinvestor’schoiceofexitstrategywillbepredominantlytaxdriven,anditisimportantattheoutsetoftheinvestmentprocesstohaveaclearideaofthepossibleexitmechanics.Theduediligencefindingsmadeduringtheacquisitionphasearelikelytobearrelevancetothequestionofwhichexitstrategytochoose,andshouldbegivenproperconsideration,sothattheinvestor’spositiononexitwillbeasstrongaspossible.

Generally,theexitmaybestructuredasanassetorsharedeal.Thelegalandtaxconsequencesofbotharepresentedinsection2.4.

2.7. Exiting the investment


Legal aspectsAsaleandleasebacktransactionconsistsoftwostages.Thefirststageassumessellingthetargetrealpropertybythesellertothepurchaser.Inthenextstagethesellerconcludestheagreementontheleaseoftherealpropertyfromthepurchaser.Asaresultofthesale,theowner(orperpetualusufructuary)oftherealestatechanges.However,duetoleasingtherealpropertyback,therealestateremainsundertheoperationalcontroloftheoriginalparty(theseller).

Fromthelegalperspectiveitisimportanttosecurethesellers’interestalreadyinthefirststageofthetransaction,i.e.toestablishtheobligationofthepurchasertoleasetherealpropertybackintheagreementonthesaleoftherealproperty.Itisalsoimportantforbothpartiestoagreedetailsofthelease(duration,price,etc.)assoonaspossible,especiallyifthesellerandthepurchaserdonotbelongtothesamecapitalgroup.

Themainadvantageofsuchasaleandleasebackoperationisthereleaseoftheseller’scapitalasaconsequenceofthesaleoftherealproperty.Thiscapitalmaybethereafterusede.g.forinvestmentpurposes.However,thedecisionon

2.8. Sale and lease back


choosingsuchasolutionshallbemadeondetailedcalculationofallthecostsrelated,includingtheleasecosts.

Tax implicationsIfasaleandlease-backtransactionisstructuredasanoperationallease,thebuyer/lessorisinmostcasestheowner,andwillbeabletodepreciatethevalueoftheinvestmentatthestandarddepreciationrateof2.5%.Accelerateddepreciationforusedbuildingscanbeconsideredinsomecases.Othercostsrelatedtothemaintenanceandexploitationofthebuildingaretax-deductibleforthelessor.

If,underasaleandlease-backcontract,therealestateassetwhichisthesubjectofthecontractissoldatahigherpricethanitsnetbookvalue,ataxablecapitalgainwilloccur.UnderPolishlegislation,

itisnotpossibletodeferthetaxationofsuchacapitalgaininordertouseitforreinvestment.

Asaleandlease-backarrangementhasanadvantagefortheseller/lesseethattheleasepaymentsarefullytaxdeductibleascostsincurredforthepurposeofearningrevenue.Bycontrast,fortheborrowerpartytoanormaldirectfinancingarrangement,onlytheinterestpaymentsmadeontheloanaretax-deductible.Therepaymentofcapitalisnotatax-triggeringevent.Underadirectfinancingarrangementsecuredbyamortgage,thedebtorwouldstillbetheowneroftherealestate.Assuch,thedebtorwouldbeunabletodepreciatethevalueoftheland.Underaleasecontract,theleasepaymentsarepartlyacompensationfortheuseoftheland.Therefore,paymentsfortheuseofthelandaretax-deductibleforthebenefitofthelessee.



Themainpurposeoftheduediligenceprocessistoprovideinvestorswithacomplexoverviewofthesituationoftherealestatebeingthesubjectoftheacquisitionfromthelegal,financialandtaxperspective.Takingintoaccountthespecificstatusandfeaturesofagivenrealestate,abroaderduediligencereview,conductedbytechnicalandenvironmentalexperts,mayberecommended.

2.9.1. Legal due diligenceTheduediligenceprocessisallaboutmitigatinginvestmentrisks.Inpractice,thelegalduediligencereviewconsistsingatheringinformationandshouldprovidethepotentialinvestorwithacomprehensiveviewofthelegalissuesregardingtherealpropertyheconsidersacquiring.

Bytheendoftheduediligenceprocess,theinvestorshouldhaveafairideaofwhethertherealestateisworthinvestingtimeandmoney.Inthisregard,aduediligenceshouldbeascomprehensiveaspossible.

Thescopeofthelegalduediligencewilldependonthestructureofthedeal.Inasharedeal,thescopeoftheduediligencewillgenerallybewiderthanthatrequiredforanassetdeal,asitneedstocoveralltheaspectsrelatedtotheactivityofthe

2.9. Due diligence as part of the acquisition process



company.Incaseofanassetdealmostlythelegalstatusoftherealestateshouldbetakenintoconsiderationandexaminedcarefully.

Withinthelegalduediligence,thereviewbasesmainlyondataandinformationprovidedbythesellerandonenquiriesanddiscussionswiththesellerand/orthemanagementofthetarget.Additionally,publiclyavailablesources(suchasdataincourtregisters)areexplored.Inpractice,theduediligenceregardingtherealestateusuallycoversreviewofthefollowingmatters:

• legaldocumentsrelatedtotheseller’stitletotherealestateinuse(e.g.realestateacquisitionagreements,extractsfromthelandandmortgageregister,extractsfromthelandandbuildingsregister,etc.);

• documentsrelatedtotheencumbrancesovertheseller`srealestate;

• leaseagreementsfortherealestateconcludedbytheseller;

• developmentandconstructiondocumentation;

• planningandzoningissues;

• utilitiessupplydocumentation;

• environmentalissues(permits,licensesetc.).

Reviewofotheraspectsisusuallyagreedwiththesellerandstrictlydependsonthetypeoftransaction(shareorassetdeal).

Theaimofthelegalduediligencereviewoftherealestateistoidentifyareasofinvestmentrisksbutalsootherspecificlegalaspectsregardingperformingof

businessactivityontherealestateanditssale.Belowwepresentcertainissuesthatneedtobeanalyzedduringtheduediligenceprocessandwhichmayinfluencethestructureofthetransaction,orevenadecisiononenteringintothetransaction.

Local Spatial Development PlanThelocalspatialdevelopmentplansareissuedbythelocalauthorities(municipalities)foragivenarea.Generally,localspatialdevelopmentplansarelocalactsanddefineconditionsforlanduseanddestinationandthescopeofbusinessthatcanbeconductedwithinagivenarea.Municipalitiesissuelocalspatialdevelopmentplanswithaviewtolocaldevelopmentandpublicinterest.Developmentofaninvestmentontherealestateispossibleprovidedthatbuildings,plantsandotherindustrialfacilitiescomplywiththerelevantlocalspatialdevelopmentplanforagivenarea.Therefore,itisessentialtoestablishduringtheduediligenceprocesswhetherthereisalocallocalspatialdevelopmentplancoveringtheareawherethetargetedrealestateislocatedandifso,whataretheconditionsofthislocalspatialdevelopmentplaninordertoconfirmwhetheritwillbepossibletoperformtheplannedinvestment.Pleaserefertothesection2.5.1.formoredetailedinformationregardingthelocalspatialdevelopmentplan.

Withinthereviewofthelocalspatialdevelopmentplan,inparticular,theissuesoftheconservationandhistoricpreservationzonesandagriculturallandshouldbeverified.


Conservations and historic preservation zoneThezoningmasterplanmayprovidethattheareawheretherealestatesubjecttothepotentialinvestor’sinterestislocatedfallswithinaconservationandhistoricpreservationzonewheresomespecificrulesapplyinordertoprotectthehistoricalmonumentslocatedinthezone.Dependingonthetypeoftherealestateanditshistoricalstatustheremaybeadditionalrequirementsandlimitationsestablishedbytheprovisionsoflaw.

RevitalizationTheRevitalizationActenteredintoforceattheendof2015.Undertheact,revitalizationisthecomprehensiveprocessofrescuingdegradedareasfromcrisisthroughintegratedactionsforthebenefitofthelocalcommunity,spaceandeconomy.Adegradedareaisaterraininwhichthereisaconcentrationofnegativesocialphenomenaaswellas,forexample,degradationofthetechnicalconditionofbuildings,alowleveloftransitservice,andpoorlyadaptedurbanplanningsolutions.

Underthenewlegislation,itisnecessaryforthecommuneauthoritiestopasslocalgovernmentlawintheformofaresolutioninestablishingarevitalizationzoneoraspecialrevitalizationzone.

ItshouldbenotedthattheRevitalizationActaddednewcases,whenacommunemayexercisetherighttopre-emptionofrealestate,i.e.incaseoftransactionsthesubjectofwhichisarealestatelocatedwithinarevitalizationareaorspecialrevitalizationzone.Incaseofconsidered

acquisitionofrealestatelocatedinoneofthoseplans,aninvestorshouldbearinmindthepre-emptionrightofacommune.

Agricultural landThelocalspatialdevelopmentplanmayprovidethattherealestateisassignedforagriculturalactivity.Asarule,thedevelopmentofrealestatedesignatedforagriculturaluserequiresaspecialprocedureinvolvingthemodificationofthelocalspatialdevelopmentplan.Suchaproceduremaybetime-consumingandisconnectedwiththeriskofthirdpartieschallengingtheproposedchangestotheplan.Additionally,realestateclassifiedasagriculturallandintheLandandBuildingRegister,butnotcoveredbythemasterplan,shouldbealsoexcludedfromagriculturalproductionbyobtaininganadministrativedecisionfromtherelevantauthority.

Itshouldbenotedthatafterexclusionoftheareafromagriculturalactivityanannualfeehastobepaidfortenyears(seecommentsbelow).

Aninvestorconsideringacquisitionofagriculturalrealestateshouldalsobearinmindexistingrestrictionsrelatingtopurchaseofanagriculturalland.Regulationsinforceprovideformanyspecificlegalrestrictionsandlimitationsandnewlegislationaretofurtherrestrainentitiesotherthanindividualfarmersfrompurchasinganagriculturalrealestate(please see comments in section 2.4.2).

Restitutions claimsUnderthenationalizationlawspassedinPolandaftertheSecondWorldWar,many



realpropertiesandfunctioningenterprises(includingtheirrealestateassets)were“nationalized”(or“communalized”).However,currently,therearenospecificreprivatisationlawsinforceinPolandtodealwiththerestitutionmattersandclaims.Asaresult,thelegalstatusofnationalizedpropertiesisquiteoftensubjecttouncertainty.Underspecificconditions,formerownersortheirsuccessorsmayapplytocivilcourtsandinitiateproceedingsaimedattherestitutionofsuchrealestate.Asthecurrentownerbenefitsfromthelandandmortgageregister’spubliccredibilitywarranty,theoutcomeofsuchclaimwillprimarilydependontheapparentgoodfaithofthecurrentandpreviousowneratthetimetheyacquiredtheproperty.Nevertheless,thisissueneedstobesubjecttoanalysisduringtheduediligence.

InWarsaw,onthebasisofthespecial“Warsawdecree“onlandownershipof1945,theCityofWarsawgainedownershiprightstothemajorpartofrealestateinthecity.However,subjecttospecificconditions,formerownersoftherealestateweregrantedtherighttoapplyforobtainingusufructrightstorealestateorcompensation.Currently,suchapplicationswhichwerenotresolvedorwereresolvedincontraventionofthelawmaybethebaseforsuccessfulclaimsforreestablishingtherightsofthepreviousownersortheirsuccessors.Inconsequence,itisessentialduringtheduediligencetoinvestigatewhetheranysuchproceedingsarependingwithrespecttothetargetpropertylocatedinWarsaw.

AfterthejudgementoftheConstitutionalTribunaldated19July2016,theAct

onamendmentoftheActonPropertyManagementandtheFamilyandGuardianshipCodecameintoforceon17September2016.ThisactprovideslimitationsofrestitutionofownershipofrealestatenationalizedundertheWarsawdecreeortransferringclaimsforreestablishingtherightsforsuch.

Accordingtothenewact,incasewhentherealestateinWarsawise.g.assignedorusedforpublicpurposes,theCapitalCityofWarsawmayrefusetoestablishtherightofperpetualusufructtoapreviousownerofthisrealestate.

AnewprovisionisgrantingtheStateTreasuryandtheCapitalCityofWarsawrightofpre-emptionintheeventofthesaleofrightsandclaimsarisingfromtheWarsawdecreeandclaimsfortheestablishmentofperpetualusufructtothepreviousownerofrealestatelocatedinWarsaw.Thepre-emptionrightalsoappliesincaseofsaleofperpetualusufructrightestablishedbythewayofsatisfyingrightsandclaimsarisingfromtheWarsawdecree.

Asaresult,thenewregulationshouldbetakeintoconsiderationduringtheinvestmentprocess.

Fees – holding the real estate

Zoning feeZoningfee(“OpłataAdiacencka”)isachargewhichmayoccurwithregardtotheincreaseofthevalueoftherealpropertyresultingfrom:

• divisionoftheproperty;

• mergingandsubsequentlydividingtheproperty;



• theconstructionofinfrastructurewiththeuseofpublicfunds(placingwaterpipes,sewagepipes,heatingsystems,electricitygasandtelecommunicationsfacilities).

Theamountofthefeedependsontheamountoftheincreaseintheproperty’svalue and is usually established based onanopinionofanindependentexpertdetermininghowmuchthevalueofpropertyhasincreasedby.

Theamountoffeeshallnotbehigherthan50%(withrespecttothedivisionfollowingamergerandtheconstructionofinfrastructurewiththeuseofpublicfunds)andnothigherthan30%(withrespecttoadivision)oftheincreaseinvalueoftheproperty.

Additionally,adoptionofthelocalspatialdevelopmentplanmayalsoleadtoanincreaseinrealestatemarketvalue,e.g.whenaforestrylandoranagriculturallandisreclassifiedinthelocalspatialdevelopmentplanintopublicroads,itsvalueusuallyincreases.Insuchcasesthezoningfee(“RentaPlanistyczna”)maybeestablishedasapercentage(nothigherthan30%)oftheincreaseinvalueofthelandcalculatedasatthedateofthetransferofthegivenrealestate.

Thepercentageforcalculationofthezoningfeeshouldbeprovidedforinthelocalspatialdevelopmentplan.Thezoningfeeispayablebythevendorinthecaseofatransferofthepropertywithin5yearsfromthedaywhenthelocalspatialdevelopmentplancameintoforce.

Exclusionfromagriculturalproduction fee

Entrepreneursareofteninterestedinchangingthepurposeofuseoftheagriculturalandforestlandinordertodevelopthelandandrealizeaninvestment.Exclusionfromagriculturalproductionissubjecttoaninitialfeeandsubsequentannualpayments.Thevalueofsuchpaymentsdependsonthe:

• areaofthelandsubjecttoexclusion;

• qualityoftheland(classofsoil);

• marketvalueofthelandsubjecttoexclusion.

Itshouldbenotedthatifthelandexcludedfromagriculturalproductionissold,theobligation to pay the annual fees passes to thepurchaser.

Environmental issues

IntroductionPolishenvironmentallawaffectstheconductofeconomicactivityformostbusinessentities.Oneofthemostimportantrequirementsimposedbytheenvironmentallawistherequirementtoobtainpermitsrelatedtotherulesofhavinganimpactupontheenvironment.Itisusuallyexaminedduringtheduediligencewhethertheseller(orthetargetcompany)fulfillstheenvironmentallawrequirements.

PermitrequirementsEnvironmentalpermitscanbebasicallydividedintotwogroups.Thefirstoneincludespermissionobtainedinthecourseoftheinvestmentprocessandthesecond



groupincludespermissionrelatedtotheuseoftheproperty.

IncertaincircumstancesPolishenvironmentallawimposesanobligationtoobtainanintegratedpermit,whichincludesanumberofpermitsgoverningtheuseoftheenvironment.Theobligationtoobtainintegratedpermitrelatesto,interalia,thefollowingbranchesofindustry:metallurgyandsteelindustry,themineralindustryandthechemicalindustry.

Besides,itisimportanttotakeintoaccountthepermissiblelevelofnoise.Permissionisrequiredonlyifthenoiselevelexceedsthenoiselimits,whichshouldbeevaluatedtakingintoaccounttheprovisionsofthelocalplan.

LiabilityforcontaminatedlandUnderthePolishlawtherearetworegimesofliabilityforland(soil)contamination,dependingontheperiodfromwhichthecontaminationoriginates(withtheborderlinebeing30April2007).Acurrentholder(inparticularownerorperpetualusufructuary),revealedintheLandRegister,isliableforsoilcontaminationwhichoccurredpriorto30April2007ormaybeattributedtoactivitycompletedpriortothatdate,evenifsuchholderdidnotactuallycausethecontamination.

Partiestothesaleagreementcannotcontractuallyexcludetheabovementionedadministrativeliabilityofthepurchaserforclean-upofcontaminatedlandsowhenapotentialinvestorintendstobuyaproperty(especiallyonethatwasusedforindustrialpurposes)adetailedstudyonpollutionofthelandisrequired.

Tosecurepurchaser’sinterest,thesellerofcontaminatedlandmayagreetoreimbursethepurchaserwithexpendituresbornefortheclean-up.

Thesituationisdifferentfor“new”landcontamination,i.e.anysoildamage,whichoccurredafter30April2007orcouldbeattributedtoanactivitycompletedafterthatdate.Anentityusingtheenvironment(i.e.anentitywhohasrelevantpermitstooperateandusetheenvironment)isliableforanysuchdamage.

EnvironmentalimpactassessmentAccordingtothesection2.5.1wheretheenvironmentaldecisionandenvironmentalimpactassessmentwheredescribed,insomecases–especiallyforlargeinvestmentsanenvironmentalimpactassessmentproceedingmayberequired.

2.9.2. Financial due diligenceNotmanyinvestorsperformduediligencewhencompletingarealestatetransaction.Oftentheinvestor’sowninternalproceduresrequireduediligencetodeterminewhetherornotthetransactionisinthebestinterestoftheinvestor.

Althoughfortransactionsofasmallerscalethismaynotbeagoodwaytoevaluateadeal,mostinvestorsunderstandthevalueofexpertoutsourcedfinancialduediligenceservices.Thisringsespeciallytruewhentakingintoaccountlargertime-sensitivetransactions(auctionprocessesforexample).

Althoughsomeinvestorschoosetoforegoduediligencewhenacquiringnewassets,



theyshouldunderstandthatfinancialduediligencecanindicatehowtheacquiredassetswillaffectmetricssuchasrevenueandnetoperatingincome.Inaddition,duediligenceisabletodiscoverunforeseenproblemssuchasdiscrepanciesbetweentheamountpaidforrentasdescribedinleaseagreementsvs.theactualamountbeingpaidpertheaccountingbooks.

Abuyerusuallymakesuseoffinancialduediligencetoassistinidentifyingmajorissuesconcerningatransaction:

• thevalueoftheproperty’sNOItakingintoaccounttheexistingleaseportfolio

• anyprovisionsintheleasethataffecttheNOIadversely(forexample,discountsonrentforanygivenperiodoftimeorforimprovementsmadebylessee)?

• bookkeepinginusebeingadequateforthebusiness,andhowdoesitlooksnexttotheinvestor’sbookkeepingprocedures

• lesseeeverbeinglatewiththerent,orittakinglongertocollectrent;

• chargesmadebythelesseebeingenoughtocoverthecostsofmaintainingthebuilding;andanyservicechargesnotsettledforanyreason

Analyzing financial issuesTheitemslistedbelowshouldbeconsideredwhenseekingtoresolvethepreviouslymentionedissuesconcerningfinancialduediligence:

• thefinancialfiguresbeingviable:canthefiguresbetracedbacktoitsoriginreliably;

• criticalbookkeepingproceduresbeingappliedconsistentlyandappropriately;

• theinfluenceofthebookkeepingproceduresonthefinancialfigures;

• assuringthatthecreationandlevelofmanagementinformationisaccurateandadequateforthebusinessbeingconsidered;

• evaluatingthecontractualobligationsthebusinesshasandtheirinfluenceonprofitabilityandcashflow;

• evaluatingcriticalproblemsinfluencingearningsposition;

• recognitionoftheneedforcostrechargesincurredandfocusonareasforimprovement;

• recognizingthe“normal”workingcapitalandcashflowtidesofthebusinessandprobablefundingneedsdowntheline;

• makingsureconstructionscostsareproperlyreflectedinthebookkeepingrecords;

• recognizingthenetassetbaseforacquisition;addressingpossiblebalancesheetvaluationdiscrepancies;makingsureeverythinghasbeenadequatelyaddressedinevaluatingtheunderlyingearnings;

• comparingtherentrollagainsttherentalagreementsandbookkeepingrecords;

• comparingtheservicechargesincurredagainstthebookkeepingrecords;and

• goingoverrentalagreementstoidentifybalancesheetliabilities.



2.9.3. Tax due diligenceTaxduediligence,ingeneral,focusesonassessingmaterialtaxriskspertainingtoassetsorsharesbyreviewingthetaxpositionofthetargetcompany.Byidentifyingtaxrisksduringduediligenceconductedbeforethetransaction,theinvestormayseekprotectionorindemnificationfromtheseller.

Fromataxperspective,itisalsoimportanttoensurethattheappropriatetaxstructureisused,whichusuallyinvolvesapre–transactionstudyandthepreparationofthetransactionstructureinaccordancewiththePolishandinternationaltaxregulations.Inaddition,itcanalsoincludeanassessmentofthetaximplicationsofafutureexitscenario.

Acquisition of assetsInthecaseofanassetdealdeemedtobetheacquisitionofbusinessasagoingconcernoraviablepartofthatbusiness,theacquirermaybeheldliablefortheoutstandingtaxliabilitiesoftheseller.Thisliabilityisexcludediftheacquirercouldnothavebecomeawareoftheseller’staxarrearsdespiteactingwithduediligenceinattemptingtoidentifysuchtaxarrears.Performingataxduediligencereviewisthusawaytolimitorexcludesuchliability.

Thisliabilityisinpracticeofa’subordinated’nature,asevenifaformaldecisiondeclaringthattheacquirerisliablefortheseller’staxarrearsisissued,theclaimagainsttheacquirermaycrystallizeonlyiftheenforcementprocedureagainstthesellerisineffective(andtaxclaimsagainstthesellerarenotsatisfied).

Accordingtothetaxregulationstheacquirer(withtheseller’sconsent)orthesellermaysubmittothetaxauthoritiesaformalrequestforacertificatewhichlistsallthetaxliabilitieswhicharetransferabletotheacquirer.Theacquireristhenliableonlyuptothevalueofthetaxliabilitiespresentedinthecertificate.

Inthecaseofasaleofsingleassets(notconstitutingagoingconcern),theacquirershouldnotbeliablefortheoutstandingtaxarrearsoftheseller.However,ifthetransactionisreclassifiedintoasaleofagoingconcern,thebuyermightthenbeheldliablefortheseller’sundisclosedtaxliabilities.

Acquisition of sharesInthecaseofasharedeal,allthepotentialoutstandingliabilitiesthatarenotstatuebarredremainwiththeacquiredcompany.Asaconsequence,theacquirerfacesthepossibilityofincurringaneconomiclossonthetransactionifundisclosedtaxliabilitiesbecomeapparentafterwards.Taxduediligenceisthereforeconductedtoallowtheacquirertoassessandminimizethisrisk.

Generally,theperiodoflimitationfortaxliabilitiesis5taxyearsfollowingtheyearinwhichthetaxispayable.Inpracticethismeansthatfromtheperspectiveof2017thereisstillataxriskinrelationspecificallytoatarget’scorporateincometaxpaymentsfor2011–2016,andtoothertaxliabilities,ingeneral,for2012–2016.



Tax issues analyzedThescopeofataxduediligencereviewdependsonthestructureoftheplannedtransaction.

Inthecaseofanassetdeal,thescopeofduediligencedependsonthesubjectofthetransactionandtheextenttowhichtheacquirermaybeliablefortheseller’staxliabilities.

Inthecaseofasharedeal,astheacquirerfacesthefullimpactofanytaxliabilitiesassumed,fullduediligenceisusuallyconducted.

Thetaxduediligenceincaseofasharedealusuallycoversthefollowingareas:

• reviewoftaxreturnsforperiodspreviouslyfiledandreviewoftaxcalculationsforperiodsthatarenotyetfiledwiththetaxauthorities;

• reviewoftheresultsofpasttaxauditstodetecttaxrisksforperiodsthatarestillopenfortaxauditsbythetaxauthorities;

• reviewofanyobtainedtaxrulings;

• reviewofanylossescarriedforward,taxcreditsandspecialtaxprivilegestoidentifyrelatedtaxrisksforunauditedperiodsandtoassesswhethersuchtaxbenefitswillbeavailableposttransaction;

• reviewofwithholdingtaxproceduresandexemptionsavailable;

• reviewofsignificanthistoricalreorganizationsandone-offtransactionsandtheirimpactonthetaxaccounts;

• reviewofintercompanytransactionsandpresenttransferpricingpolicyinthecompany;

aswellasanexaminationofareastypicalforarealestatecompany,suchas:

• theexistingdebtfinancingstructure(e.g.debtpushdownschemes),thincapitalizationandotherpendingrestrictionsonthetaxdeductibilityofinterestpaymentsonthedebt;

• anylargedifferencesbetweenbookandtaxbasisofassets,analysisofthedeferredtaxcalculations,inparticularidentificationofanydeferredtaxliability,e.g.fromaccruedforeignexchangegains;

• rulesforcapitalexpenditurerecognitionandtheimpactofforeignexchangedifferencesontheinitialvalueoffixedassetsfortaxdepreciationpurposes;

• policiesforthetaxdepreciationofassets,includingareviewofcostsegregationschemes;

• cashincentivesofferedtolesseessuchasarentfreeperiodorstep-uprentandtheirimpactonthetaxaccounts;

• treatmentoftheinvestmentcostsincurredbylessees(leaseholdimprovements)whentheleaseexpires;

• taxrecognitionofmanagementchargespayablebyspecialpurposevehiclestoservicingcompanieswithinthegroup;

• anystep-upinthevalueoftherealestateperformed;

• reviewofinputVATrefundsintheinvestmentphase;and

• policiesforrealestatetax.




Areviewofthesaleandpurchaseagreement(SPA)fortheacquisitionofarealestatetargetusuallycoversthefollowingtaxpoints:

• reviewofthetaxdefinitionsintheSPA,andofthetaxrepresentationsandwarranties;

• reviewofthetaxindemnityclausesintheSPA;and

• analysisoftheSPAfromtheperspectiveofotherprotectionavailableagainsttaxexposures.

2.9.4. The use of due diligence results when negotiating

Afterthewholeprocessofduediligence,theinvestorgetsageneralfinancialandtaxriskoverview,whichmakesuptheoriginoftheinformationfornegotiationswiththesellerandassistsinadjustingthefinancialmodelforvaluation.

ThiscanbeusedtogetadecreaseinpriceinordertoalleviatepossibletaxliabilitiesandcanbeusedwhenwritingwarrantiesanddamagesintheSPA.

Theresultsmaydirectlyaffectthecompositionofthetransaction,forexample,transformingasharedealtoanassetdeal;theymayalsobeusedforpost-acquisitiontaxplanning.

Alongwiththetaxandfinancialduediligenceresults,thelegalduediligencereviewshouldassistthebuyerindeterminingwhetherornottocompletethetransaction,andifso,inwhatform.Duediligenceinvestigationsletthebuyer’slegalteamconstructtheconditionsofthedealsothatthebuyerisaffordedwithanadequateamountofcomfortandprotection.Thelegalteamwillthenbeinapositiontoaddressspecificproblemsbyaskingforfurtherexplanationsand/orpromisesorwarrantiesfromtheseller.ThelegalteamcanalsoevaluatewhetherornotsuchpromisesorwarrantiesneedtobecoveredbyanindemnityclauseorotherlegallanguageallowedunderthePolishlaw.

Whentakentogether,thefinancial,taxandlegalduediligenceresultsareaverystrongtoolwhichcanveryeasilyhaveaninfluenceonthefinalresultofnegotiations,and,inparticular,howmuchthebuyerwillultimatelypay.



3Poland.Therealstateofrealestate|139

Accounting and auditing

3.1. Introduction to the accounting frameworkinPoland

PolishaccountingisregulatedbytheAccountingActof29September1994(theAccountingAct).TheMinisterofFinancehasalsoissuedseveralregulationswhichcoverspecificaccountingareassuchasfinancialinstruments,consolidation,accountingprinciplesforbanks,insurancecompanies,investmentfundsandpensionfunds.Since1994,theAccountingActhasundergonesignificantchangestobringPolishaccountingregulationsclosertotheInternationalFinancialReportingStandards(IFRS).However,thedifferencesbetweentheAccountingActandIFRS,mainlyfollowingIFRSdevelopmentsinlastdecade,continuetoexistasnotedinSection3.7below.Thefollowinginformationappliestofinancialstatementspreparedfortheperiodsbeginningonorafter1January2017.

InordertohelpimplementtheAccountingAct,thePolishAccountingStandardsCommittee(‘theCommittee’)preparesandissuesNationalAccountingStandards(KSR).Asat1January2017,tenNationalAccountingStandardshadbeenissuedinregardtodifferenttopicsincludingcashflowstatement,leasing,impairmentofassets,concessionaccounting,recognitionandpresentationofchangesinaccountingpolicy,estimates,andcorrectionoferrorsandpostbalancesheetevents.

TheCommitteehasalsoissuedseveralpositionpapers(notreferredtoasstandards)inregardtoe.g.accountingforemissionrights,inventorycount,inventoryvaluation,greencertificates,financialstatementsofhousingcooperativesandsomeaspectsofbookkeeping.IntheareasnotregulatedbytheAccountingActorNationalAccountingStandards,referencemaybemadetoIFRSs.NationalAccountingStandardsandtheCommittee’spositionpapersareavailableonthewebsiteoftheMinistryofFinance.



TheAccountingActpermitsorrequiressomePolishentitiestoapplyIFRSasadoptedbytheEUastheirprimarybasisofaccounting,ratherthanapplyingthe

accountingprinciplesoftheAccountingAct.Thoseregulationsaresummarisedinthefollowingtable:

Standalone financial

statements

Consolidated financial

statements

1.EntitieslistedonaregulatedmarketinPolandorotherEuropeanEconomicArea(EEA)country.

Choice Required

2.Banks(otherthanthoseincluded inpoints1,3,4and5). Notpermitted Required

3.EntitiesthatappliedforapermissiontolistonregulatedmarketinPolandorotherEuropeanEconomicArea(EEA)country.

Choice Choice

4.EntitiesthatarepartofagroupwheretheparentpreparesconsolidatedfinancialstatementsforstatutorypurposesinaccordancewithIFRSasadoptedbyEU.

Choice Choice

5.BranchesofaforeignentrepreneursthatprepareseparatefinancialstatementsforstatutorypurposesinaccordancewithIFRSasadopted by EU.

Choice n/a

6.Otherentities. Notpermitted Notpermitted


3.2. Accounting records

TheprovisionsoftheAccountingActandrelatedregulationsareapplicableto,amongothers,companiesandpartnershipsthathavetheirregisteredofficeorplaceofmanagementinPoland.ForthoseentitiesthatapplyIFRSastheprimarybasisofaccountinginsteadofPolishprinciples,thefollowingsectionsoftheAccountingActstillapply:

• Chapter2onbookkeeping

• Chapter3oninventorycount

• Chapter6Aonreportonpaymentsmadetogovernment

• Chapter7onauditing,filingwiththeappropriatecourtregister,providingaccesstoandpublicationoffinancialstatements

• Chapter8ondataprotection

• Chapter9oncriminalliability

• Chapter10onspecialandinterimprovisionsand

• Article49inregardtodirectors’report.



Eachentityisobligedtomaintainitsaccountingbooksandotherdocumentationwhich,inparticular,comprises:

• Adescriptionoftheentity’saccountingprinciples

• Rulesforkeepingsubsidiaryledgersandtheirlinktogeneralledgeraccounts.

Accountingrecordsshouldbekept,andfinancialstatementsdrawnup,inthePolishlanguageandpresentedinthePolishcurrency.

It should be noted that the violation of the AccountingActrequirementsbyapersonresponsiblefordrawingupthefinancialstatements(usuallytheManagementBoardandSupervisoryBoard)mayberecognisedasacriminaloffence,whichispunishablebyimprisonmentforatermnotexceedingtwoyears,byafine,orboth.

Theregulations,summarisedin Chapters 3.3.- 3.7 below, apply to all entities in general. Certain types of entities such as banks,insurers,orinvestmentsfundsmightbegovernedbyspecificregulationsinrelationtothemeasurementandimpairmentofassets(suchasfinancialinstruments)orfinancialstatements.Furthermore,thereareexemptionsandsimplificationsprovidedforsmallandmicroentitieswhichareexplained in Chapter 3.8.


3.3. Major principles in regard to recognition and measurementof assets and liabilities

TheAccountingActrequirescompaniestorecogniseandpresentthetransactionsinthefinancialstatements,inaccordancewiththeireconomicsubstance.

EntitiesmayelecttodepartfromaregulationoftheAccountingAct,andadoptitsownaccountingpolicy,ifthatregulationresultsinpresentationofthefinancialpositionandperformancenotbeingtrueandfair.Thejustificationforsuchdepartureanditsimpactonthefinancialinformationshouldbedisclosed.

Anassetisrecognisedifitisprobablethatthefutureeconomicbenefitsthatareattributabletotheassetwillflowtothecompany.

Intangible assetsIntangibleassetsarerecordedinitiallyattheirpurchasepriceandthenareamortisedovertheirusefullivesorwrittendownforimpairment.Thegoodwillanddevelopmentcostsshallbeamortizedovertheir



economicusefullifeor,whentheeconomiclifecannotbereliablydetermined,overtheperiodnotexceeding5years.

Property,plantandequipmentItemsofproperty,plantandequipmentaremeasuredatacquisitionorproductioncost,lessaccumulateddepreciationandimpairment.Landismeasuredatacquisitioncostlessimpairment.

Tangibleassetsmayberevaluedinaccordancewithseparateregulations.However,thelastrevaluationwasallowedon1January1995,basedonadecreeissuedbytheMinistryofFinance.

Theresultofrevaluationofafixedassetisreflectedintherevaluationreserve.Afterthefixedassetisdisposed,theamountremainingintherevaluationreserveistransferredtothereservecapital.Thecostsincurredonanassetalreadyinuse,suchasrepairs,overhaulsoroperatingfees,areexpensedasincurred.

However,thecoststhatincreasetheexpectedfutureeconomicbenefitsofagivenfixedassetbeyondtheoriginalexpectedbenefits,arecapitalisedandincreasethecarryingamountoftheasset.

Tangibleassets,exceptforland,aredepreciatedonastraight-lineorothersystematicbasisovertheassets’estimatedusefullives,orifshorteroverthetermofright.Borrowingcosts(interest)whichrelatetotheconstruction,adaptation,assemblyorimprovementofatangibleassetorintangibleassetarecapitalisedaspartoftheinitialcostoftheasset,wherethoseborrowingsweretakenoutforthat

purpose.Foreignexchangegains/lossesonsuchborrowingsarealsocapitalised.

InvestmentpropertyThedefinitionofinvestmentpropertyincludesproperties,whicharenotusedbytheentityforitsownpurposes,butwhichareheldforthepurposeofgeneratingprofitsthroughcapitalappreciationand/orproceedsfromrental.Investmentpropertyiscarriedatapurchasepricelessdepreciationandimpairmentwrite-offs(costmodel)oratitsfairvalue(fairvaluemodel).Eachentityhasapolicychoiceforthevaluationmodelused.

FairvaluemodelIfthefairvaluemodelisselected,thechangesinthefairvalueofinvestmentpropertyarerecognizedintheincomestatementasotheroperatingcostsorotheroperatingincome(beforetheamendmentstotheActwhichcameintoforceon1January2009changesintheinvestmentpropertyfairvaluewererecognizedthroughequity).

CostmodelIfthecostmodelisapplied,investmentpropertyisrecognizedandsubsequentlymeasuredatacquisitionorconstructioncost,lessaccumulateddepreciationandaccumulatedimpairmentwrite-offs.Landisvaluedatitsacquisitioncostreducedbyimpairmentwrite-offs.Investmentproperties,exceptforland,aredepreciatedonastraight-lineorothersystematicbasisovertheinvestments’estimatedusefullives.



Borrowingcostswhichrelatetotheconstruction,adaptation,assemblyorimprovementofaninvestmentpropertyarecapitalizedaspartofthecostoftheasset,wherethoseborrowingshavebeendrawdownforthatspecificpurposethroughtothedateofthecompletionoftheconstructionorimprovement.

FinancialinstrumentsFinancialinstrumentsareinitiallyrecognisedatacquisitioncost(price),beingthefairvalueoftheconsiderationgiven.Thetransactioncostsareincludedintheinitial value.

Afterinitialrecognition,financialinstruments(includingderivativesandembeddedderivatives)areclassifiedintooneofthefollowingfourcategoriesandmeasuredasfollows:

• Investmentsheldtomaturity–atamortisedcost,calculatedusingtheeffectiveinterestrate

• Originatedloansandreceivables–atamortisedcost,calculatedusingtheeffectiveinterestrate

• Heldfortradinginvestments–atfairvaluewithanyunrealisedgains/lossesrecordedintheprofitandlossaccount

• Availableforsaleinvestments-measuredatfairvaluewithunrealised

gains/lossesrecognisedintheprofitandlossaccountorintherevaluationreserveinequityuntiltheinvestmentissoldorimpairedatwhichtimethecumulativegain/lossisincludedintheprofitandlossaccount–thepolicytobeselected.

Inseparatefinancialstatementsofaparententity,investmentsinsubsidiaries,associatesorjointventuresarecarriedatcost,equityaccounted,oratfairvalue.Ifcarriedatfairvalue,allchangesarerecognisedintherevaluationreserveinequity.

Thefairvalueoffinancialinstrumentstradedonanactivemarketismeasuredbasedonthatmarket’slistedpricesatthebalancesheetdate.Ifthereisnosuchalistedmarketprice,thefairvalueisestimatedbasedonthelistedmarketpriceofsimilarinstrumentsorontheexpectedcashflows.

Hedge transactionsTransactionsinvolvingderivativeinstrumentstohedgeafinancialriskareclassifiedasthreetypesofhedges–cashflowhedges,fairvaluehedgesandahedgeofanetinvestmentinaforeignsubsidiary.Hedgeaccountingappliesaspresentedintable.



InventoriesInventoryismeasuredatlowerofcostandnetrealisablevalue.Capitalisationoffinancialcostsintheinventoryispermittediftheproductionprocessrequiresanecessarylengthyperiodofpreparations.

Foreign currency transactionsTransactionsdenominatedinaforeigncurrency(i.e.notPolishZloty)aretranslatedintoPolishZlotysattheactualexchangerateapplicableatthedateofthetransactionor,iftheactualrateisnotknown,attheratepublishedbytheNationalBankofPoland.

Atthebalancesheetdate,assetsandliabilitiesdenominatedinforeigncurrencies(otherthansharesinsubsidiariesandassociatescarriedusingequitymethod)arere-translatedattheexchangeratepublishedbytheNationalBankofPoland.

Foreignexchangedifferencesarisingonrevaluationaregenerallyrecognisedasfinancialincomeorfinancialexpense.For

certaintypesoflong-terminvestmentsdenominatedinforeigncurrenciesgainsarerecognisedintherevaluationreserve.

Foreignexchangedifferencesrelatingtoliabilitiesfinancingassetsunderconstructionformpartofthecostofthoseassets.

EquityIssuedinstrumentsareclassifiedasequityorliabilitybasedonthetermsandthedefinitionsofliabilityandequity.Additionalcapitalcontributions–regardlessofthetermsofredemptionareclassifiedasequity.Thesharecapitalpresentedinthebalancesheetshouldbeequaltotheamountregisteredintheregistrationcourtandbasedontheshareholders’resolution.

Deferred taxDeferredtaxisrecognised,usingtheliabilitymethod,onalltemporarydifferencesatthebalancesheetdatebetweenthetaxbasesofassetsand

Cash Flow Hedges Fair Value Hedges

Hedge of a net investments in a foreign subsidiary

Hedgeditemrecognised

Inaccordancewithotherstandards.

Atfairvalue,withallchangesrecognisedintheincomestatement.

Inaccordancewithotherstandards.

Hedginginstrumentrecognised

Atfairvalue,witheffectivepartofallchangesinequity.

Atfairvalue,withallchangesrecognisedintheincomestatement.

Atfairvalue,witheffectivepartofallchangesinequity.



liabilitiesandtheircarryingamountsforfinancialreportingpurposes.Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences.Deferredtaxassetsarerecognisedforalldeductibletemporarydifferencesandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailable,againstwhichthedeductibletemporarydifferencesandunusedtaxlossescanbeutilised.

Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthat,accordingtoprovisionsenactedbythebalancesheetdate,willapplyintheperiodwhentheassetisrealisedortheliabilityissettled.TheIncomeTaxesStandardrequiresthatadditionaltaxcreditsgiventocompaniesoperatinginSpecialEconomicZonesarerecognisedasgovernmentgrantsi.e.givingrisetoadeferredincomeanddeferredtaxasset.Suchdeferredincomeistobeamortisedovertheusefullifeoftheasset.

LeasesAleaseisclassifiedasafinanceleaseifatleastoneofthefollowingsevenconditionsismet:

• Thelegaltitleistransferreduponleaseexpiry

• Theassetmaybepurchasedbythelesseeatapricelowerthanthemarketvalueuponleaseexpiry

• Theleasetermislongerthan75%oftheeconomicusefullifeoftheleasedasset

• Thesumofthediscountedminimumleasepaymentsishigherthan90%ofthemarketvalueoftheleasedassetasattheleaseinception

• Theleasecanbeextendedonmorefavourableterms

• Ifcancelled,thelesseebearsallcancellationcosts

• Theassetisadaptedtothespecificneeds of the lessee.

BusinesscombinationsBusinesscombinationsnotundercommoncontrolareaccountedforusingthepurchasemethod.However,thepoolingofinterests’methodmightstillbeusedforlegalmergertransactionsundercommoncontrol.


3.4. Financial statements

FinancialstatementsmustbepreparedinthePolishlanguageandexpressedinthePolishcurrency.Financialstatementsconsistof:

• Abalancesheet

• Anincomestatement

• Astatementofcashflows

• Astatementofchangesinequity

• Notestothefinancialstatements(splitintoanintroductionandadditionalnotes).

Acashflowstatementandastatementofchangesinequityareonlyrequiredbyentitieswhosefinancialstatementsaresubjecttoastatutoryaudit.

Forsomespecialisedtypesofentitiesadditionalexceptionsorrequirementsmightapplyinrelationtoprimaryfinancialstatementssuchasforexampleasummaryofinvestmentsfortheinvestmentfundsandalternativeinvestmentcompanies.


Theformatofthebalancesheet,incomestatement,statementofcashflows,statementofchangesinequity,andthecontentsofnotestothefinancialstatementsforentitiespreparingtheirfinancialstatementsinaccordancewithPolishGAAParedeterminedbytheAccountingAct.CompanieslistedontheWarsawStockExchangewhenpreparingthefinancialstatementsinaccordancewithPolishGAAPareguidedbyspecificregulationsforpublicissuers.ThisincludesreconciliationbetweentheresultsreportedinaccordancewithPolishaccountingprinciplesandthosethatwouldhavebeenmetifIFRSasadoptedbytheEUhadbeenapplied.


3.5. Financial reporting, publication and audit requirements

Financial reportingAllentitiesgovernedbytheAccountingActareobligedtopreparetheirstandaloneandconsolidatedfinancialstatements(thelatteronesonlyifcriteriaapply)foreachfinancialyear.Thefinancialyearneednotbethecalendaryear.Listedcompaniesareadditionallyobligedtopublishsemi-annualandquarterlyreports.Anentitymustalsopreparefinancialstatementsasatthedateofthecloseofaccountingrecordsandasaresultofothereventsleadingtotheterminationoftheactivitiesofanentity,forexample,thecloseofbusiness(liquidationdate).

Thestandaloneandconsolidatedfinancialstatementsshouldbepreparedwithinthreemonthsafterthebalancesheetdateandapprovedwithinsixmonthsafterthebalancesheetdate.



Directors’ reportSpecificentities,suchasforexamplejoint-stockcompanies,limitedliabilitycompanies,selectedpartnerships,mutualinsurancecompanies,co-operatives,state-ownedcompanies,investmentfundsandinvestmentcompaniesprepare,inadditiontothefinancialstatements,afinancialreviewbymanagement–themanagementreport(theDirector’sreport).Thescopeofthereportisdefinedinlegalregulationsandincludestopicssuchas:

• Descriptionofeventsthatsignificantlyimpactupontheentity’sperformanceandthatoccurredduringthereportedperiodandafteritsclosingdatetillthedatethefinancialstatementsareapproved

• Predicteddevelopmentoftheentity

• Majorachievementsintheresearchanddevelopmentarea

• Actualandplannedfinancialsituation,includingfinancialratios

• Detailsabouttransactionsinownshares

• Informationonbranches(businessunits)

• Financialriskmanagementobjectivesandmethods

• Keyfinancialandnonfinancialefficiencymetricsinrelationstooperationsaswellasinformationonemploymentandnaturalenvironment

• Informationontheapplicationofcorporategovernancerules(onlypubliccompanies).

TheReportonPaymentstothePublicAdministrationTheenterprisesoperatingintheminingindustryorloggingthevirginforestsandsatisfyingthecriteriaprovidedintheAccountingActhavetoprepareanadditionalreportonpaymentstothegovernmenttogetherwiththefinancialstatements.Thereportpresentsthetotalpaymentstothegovernmentsofacertaincountryanalysedbythelevelofpublicadministration,typeofpayment,andcertainproject,ifapplicable.

Statementofnon-financialinformationThelistedentitiesthatexceedthegiventhresholdsarealsorequiredtopresentastatementandaconsolidatedstatementofnon-financialinformation.Thisstatementincludesamongothers:

• Descriptionofthebusinessmodel;

• Keynon-financialperformanceratios;

• Descriptionofsocial,environment,humanrightsandanti-corruptionpolicies,theassociatedrisksandtheeffectsofapplicationofthosepolicies.

Thatstatementmaybepublishedontheentity’swebpages.

PublicationrequirementsManagementisrequiredtofiletheannualfinancialstatementstotheregistrationcourttogetherwiththefollowingdocuments:

• Auditor’sopinion,ifthestatementsweresubjecttoanaudit



• Shareholders’resolutionontheapprovalofthefinancialstatementsanddistributionofprofitorcoverageofloss

• Directors’report(ifapplicable)

• Thereportonpaymentstothepublicadministration(ifapplicable).

Ifnotapprovedwithin6monthsafterbalancesheetdate,additionalfillingisrequiredfromtheentitieswhichhavenotmanagedtoapprovetheirfinancialstatementsintheprescribeddates.

ListedcompaniesarealsorequiredtofiletheirfinancialstatementswiththePolishFinancialSupervisionAuthorityincludinginterim(quarterlyandsemi-annual)reporting.

AuditrequirementsPolishstatutoryauditrequirementsapplytoallannualconsolidatedfinancialstatementsandtotheannualstandalonefinancialstatementsofthefollowingentitiesthatoperateasagoingconcern:

• Banks,insurancecompanies,reinsurancecompanies,pensionfunds,investmentfunds(includingalternative,closed,openandspecialisedfunds),investmentfundmanagementcompanies,joint-stockcompaniesandpubliccompanies,paymentinstitutions,brokeragehousesandfirms

• Otherentitiesthatmeetatleasttwoofthefollowingthreethresholdsinthefinancialyearprecedingthefinancialyearforwhichthefinancialstatementsweredrawnup:

• Annualaverageemployment(equivalentof50individualsemployedfull-time)

• Total assets as at the end of the financialyear(thePolishZlotyequivalentofEUR2.5millionorgreater)

• Netsalesincludingfinancialincomeforthefinancialyear(thePolishZlotyequivalentofEUR5millionorgreater

Thestatutoryauditrequirementsalsoapplytoentitiesaftermergerfortheyearwhenthemergeroccurred.

AllstatutoryIFRSfinancialstatementsaresubjecttoauditrequirements.

Therearealsoadditionalrequirementsinrelationtoauditorreviewofinterimfinancialstatementsofpubliccompaniesandinvestmentfunds.

Auditsaregovernedbytherelevantlegalrequirementsinforcewhichinclude:

• Chapter7oftheAccountingAct

• AuditorsAct

• NationalauditingstandardsissuedbytheNationalCouncilofStatutoryAuditors

• Regulation(EU)No537/2014oftheEuropeanParliamentonthecouncilonspecificrequirementsregardingstatutoryauditofpublic-interestentities


3.6. Consolidation

ConsolidationrequirementsAcapitalgroupisagroupwhichcomprisesaholdingcompanyanditssubsidiaries.

AccordingtotheAccountingAct,aholdingcompanyisacompanythatcontrolsanotherentity.

Acapitalgroupdrawsupitsconsolidatedfinancialstatementsonthebasisofstandalonefinancialstatementsofentitiesthatbelongtothegroup.Groupswhich,intheprecedingandcurrentfinancialyears,didnotexceedatleasttwooutofthreeofthefollowingthresholdsbeforeintragroupeliminations:

• annualaverageemployment–equivalentof250individualsemployedinfulltime

• totalassetsofallgroupentities–PLN38.4million

• totalsalesandfinancialincomeofallgroupentities–PLN76.8million

Orafterintragroupeliminations:

• annualaverageemployment–equivalentof250individualsemployedinfulltime

• totalassetsofallgroupentities–PLN32million

• totalrevenueofallgroupentities–PLN64million

areexemptedfromdrawinguptheconsolidatedfinancialstatements.



Asubsidiaryisexcludedfromconsolidationif:• Thesharesinsuchentitywereacquired,

purchasedorotherwiseobtainedforthesolepurposeofsubsequentresalewithinoneyearfromthedateofacquisition

• Thereareseverelongtermrestrictionsontheexerciseofcontrolovertheentitywhichpreventfreedisposalofitsassets,includingnetprofitgeneratedbythisentityorwhichpreventexerciseofcontroloverthebodiesmanagingtheentity

• Itisimpossibletogettheinformationnecessaryforpreparationofaconsolidatedfinancialstatementwithoutdelayincurringunreasonablyhighcost(appliesinexceptionalcasesonly).

Asubsidiaryneednotbeincludedintheconsolidatedfinancialstatementsiftheamountsstatedinthatentity’sfinancialstatementsareimmaterialinrelationtotheholdingcompany’sfinancialstatements.

ConsolidatedfinancialstatementsConsolidatedfinancialstatementscomprise:• Aconsolidatedbalancesheet• Aconsolidatedincomestatement• Aconsolidatedstatementofcashflows• Aconsolidatedstatementofchangesin

equity• Notestotheconsolidatedfinancial

statements(splitintoanintroductionandadditionalnotes).

ConsolidatedfinancialstatementsshouldbeaccompaniedbyaGroupDirectors’report

preparedbytheManagementBoardoftheholdingcompany.GroupDirectors’reportcanbepreparedtogetherwithaDirectors’reportoftheholdingentityasasinglereport.

Consolidatedfinancialstatementsshouldbepreparedatthesamebalancesheetdateandforthesamefinancialyearasthefinancialstatementsoftheholdingcompany.Ifthisdateisnotthesameforallentitieswithinthegroup,thenconsolidationmaycoverfinancialstatementsdrawnupforatwelvemonthperioddifferenttothefinancialyear,ifthebalancesheetdateofthosefinancialstatementsisearlierbynomorethanthreemonthsofthebalancesheetdateadoptedbythegroup.Companiesincludedintheconsolidationshouldadoptconsistentaccountingpoliciesandconsistentmethodsofpreparationoffinancialstatements.Iftheaccountingpoliciesofconsolidatedentitiesdifferfromthoseappliedforconsolidation,thenappropriateadjustmentsmustbecarriedoutattheconsolidationlevel.

Methods to include entities inconsolidatedfinancialstatementsAsubsidiary(seeConsolidationrequirements)isconsolidatedusingthefullconsolidationmethod.Jointlycontrolledentitiesareconsolidatedusingaproportionalconsolidationmethodoraccountedforusinganequitymethod.Associatesareaccountedforusingtheequitymethod.Whentheassociatepreparesitsconsolidatedfinancialstatements,theequitymethodappliestothenetconsolidatedassetsoftheassociate.


3.7. Principal differences between Polish Accounting Regulations and International Financial Reporting Standards

ThemaindifferencesbetweenPolishAccountingRegulations(PAR)andInternationalFinancialReportingStandards(IFRS)effectiveasof1January2017arepresentedinthefollowingtable.



Description PAR IFRS

Functionalcurrency

Functionalcurrencyconceptdoesnotunderliethepreparationofthefinancialstatements

Functionalcurrencyconceptunderliesthepreparationofthefinancialstatements.

PropertyPlantandEquipment

Componentsofproperty,plantandequipmentareneitherspecificallymentionednordefined.Consequently,overhaulsgiverisetoaprovisionaccountedforonacumulativebasis.

Componentaccountingisrequired.Moreover,accountingforoverhaulsfollowscomponentaccountinganddoesnotresultinrecognitionofprovisions.

Fixedassets Fixedassetsmayberevaluedonlyonthebasisofseparateregulationstoavaluenotexceedingthefairvalue.

Fixedassetsmayberevaluedtotheirfairvalue.

Non-currentassetsordisposalgroupsheldforsale

Thereisalackofrequirementsconcerningthevaluationofassetsanddisposalgroupsheldforsale.Depreciationisrequiredforassetsanddisposalgroupsheldforsale.Separatepresentationandspecificdisclosuresarenotrequired.

Measurementatthelowerofcarryingamountandfairvaluelesscoststosell.Non-currentassetsordisposalgroupsthatareclassifiedasheldforsalearenotdepreciated.Presentationinseparatelineofthestatementoffinancialposition.

Inventory CompaniesmaychoosetheLIFOformulaforthedeterminationofthevalueofsoldinventory.

TheuseofLIFOformulaisexplicitlynotpermitted.

Capitalisationofborrowingcosts

Allborrowingcosts,arisingonfinancingoftangibleandintangibleassets,incurredintheperiodofconstruction,arecapitalisedaspartoftheassets’costs.

FXgains/lossesoncapexinvoicesarecapitalised.

Achoiceisgiventocapitaliseborrowingcostsintoinventorywhichtakesconsiderabletimetocomplete.

Capitalisationofborrowingcostsrequiredonspecificandgeneralborrowingstofinancetheconstructionofindividualqualifyingassets.

FXgains/lossesarealsoincludedaspartoftheborrowingcosts,totheextenttheyrepresentanadjustmenttotheinterestcharge.




Investmentproperties

Assetsheldunderanoperatingleasecannotbeclassifiedasinvestmentproperty.Nospecificmeasurementformulasarementioned/allowed.

Assetsheldunderanoperatingleasecanbeclassifiedasinvestmentpropertyandaccountedforasafinancelease.Thefairvaluemodelmustbeappliedinsuchcases.LIFOformulaisnotallowed.

Intangible assets Revaluationtofairvalueisnotpermitted.Allintangibleassetsareamortised.

Revaluationtofairvalueispermittedonlyifthereisanactivemarketinwhichitispossibletoreliablydeterminefairvalue.Intangibleassetsaresplitintothosewithafinitelife–amortised–andthosewithanindefinitelife–notamortisedandsubjecttoanannualimpairmenttest.

Impairmentofassets

Assessedannuallyifthereareindicatorsthattheassets(includinggoodwillandintangibles)maybeimpaired.Assetswritedowntosellingvalueor,ifthatisnotavailable,tofairvalue.

Assessedannuallyifthereareindicatorsthatassetsmaybeimpaired(includinggoodwillandintangibles).Ifindicationsexist,writeassetsdowntothehigheroffairvaluelesscoststosellandvalueinuse.Eveniftherearenoindicators,goodwill,indefinitelifeintangible assets and intangible assetsnotyetinusearesubjecttoan annual test.

Hyperinflation Noadjustmentsforhyperinflationarerequired.

Duringtheperiodofhyperinflation,assetsandliabilitiesarerestatedtoreflectthechangesinthegeneralpriceindex.

BusinessCombinations

Accountedforasanacquisitionintransactionsthatarenotlegalmergersundercommoncontrol.Legalmergersamongentitiesundercommoncontrolmightbeaccountedforusingthe‘poolingofinterests’method.Transactioncostsincreasetheconsiderationpaidforbusinesscombination.Anyresultondecreaseorincreaseofminorityinterestsisrecognisedasfinanceincomeorcosts.

Accountedforasanacquisitioninallcases.CombinationsandlegalmergersamongentitiesundercommoncontrolrequiredevelopingaccountingpolicyinaccordancewithIAS8.Transactioncostsarerecognisedinprofitorloss.Decreaseorincreaseinnon-controllingInterestsisaccountedforwithinequitywithnoimpactonprofitorloss.




Goodwillandadjustmentstofairvalueonacquisitionofsubsidiary

Goodwillonacquisitionisthedifferencebetweenthepurchasepriceandthefairvalueofallassetsandliabilitiesacquired.Changes

intheinitialfairvaluesofacquiredassetsandliabilitieswhichareidentifiedduringthefinancialyearinwhichtheacquisitiontookplaceshouldadjustgoodwill.

Goodwillisamortisedovertheeconomicusefullifeor,iftheeconomicusefullifeisnotreliablydeterminable,thenoveraperiodnotexceeding5years.

Negativegoodwill:

• Relatingtofuturelossesacquiredasdeferredandamortisedovertheperiodof the loss

• Otherwise,uptothevalueofthedepreciableassetsisdeferredandamortisedoverthedepreciablelife

• Balanceisrecognisedasincome

• Notallowedinregardtomeasurementofintangibles.

Goodwillonacquisitionistheexcessof(a)over(b)bellow:

(a) theaggregateof:

(i) theconsiderationtransferred,whichgenerallyrequiresacquisition-datefairvalue;

(ii) theamountofanynon-controllinginterestintheacquiree;and

(iii)inabusinesscombinationachievedinstages,theacquisitiondatefairvalueoftheacquirer’spreviouslyheldequityinterestsintheacquiree

(b) thenetoftheacquisition-dateamountsoftheidentifiableassetsacquiredandtheliabilitiesassumed.

Changesintheinitialfairvaluesofacquiredassetsandliabilitiesifonlyprovisionallyassessedatthedateofacquisition,whichareidentifiedwithin12monthsoftheacquisition,areadjustedagainstgoodwill.Goodwillisnotamortised,butsubjecttoayearlyimpairmenttest.Gainonbargainpurchaseisrecognisedasincome.

Investmentsinsubsidiaries,associatesandjointventuresinseparatestandalone accountsoftheparent

Choiceofpolicybetween:

• Cost• Equityaccounting• Fairvaluewithallchanges

recognizeddirectlyinequity

Choiceofpolicybetween:

• Cost• Equityaccounting• Fairvaluewithallchanges

recogniseddirectlyinothercomprehensiveincome




Financialinstruments

Thefollowingcategoriesoffinancialinstrumentsareavailable:• Loansandreceivablesrestricted

tothosearisingfromprovidingfundstoanotherentity

• Availableforsalefinancialassetsaremeasuredatfairvaluewithachoiceofpolicytorecognisechangesintheincomestatementorequity.Anyimpairmentrecognisedintheincomestatementmaybereversedintheincomestatementatalaterdate

• Heldfortradinginstrumentsarethoseacquiredforthepurposeofgeneratingprofitsfromsaleinashortperiodoftime

• Heldformaturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitythatan entity has the positive intention andabilitytoholdtomaturity

• Otherfinancialliabilities.

Thefollowingcategoriesoffinancialinstrumentsareavailable:• Loansandreceivablesinclude

thosearisingfromsaleofgoodsandmayincludebalancesacquiredinsomecases

• Availableforsalefinancialassetsarevaluedatfairvaluewithchangesrecognisedinequity.Anyimpairmentbelowcostisrecognisedintheincomestatementandforequityinstrumentsmaynotbereversedthroughtheincomestatement

• Financialassetsorfinancialliabilitiesatfairvaluethroughprofitandlossconsistof:

• Heldfortrading• Otherassetsorliabilities

designatedatinceptionandmeetingspecificconditions

• Heldformaturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitythatan entity has the positive intention andabilitytoholdtomaturity

• Otherfinancialliabilities.

Hedging Cashflowhedgesincludeallfirmcommitments.Thebalanceinequityisincludedinthecarryingvalueoftheacquiredasset/liability.

Cashflowhedgesincludefirmcommitmentsonlyrelatingtoforeignexchangerisk–allothercommitmentsarefairvaluehedges.

Thebalanceinequityremainsinequityuntiltheunderlyingtransactioneffectstheincomestatement.

Ifthefirmcommitmentwasforanon-financialassetorliability,thereisachoiceofpolicytoadjustthecarryingvalueoftheasset/liabilityortokeepthebalance.




Investmenttaxcredits

Investmenttaxcreditsusedgiverisetoadeferredtaxassetandatthesametimearerecognisedasagovernmentgranttobeamortisedovertheusefullifeoftheasset(perstandardissuedbyAccountingStandardsCommittee).

Unusedinvestmenttaxcreditsgiverisetoadeferredtaxassetandaffectthetaxchargeintheyeargranted.

Share–basedpayments

Thereisalackofrequirementsconcerningshare-basedpaymentsaccounting.Thepracticeisnottoaccountforequity-settled’transactionsandtorecogniseaprovisionforcash-settledtransactions.

Share-basedpaymentstransactionsincludingtransactionswithemployeesorotherpartiestobesettledincash,otherassetsorequityinstrumentsoftheentityarerecognisedgenerallygivingrisetoexpensesintheentitiesfinancialstatements.

InanymattersnotregulatedbytheAccountingLawortheDecreesanentitymayapplyNationalAccountingStandardsissuedbytheAccountingStandardsCommittee.Intheabsenceofrelevantnationalregulations,theentitymayapplyInternationalFinancialReportingStandards.


3.8. Selected Aspects of Accounting for Real Estate under International Financial Reporting Standards

IntroductionNowadays,anumberofrealestateentitiesapplyIFRSfortheiraccountingandreportingpurposes.CompaniesreportingunderInternationalFinancialReportingStandards(IFRS)continuetofaceasteadyflowofnewstandardsandinterpretations.ThevolumeofchangestoIFRSissignificantandislikelytocontinueintheforeseeablefuture.Thenatureofthechangesrangesfromsignificantamendmentsoffundamentalprinciplestosomeminorchangesincludedintheannualimprovementsprocess.Theywillaffectmanydifferentareasofaccountingofrealestateentitiessuchasthepresentationoffinancialstatements,financialinstruments,leases.Someofthechangeshaveimplicationsthatgobeyondmattersofaccounting,astheymayimpactbusinessdecisions,suchasthedesignofjointarrangementsorthestructuringoftransactions.Thechallengeforpreparerswillbetogainanunderstandingofwhatliesahead.

BelowweconcentrateontheimplicationsoftheIFRS13,15,16and17fortherealestate



IFRS13doesnotprescribewhichvaluationtechniquemustbeusedinaparticularcircumstance.Thevaluationtechniqueusedtomeasurefairvalueshouldbeappropriateforthecircumstances,andoneforwhichsufficientdataisavailable.Valuationtechniquesthataretypicallyusedincludethemarketapproach,theincomeapproachandthecostapproach.Themarketapproachusespricesandotherrelevantinformationgeneratedbymarkettransactionsinvolvingidenticalorcomparableassets.Inincomeapproach,thevaluationisbasedonestimatedfutureincomeandprofitorcashflows.Thecostapproachreflectstheamountthatcurrentlywouldberequiredtoreplacetheservicecapacityofanasset(oftenreferredtoascurrentreplacementcost).

RealestateentitiesmaybeaffectedbyIFRS13invariousaspectsoftheirbusinesswhen:

• Measuringpropertyinterestsatfairvalue

• Testingpropertyinterestsforimpairment

• Determiningthefairvalueofidentifiableassetsandliabilitiesaspartofthepurchasepriceallocationappliedinabusinesscombination

• Measuringaninterestinarealestatejointventureorassociateatfairvalue

• Compilinganddisclosinginformationonthefairvaluesofpropertyinterests,includingbutnotlimitedtosignificantassumptions,adjustmentstounobservableinputsandqualitativeandquantitativesensitivityanalysis.

Regardlessofwhethervaluationsareperformedexternallyorinternally,

andconstructionindustries,whichhaverecentlybroughtsomesignificantchanged.

IFRS 13 Fair value measurements–implicationsforthe real estate sectorIFRS13wasissuedbytheInternationalAccountingstandardsBoardinMay2011andstartedtobeeffectiveforannualperiodsbeginningonorafter1January2013.IFRS13describeshowtomeasurefairvalueunderIFRSwhenitisrequiredorpermittedbyIFRS.Thestandarddoesnotchangewhenanentityisrequiredtousefairvalue,butprovidesaframeworkforsituationswhereanotherstandardrequiresorpermitsfairvaluemeasurements.

IFRS13definesfairvalueasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdateundercurrentmarketconditions(i.e.anexitprice)regardlessofwhetherthatpriceisdirectlyobservableorestimatedusinganothervaluationtechnique.

Thefairvaluemeasurementassumesthatmarketparticipantshavesufficientknowledgeandawarenessoftheassetoraliabilitythatwouldbeusualandcustomaryinsuchamarkettransaction.Thedefinitionemphasizesthatthefairvalueshouldbebasedonmarketmeasurements,maximizingtheuseofobservablemarketinputs,suchasquotedprices.Iftheobservablemarketinputsarenotavailable,othervaluationtechniquesshould be applied.



managementmustunderstandthemethodologiesandassumptionsusedinthevaluationsanddeterminewhethertheassumptionsarereasonableandconsistentwiththerequirementsofIFRS13.

IFRS13requiresanentitytomaximizetheuseofrelevantobservableinputsandminimizetheuseofunobservableinputs.IFRS13alsoincludesafairvaluehierarchybasedontheinputsusedtodeterminefairvalueasfollows:

• Level1–quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.

• Level2–inputsotherthanquotedmarketpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectlyorindirectly.

• Level3–unobservableinputs(valuationtechniquesthatdonotmakeuseofobservableinputs).

ManyoftheIFRS13disclosuresarerequiredforeachclassofassets(andliabilities).IFRS13requirestheseclassesofassets(andliabilities)bedeterminedbasedon:

(a) thenature,characteristicsandrisksoftheassetorliability;and

(b) thelevelofthefairvaluehierarchywithinwhichthefairvaluemeasurementiscategorized.

Thedeterminationoftheappropriateclassofassetswillrequiresignificantjudgement.Atoneendofthespectrum,thepropertiesinanoperatingsegment(asdefinedbyIFRS8OperatingSegments)maybeaclassofassetsforthepurposeofthedisclosuresrequiredbyIFRS13.This

maybethecaseevenifthereisalargenumberofpropertiesinthesegment,ifthepropertieshavethesameriskprofile(e.g.,thesegmentcomprisesresidentialpropertiesincountrieswithpropertymarketsofsimilarcharacteristics).Attheotherendofthespectrum,IFRS13disclosuresmayberequiredforindividualpropertiesorsmallgroupsofpropertiesiftheindividualpropertiesorgroupsofpropertieshavedifferentriskprofiles(e.g.,arealestateentitywithtwoproperties–anofficebuildinginadevelopedcountryandashoppingcentreinadevelopingcountry).

Upcomingstandards:IFRS9,IFRS 15 and IFRS 16 – brief summary

FinancialInstruments(IFRS9)Thenewfinancialinstrumentsstandardintroduceschangestotheaccountingforcreditlosses,includingtherelateddisclosures.Thenewfinancialinstrumentsstandardalsointroduceschangestohowfinancialassetsaremeasuredonanongoingbasistoalignwiththeasset’scashflowcharacteristicsandthebusinessmodelinwhichtheassetisheld.

Thenewstandardwasdevelopedinresponsetoconcernsofmanyinvestorsandotherstakeholders,bothduringandaftertheglobalfinancialcrisis,thatthereneededtobemoretimelyrecognitionofexpectedcreditlossesforloansandotherfinancialinstruments.Inmeasuringexpectedcreditlossesunderthenewstandard,issuerswillberequiredtousereasonableandsupportableinformationthatisavailabletothemwithoutunduecostoreffort,



includingnotonlypasteventsandcurrentconditionsbutalsoforecastsoffutureeconomicconditions.

RevenuefromContractswithCustomers(IFRS15)Thenewrevenuestandardprovidesclearerandmoredetailedprinciplesforrevenuerecognitionanddisclosureinaframeworkthatisdesignedtoimprovecomparabilityofrevenueamountsoverarangeofindustries,companies,andgeographicalboundaries.Thestandardcansignificantlychangeanissuer’stimingforitsrecognitionofrevenue,amongotherchanges.

Revenueisoftennotonlyakeyperformancemeasureinitsownrightbutalsothestartingpointforotherperformancemeasures,suchasoperatingincome,netincome,andearningspershare;keyanalyticalratiossuchasmargins,returnonequity,andreturnonassets;andvaluationmetrics,suchasrevenuemultiplesandprice-to-earningsratios.Asaresult,thenewrevenuestandardhasthepotentialtochangenotonlyanissuer’stopline,butalsoitsbottomlineandinvestoranalysesthatdependonthefinancialstatements.

Leases(IFRS16)CompanieswillneedtochangecertainleaseaccountingpracticeswhenimplementingIFRS16Leases,thenewleasesstandardissuedbytheInternationalAccountingStandardsBoard(IASB).IFRS16significantlychangestheaccountingforleasesbylesseesandcouldhavefar-reachingimplicationsforE&Centities’financesandoperations.Forexample,IFRS16mayrequiresomeentitiestorecognizeassetsandliabilitiesforleasesofconstruction

equipmentandofficespacetheycurrentlyaccountforasoperatingleases.

Lessoraccountingissubstantiallyunchangedfromcurrentaccounting.AswithIAS17Leases,IFRS16requireslessorstoclassifytheirleasesintotwotypes:financeandoperatingleases.Leaseclassificationdetermineshowandwhenalessorrecognizesleaserevenueandwhatassetsalessorrecords.Theprofitorlossrecognitionpatternforlessorsisnotexpectedtochange.Thiswillbeareliefformanyentities,because,basedontheIASB’sdiscussionsduringtheprojectdeliberations,lessorswereconcernedabouttheextentofthechangesinlessoraccounting.

IFRS16requireslesseestorecognizemostleasesontheirbalancesheetsasleaseliabilitieswithcorrespondingright-of-useassets.Lesseesapplyasinglemodelformostleases.Generally,theprofitorlossrecognitionpatternwillchangeasinterestanddepreciationexpenseisrecognizedseparatelyinthestatementofprofitorloss(similartotoday’sfinanceleaseaccounting).However,lesseescanmakeaccountingpolicyelectionstoapplyaccountingsimilartoIAS17’soperatingleaseaccountingto‘short-term’leasesandleasesof‘low-value’assets.

IFRS16iseffectiveforannualperiodsbeginningonorafter1January2019.Earlyapplicationispermittedprovidedthatthenewrevenuestandard,IFRS15RevenuefromContractswithCustomers,hasbeenorisappliedatthesamedateasIFRS16.LesseesmustapplyIFRS16usingeitherafullretrospectiveoramodifiedretrospectiveapproach.


3.9.Exemptionsandsimplificationsapplicable for smallandmicroentities

DefinitionsIn2015,anewdefinitionofasmallenterprisewasintroducedtotheAccountingActinadditiontothedefinitionofamicroenterprise.Microandsmallenterprisesarelegalentitiesandthebranchesofforeigncompanies(exceptfororganisationalunitsoperatinginaccordancewiththeBankingLawActandtheregulationsontradinginsecurities,oninvestmentfunds,oninsuranceandreinsuranceactivities,oncreditunions,ontheorganisationandoperationofpensionfundsoronpublicbenefitorganisations)which,intheprecedingandcurrentfinancialyears,didnotexceedatleasttwoofthefollowingthresholds,providedthatrespectiveresolutionhasbeentakenbytheentity’sbodyresponsibleforapprovingthefinancialstatements:

Micro Small

total assets PLN 1.5 million

PLN 17 million

totalrevenues PLN3million

PLN34million

annualaverageemploymentlevel(individuals in full timeequivalent)

10 50



Moreover,tradeunions,employers’organisations,chambersofcommerce,andrepresentativeofficesofforeigncompaniesareconsideredmicroentitiesonaconditiontheydonotconductbusinessactivities.

Ifthestatutoryauditrequirementisaconsequenceofcompany’ssizeratherthanotherfactorsthenitshouldbenotedthatsomeofsmallentitiesorentitiesthatenjoyexemptionsinmeasurementofassetsandliabilitiesasdescribedbelowmightbesubjecttostatutoryauditasthresholdstoqualifyforsuchsimplificationsandexemptionsarehigherthantheseforthestatutoryauditrequirement.

Microentitiesareprohibitedfrommeasuringassetsandliabilitiesatfairvalueandatamortisedcost.

Irrespectivelyfromthedecisionofwhetherthecompanyisasmall,oramicro,entityandappliestherespectivesimplifiedfinancialstatementstemplate,thecompaniesthat,intheprecedingfinancialyears,didnotexceedatleasttwooftheabove-mentionedthresholds,mayapplythefollowingexemptions.

However,ifsuchanentitydidnottakearespectiveresolutiontoapplythefinancialstatementstemplatesapplicabletosmallandmicroentities,itshouldapplythenormalfinancialstatementstemplates.

FinancialinstrumentsCompaniesthatsatisfythosecriteriamayelecttomeasurethefinancialinstrumentsinasimplifiedwayasfollows:

• Short-terminvestments–atthelowerofcostormarketvalue,atfairvalueor

atamortisedcost(ifamaturitydateisknown)withgains/lossesrecognisedintheprofitandlossaccount

• Long-terminvestments–atacquisitioncostlessimpairmentoratfairvaluewithgains/lossesrecognisedintherevaluationreserveinequityorintheprofitandlossaccount(ifthecurrentvaluationislowerthanoriginal).Ifamaturitydateisknown,longterminvestmentsmightbestatedatamortisedcost.

Deferred taxThosecompaniesmayelectnottorecognisedeferredtax.

LeasesThosecompaniesareallowedtoapplytaxregulationsinordertorecogniseandclassifyleases.

FinancialstatementsSmallandmicroentitiespreparesimplifiedfinancialstatementsinaccordancetotherelevanttemplateprovidedasanattachmenttotheAccountingAct.

RevenuesandprofitsMicroentitiesarerequiredtoincreaserespectivelytherevenuesorexpensesinthesubsequentfinancialyearaftertheapprovaloffinancialstatements,bythedifferencebetweentherevenuesandexpensesdeterminedinthecurrentfinancialyear’sincomestatement.

Apositivedifferencemaybeaccountedforasanequityincrease.



Cash-flowstatementandstatementofchangesinequityMicroandsmallenterprisesareexemptedfrompreparationstatementofchangesinequityandcashflowstatement.

Directors’ reportSmallentitiesarerequiredtoprepareasimplifiedDirectors’report,oratleastdisclosetheminimumadditionalinformationrequiredbytheAccountingAct.

MicroentitiesarenotrequiredtoprepareaDirectors’reportiftheypresentsupplementaryinformationtothebalancesheet,asrequiredbytheAccountingAct.


Contact

REAL ESTATE GROUP

AnnaKicińska

[email protected]

+48225577542

AnnaKicińskaisaPartnerandLeaderforCSERegionoftheEYRealEstateAdvisoryGroupresponsibleforrealestateTransactionSupport,StrategicAdvisoryandRealEstateM&A.Shehasovernineteenyearsofrealestateexperienceinvaluation,transactionsupport,marketanalysis,andcorporaterealestatemanagement.SheisacertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS)andCertifiedCommercialInvestmentMember(CCIM).

Anna Andrzejewska

[email protected]

+48225577543

AnnaAndrzejewskaisaSeniorManagerintheRealEstateAdvisoryGroup.Shespecializesinstrategicadvisoryconsultancyintherealestatesector,especiallyinthepreparationandimplementationofthestrategyofcorporateportfoliodevelopmentandmanagementaswellasininvestmentprocessmanagement.ShegraduatedfromtheUniversityofŁódźwithMaster’sdegreeinFinanceandBankingandspecializationinInvestmentsandRealEstate.Shecompletedapost-graduateSchoolofRealEstateValuationatWarsawSchoolofTechnology.Sheisacertifiedpropertymanager.


PawełNowakowski

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+48225576616

PawełNowakowskiisaManagerintheRealEstateAdvisoryGroup.GraduateoftheWarsawSchoolofEconomics,PawełobtainedaMasterdegreeineconomics(specialization:enterprisemanagementandRealEstate).Pawełgainedmarketexperienceworkingforseveralglobalrealestatecompaniesandstrategicconsultancyfirm.Hehasconductednumerousvaluationsforinternal,investmentandloansecuritypurposes,embracingbothsingleassetaswellasportfolioofoffice,retailwarehouseandhotelproperties.HeiscertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS).

[email protected]

+48225576645

DominikWojdatisaManagerintheRealEstateAdvisoryGroup.Hehasbroadexperienceinprovidingbothdevelopersandinvestorswithmarket,highest&bestuseandfeasibilitystudiesforcommercialaswellasresidentialproperties.Dominikalsoconductedvaluationsforaccounting,investmentandloansecuritypurposes.HegraduatedfromFacultyofGeographyandRegionalStudiesatUniversityofWarsaw.Hecompletedapost-graduatepropertymanagementstudiesatWarsawSchoolofTechnologyandbecameacertifiedpropertymanager.DominikisCertifiedCommercialInvestmentMember(CCIM).

KatarzynaLubaś

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+48225576706

KatarzynaLubaśisaMarketingandBusinessDevelopmentCoordinatorintheRealEstateAdvisoryGroup.SheisresponsibleforPRandnewbusinessdevelopmentactivities,marketresearchandinvestorrelations.

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ASSURANCE SERVICES

ŁukaszJarzynka

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+48225578429

ŁukaszisanExecutiveDirectorinWarsawOfficeandEYRealEstateGroupAuditLeaderinPolandandCSERegion.Łukaszhasover11yearsofexperienceinauditandisPolishCharteredAccountant.Hegainedcomprehensiveexperienceinauditingbothlargeandmultinationalgroups,aswellassmallerprivateclients,IPO/SPOtransactionsandauditoflistedcompanies,withfocusontherealestatemarket.Łukaszisco-authorof“Therealstateofrealestate”book–TheRealEstateGuidepublishedbyEY.

MariuszKędzierski

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+48225576242

MariuszisanexperiencedManagerinAssuranceDepartmentandmemberoftheRealEstateGroupatEY’sWarsawoffice.Mariuszhasover8yearsofexperienceinauditandisatfinalstageofgainingPolishCharteredAccountantqualifications(10/10examspassed,duringlastapplicationphase).Mariuszspecializesinauditsofclientsfromrealestatemarket(realestategroups/funds,listedresidentialandrealestatedevelopers).MariuszhasalsoexperienceinIPOauditsofrealestategroups.

HubertRogoziń[email protected]

+48225778471

HubertisaManagerwithinEYAssuranceandAdvisoryBusinessServicespractice.HehasaMasterDegreeinFinanceandBankingWarsawSchoolofEconomics,Poland;MemberofAssociationofCharteredCertifiedAccountants;InthefinalstageofqualificationsforPolishCertifiedAuditor;MemberofEYPolandRealEstateGroup.HubertgainedexperiencedurignauditsandreviewsofcapitalgroupsreportingunderUSGAAP,InternationalFinancialReportingStandardsandPolishAccountingStandards,includingpubliclylistedcompanies.

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ACCOUNTING ADVISORY AND TECHNICAL DESK SERVICES

Anna [email protected]

+48225577936

AnnaleadsFinancialAccountingAdvisoryServicesinPoland.Shehas22yearsofprofessionalexperienceasanauditorandaccountingexpert.SheisPolishCharteredAccountant,CertifiedInternalAuditor,memberofACCAandmemberofAccountingStandardsCommitteeinPoland(appointedbytheMinisterofFinance).SheisinvolvedasIFRSsubjectmatterexpertduringauditsofmultinationalgroups,listedcompaniesaswellassmallerprivateclientsoperatingonrealestatemarket.SheparticipatedinnumerousIPOs,mergersandacquisitionswithaccountingadvisoryservices.

Robert [email protected]

+48225577158

RobertisaSeniorManagerinTechnicalDeskatEY’sWarsawoffice.RobertholdsprofessionalACCAcertificatesince2007.Heaccumulatedmorethan25yearsofcomprehensiveworkingexperienceincludinghigh-andmiddle-managementpositionsinfinanceandaccountingdepartmentsofinternationalcompanies.ForseveralyearsheledandprovidedinputtotheEuropeanIFRSendorsementprocessesinparticularrelatedtoleases,revenuerecognitionandfinancialinstruments.InEYheprovidestechnicaladviceonapplicationoftheaccountingactandIFRSsandIFRStechnicalreviewoffinancialstatements.

TAX SERVICES

TomaszOżdziński

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+48225576922

TomaszOżdzińskiistheheadoftheTaxRealEstateGroupofEYinPolandandamemberofEY’sTransactionTax(M&A)Team.HeisagraduateoftheFacultyofLawandAdministrationoftheUniversityofAdamMickiewiczinPoznańandanExecutiveProgrammeinRealEstateattheSolvayBrusselsSchoolofEconomics&ManagementatUniversitéLibredeBruxelles.Tomaszisacertifiedtaxadvisorandhastwodecadesofexperienceinmanaginglarge,complexprojects,includinginparticulartransactionservicesandtaxoptimizations,undertakenbothlocallyandinternationally.

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Sebastian Ickiewicz

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+48225577524

SebastianisanExecutiveDirectorinInternationalTaxationGroupandTaxRealEstateGroupatEY’sWrocławoffice.Heisacharteredtaxadvisorandhas14yearsofexperienceintaxadvisory.Sebastian’smanagedandsupervisednumeroustaxbuy-sideorvendorduediligenceprojects,taxstructuringprojectsandpost-closingreorganisationsandoptimisations(mergers,de-mergers,disposalsofassets,etc.).HewasinvolvedinthebiggesttransactionalprojectsonthePolishmarketforcorporateclientsandinvestmentfunds,especiallyintherealestateandtelecommunicationssector.

Anna Pleskowicz

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+48225577904

AnnaPleskowiczisaSeniorManagerinInternationalTaxServicesGroupandTaxRealEstateGroupatEY’sWarsawoffice.ShehasbeenwithEYsince2004.Sheisacertifiedtaxadvisor.Herskillsincludeadvisingonglobalrestructurings,internationaltaxstructuringandplanning(corporateissues,financingetc.),providingtaxadvisoryservicesondomestictaxlaw.In2008AnnaworkedasPolishTaxDeskinNewYork.Annaisaco-authorofthebook“TaxationoftheRealEstateMarket”andco-authorofthebook„Internationaltaxplanning”,anauthorofvariouspressarticlesrelatingtotaxissues.

MichałSawicki

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+48225577026

MichalSawickiisaSeniorManagerinTaxRealEstateGroupatEY’sWarsawoffice.HehasbeenwithEYsince2007.Heisacertifiedtaxadvisor.Hisskillsincludeadvisingonglobalrestructurings,transactionsupportandstructuring,taxaccounting.Hewasinvolvedinprojectsconcerningtaxissuesinrelationtotheprocessofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios,internationaltaxstructuring.Michalisanauthorofvariousarticlesrelatingtotaxaspectsofinvestingontherealestatemarketandco-authorofthebook“TaxationoftheRealEstateMarket”.

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Daniel Banach

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+48225577815

DanielisaTransactionTaxManagerandmemberofTaxRealEstateGroupatEY’sWarsawoffice.HeisacharteredtaxadvisorandACCAmemberwithnearly8-yearexperienceintaxadvisory.Hisprofessionalexperienceincludesbothbuy-sideandsell-sideadvisoryforcorporatesandprivateequity.Headvisedduringleveragedrealestateacquisitions,divestmentsandmultinationaltaxstructuringprojects.Danielalsoadvisedontaxefficientexitstrategiesforrealestatecompaniesaswellasdebt-pushdownstructures.Hehasalsoconsiderableexperienceinrefinancinganddebtrestructuringprojectsconductedinaninternationalenvironment.Danielwasalecturerandtutoronmanytaxconferencesandmeetings.Heisalsoanauthorandco-authorofnumerousprofessionalpublicationsinpress.

MichałKoper

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+48225577024

MichałKoperisaSeniorManagerwithinInternationalTaxServicesDivisionandRealEstateGroupofEYinWarsaw.HehasbeenwithEYsince2006.From2013to2015heheldapositionatErnst&YoungLLP’sInternationalTaxServicesgroupbasedinNewYorkwhereheledthePolishtaxdesk.HeisacertifiedPolishtaxadvisor.HisprofessionalskillsincludeadvisingontaxplanningforinternationalinvestmentsinPoland,taxeffectiveownershipstructuresandfinancingschemes,globalrestructurings,providingtaxadvisoryservicesondomestictaxlaw.Hewasinvolvedinprojectsconcerningtaxaspectsofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios.Michałisaco-authorofthebook“TaxationoftheRealEstateMarket”andauthorofvariousarticlesrelatingtotaxissues.

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MikołajBokowy

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+48225577439

MikolajisaTransactionTaxManagerandmemberofTaxRealEstateGroupatEY’sWarsawoffice.Heisacharteredtaxadvisorandalegalcounselwithover7-yearexperienceintaxadvisory.Hisprofessionalexperienceincludes:numerousstructuringandtaxduediligenceprojects,day-to-daytaxadvisory,assistanceinre-financingschemes,implementationofthestep-upstructuresandrestructuringsofbusinesses(suchasmergers,spin-offs,etc.).Heassistedinmanyinvestment/dis-investmentprojectsforrealestateclientsandinvestmentfunds.

LEGAL SERVICES

Zuzanna Zakrzewska

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+48225577816

Zuzannaisanadvocatewithfifteenyearsofexperienceinlegaladvisoryfordomesticandinternationalentitiesfromdifferentsectors.Shehasextensiveexperienceinprovidinglegalsupportanddaytodaylegaladvisestocompaniesparticularlyfromtherealestate,financialservicesandenergysector.ZuzannaspecializesinprovidinglegalassistancerelatedtothecorporatelawincludingrestructuringprocessesandM&Atransactions.Shehasadvisedinanumeroustransactionsinvolvingtheacquisitionofcompaniesandassetsrelatedtorealestatebothonthebuyersandsellersside.Zuzannaalsoadvisedclientsduringprocessesofexaminationoflegalstatusoftherealestateaswellasduringnegotiatingoftheleaseagreements.

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BarbaraChochołowska

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+48225577592

BarbaraChochołowskaisalegalcounselwithelevenyearsofexperienceinworkingfordomesticandinternationalentitiesfromdifferentsectors.DuringyearsofpracticeBarbarahasworkedonavarietyofcomplexcorporateandrealestate-relateddealsinvolvingmulti-jurisdictionalandinternationalmatters.

TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Shehasstrongexperienceinprovidinglegalsupportrelatedtotherealestatemattersincludingtherealestateduediligenceandthetransactionsoftherealestateacquisitions(i.e.boththeassetandthesharedealtransactions).Shealsosupportsclientsindraftingandnegotiatingtheleaseagreementsandthemanagementcontractsofcommercialandindustrialspaces.

PiotrWoźniak

[email protected]

+48713751022

PiotrWoźniakisalegalcounselwithsixyearsofexperienceinrealestateandpropertydevelopmentlegalaspects.AgraduateoftheFacultyofLawattheUniversityofWrocław.PiotralsocompletedpostgraduatestudiesoncommercialcompanieslegalregulationsatUniversityofWrocławandpostgraduatestudiesonlegalaspectsofconstructionprocessattheWarsawSchoolofEconomics.BeforejoiningEYPiotrwasworkinginrealestatedepartmentsintwohighqualitylawfirmsinWarsaw.Piotrspecializesinrealestatetradinglaw,spatialplanningandlanddevelopmentlawandconstructionlaw.Piotradvisesclientsonmatterrelatingtopropertypurchase,locationofdevelopmentsandcontractingwitharchitectsandconstructioncompanies.Heisresponsibleforcomprehensiveadviceonpreparationstageofdevelopmentprojectsanddaytodayproblemsconnectedwithdevelopmentprocess.Hehasstrongexperienceinprovidinglegalsupportrelatedtocommercializationofshoppingcentersandofficespacelease.Piotrhasalsoadvisedininfrastructureprojectsi.e.windfarms,shellgasplatformsandgastransmissionnetworks.

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KatarzynaKłaczyńska

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+48225577961

KatarzynaKłaczyńska,LL.M.,isanattorneyspecializinginenergyandenvironmentalmatters.Shehasadvisedonanumberofhigh-profileregulatoryprojects,includingactingasaleadingcounselforpowersectorcompaniesandthePolishgovernmentregardingclimatechangeregulationsanddevelopingadvocacystrategyconcerningrevisionofthecurrentEnvironmentalImpactAssessmentmodelonbehalfoftheBusinessAssociationofPolishPowerPlants.Shehasworkedonanumberofenvironmentalandregulatoryduediligenceprojectsforthevarietyofsectors.Sheisalsoexperiencedinenvironmentalaspectsofshalegasinvestments.

KatarzynaisamemberoftheNewYorkBar.ShegraduatedfromJagiellonianUniversityinPoland,andHarvardLawSchool,whereshewasgrantedGammonFellowshipforAcademicExcellence.

Magdalena Kasiarz-Lewandowska

[email protected]

+48225576207

MagdalenaKasiarz-LewandowskaisanadvocateandaSeniorAssociateinEYLawwithtenyearsofexperienceinadvisingonthesale,reorganizationandliquidationofcompanieswithinternationalcapital(conductingM&Atransactionsandlegalaudits),advisingontherestructuringofcapitalgroups,includingmergers,divisionsandtransformationsofcompanies,aswellascross-bordermergers.Sheadvisedinnumeroustransactionsonsharesandassetsrelatedtorealestatebothonthebuyersandsellersside.Shealsospecializesinprovidingtheongoinglegalassistanceinthescopeofcivillawandcompanylaw,includingpreparationandnegotiationofleaseandserviceagreements.

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Contact

Joanna Toruniewska

[email protected]

+48124243264

JoannaToruniewskaisalegalcounselwithmorethanfiveyearsofexperienceinadvisingfordomesticandinternationalentitiesfromdifferentsectors.TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Sheassistedtheentrepreneursintherealestatetransactions,includingduediligencebeforetherealestateacquisitions,preparingandnegotiatingdifferenttypesofrealestateagreements(i.e.saleandpurchaseagreements,leaseagreements)aswellasadvisingoninvestmentfinancing.Shealsorepresentedtheclientsbeforethecourtsduringthecasesregardingtherealestateissues.




Appendix


Withholding tax rates under Poland’s double tax treaties (payments from Poland)1

Dividends (%) Interest (%) Royalties (%)

Albania 5/10(d) 10 5Algeria(gg) 5/15(d) 0/10(k) 10Armenia 10 5 10

Australia 15 10 10

Austria 5/15(a) 0/5(k) 5

Azerbaijan 10 10 10

Bangladesh 10/15(a) 0/10(k) 10

Belarus 10/15(e) 10 0

Belgium 5/15(cc) 0/5(k) 5

Bosnia&Herzegovina 5/15(y) 10 10

Bulgaria 10 0/10(k) 5

Canada 5/15(a) 0/10(pp) 5/10(qq)

Chile 5/15(c) 15(dd) 5/15(h)(ee)

China 10 0/10(k) 7/10(h)

Croatia 5/15(d) 0/10(k) 10

Cyprus 0/5(oo) 0/50(k) 5

CzechRepublic 5 0/5(k) 10

Denmark 0/5/15(s) 0/5(k) 5

Egypt 12 0/12(k) 12

Ethiopia(gg) 10 10 10

Estonia 5/15(d) 0/10(k) 10

Finland 5/15(y) 0/5(k) 5

France 5/15(a) 0 0/10(p)

1Generallyeffective1January2017.



Georgia 10 0/8(k) 8

Germany 5/15(jj) 0/5(k) 5

Greece 19 10 10

Hungary 10 0/10(k) 10

Iceland 5/15(y) 0/10(k) 10

India 15 0/15(k) 20(bb)

Indonesia 10/15(c) 0/10(k) 15

Iran 7 0/10(k) 10

Ireland 0/15(kk) 0/10(k) 0/10(v)

Israel 5/10(b) 5 5/10(h)Italy 10 0/10(k) 10Japan 10 0/10(k) 0/10(i)

Jordan 10 0/10(k) 10

Kazakhstan 10/15(c) 0/10(k) 10

Korea(South) 5/10(a) 0/10(k) 5

Kuwait 0/5(z) 0/5(k) 15

Kyrgyzstan 10 0/10(k) 10

Latvia 5/15(d) 0/10(k) 10

Lebanon 5 0/5(k) 5

Lithuania 5/15(d) 0/10(k) 10

Luxembourg(ii) 0/15(oo) 0/5(k) 5

Macedonia 5/15(d) 0/10(k) 10

Malaysia 0 15 15

Malta 0/10(hh) 0/5(k) 5

Mexico 5/15(d) 0/10/15(k)(aa) 10

Moldova 5/15(d) 0/10(k) 10

Mongolia 10 0/10(k) 5

Morocco 7/15(d) 10 10

Netherlands 5/15(a) 0/5(k) 5

NewZealand 15 10 10

Nigeria(gg) 10 0/10(k) 10

Norway 0/15(hh) 0/5(k) 5

Pakistan 15(j) 0/20(k) 15/20(n)



Philippines 10/15(d) 0/10(k) 15

Portugal 10/15(o) 0/10(k) 10

Qatar 5 0/5(k) 5

Romania 5/15(d) 0/10(k) 10

RussianFederation 10 0/10(k) 10(w)

SaudiArabia 5 0/5(k) 10

Singapore 0/5/10(oo)(tt) 0/5/10(k) 2/5(h)

SlovakRepublic 5/10(c) 0/10(k) 5

Slovenia 5/15(d) 0/10(k) 10

SouthAfrica 5/15(d) 0/10(k) 10

Spain 5/15(d) 0 0/10(f)

SriLanka 15 0/10(k) 0/10(l)

Sweden 5/15(d) 0 5

Switzerland 0/15(ll) 0/5/10(mm) 0/5/10(nn)

Syria 10 0/10(k) 18

Tajikistan 5/15(d) 10 10

Thailand 19(t) 0/10/20(k)(m) 5/15(f)

Taiwan 10 0/10(k) 3/10(h)

Tunisia 5/10(d) 12 12

Turkey 10/15(d) 0/10(k) 10

Ukraine 5/15(d) 0/10(k) 10

UnitedArabEmirates 0/5(z) 0/5(k) 5

UnitedKingdom 0/10(ff) 0/5(k) 5

UnitedStates 5/15(g) 0 10

Uruguay(gg) 15 0/15(k) 15

Uzbekistan 5/15(c) 0/10(k) 10

Vietnam 10/15(d) 10 10/15(q)

Yugoslavia(u) 5/15(y) 10 10

Zambia(gg) 10/15(d) 10 10

Zimbabwe 10/15(d) 10 10

Nontreatycountries 19 20 20(x)


(a) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast10%ofthepayer.

(b) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast15%ofthepayer.

(c) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast20%ofthepayer.

(d) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast25%ofthepayer.

(e) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsmorethan30%ofthepayer.

(f) Thelowerrateappliestoroyaltiespaidforcopyrights,amongotheritems;thehigherrateappliestoroyaltiesforpatents,trademarksandindustrial,commercialorscientificequipmentorinformation.

(g) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownsatleast10%ofthevotingsharesofthepayer.

(h) Thelowerrateappliestoroyaltiespaidfortheuseof,ortherighttouse,industrial,commercialorscientificequipment.

(i) Thelowerrateappliestoculturalroyalties.

(j) Thisrateappliesiftherecipientofthedividendsisacompanythatownsatleastone-thirdofthepayer.

(k) The0%rateappliestoamongotheritems,interestpaidtogovernmentunits,localauthoritiesandcentralbanks.Inthecaseofcertaincountries,theratealsoappliestobanks(thelistofexemptorpreferredrecipientsvariesbycountry).Therelevanttreatyshouldbeconsultedinallcases.

(l) The0%rateappliestoroyaltiespaidfor,amongotheritems,copyrights.The10%rateappliestoroyaltiespaidforpatents,trademarksandforindustrial,commercialorscientificequipmentorinformation.

(m) The20%rateappliesiftherecipientoftheinterestisnotafinancialorinsuranceinstitutionorgovernmentunit.

(n) Thelowerrateappliestoknow-how;thehigherrateappliestocopyrights,patentsandtrademarks.

(o) The10%rateappliesif,onthedateofthepaymentofdividends,therecipientofthedividendshasownedatleast25%ofthesharecapitalofthepayerforanuninterruptedperiodofatleasttwoyears.The15%rateappliestootherdividends.

(p) Thelowerrateappliestoroyaltiespaidforthecopyright,theuseofortherighttouseindustrial,commercialandscientificequipment,servicescomprisingscientificortechnicalstudies,researchandadvisory,supervisoryormanagementservices.Thetreatyshouldbecheckedinallcases.

(q) Thelowerrateappliestoknow-how,patentsandtrademarks.

(r) Thelowerrateappliestocertaindividendspaidtogovernmentunitsorcompanies.

(s) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast25%ofthecapitalofthepayerofthedividendsforatleastoneyearandifthedividendsaredeclaredwithinsuchholdingperiod.The5%rateappliestodividendspaidtopensionfundsorothersimilarinstitutionsoperatinginthefieldofpensionsystems.The15%rateappliestootherdividends.


(t) BecausetherateunderthedomesticlawofPolandis19%,thetreatyrateof20%doesnotapply.

(u) ThetreatywiththeformerFederalRepublicofYugoslaviathatappliedtotheUnionofSerbiaandMontenegroshouldapplytotheRepublicsofMontenegroandSerbia.

(v) Thelowerrateappliestofeesfortechnicalservices.

(w) The10%ratealsoappliestofeesfortechnicalservices.

(x) The20%ratealsoappliestocertainservices(forexampleadvisory,accounting,marketresearch,legalassistance,advertising,managementandcontrol,dataprocessing,searchandselectionservices,guaranteesandpledgesandsimilarservices).

(y) Thelowerrateappliesifthebeneficialownerisacompany(otherthanapartnership)thatcontrolsdirectlyatleast25%ofthecapitalofthecompanypayingthedividends.

(z) Thelowerrateappliesiftheownerofthedividendsisthegovernmentoragovernmentinstitution.

(aa) The10%rateappliestointerestpaidtobanksandinsurancecompaniesandtointerestonbondsthatareregularlyandsubstantiallytraded.

(bb) BecausetherateunderthedomesticlawinPolandis20%,thetreatyrateof22.5%doesnotapply.

(cc) Thelowerrateappliesiftherecipientofthedividendsisacompanythatownseitherofthefollowing:

• atleast25%ofthepayer• atleast10%ofthepayer,providedthevalueoftheinvestmentamountstoatleast€500,000orits

equivalent(dd) Thetreatyrateis15%foralltypesofinterest.However,underamost-favored-nationclausein

aprotocoltothetreaty,the15%rateisreplacedbyanymorebeneficialrateagreedtobyChileinatreatyenteredintowithanotherjurisdiction.Forexample,underChile’staxtreatywithSpain,a5%rateappliestocertaintypesofinterestpayments,includinginterestpaidtobanksorinsurancecompaniesorinterestderivedfrombondsorsecuritiesthatareregularlyandsubstantiallytradedonarecognizedsecuritiesmarket.

(ee) Thegeneraltreatyrateforroyaltiesis15%.However,underamost-favored-nationclauseinaprotocoltothetreaty,the15%rateisreplacedbyanymorebeneficialrateagreedtobyChileinatreatyenteredintowithanotherjurisdiction.Forexample,underChile’staxtreatywithSpain,thegeneralwithholdingtaxrateforroyaltiesis10%.

(ff) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsatleast10%ofthesharecapitalofthepayerofthedividendsforanuninterruptedperiodofatleasttwoyears.

(gg) Thetreatyhasnotyetenteredintoforce.

(hh) The0%rateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsonthedateonwhichthedividendsarepaidandhasheldthecapitalorwillholdthecapitalforanuninterrupted24-monthperiodthatincludesthedateofpaymentofthedividends.

(ii) Thewithholdingtaxrateslistedinthetableareeffectivefrom1September2013.

(jj) Thelowerrateappliesiftherecipientofthedividendsisacompany(otherthanapartnership)thatownsdirectlyatleast10%ofthepayer.Certainlimitationstotheapplicationofthepreferentialratesmayapply.

(kk) Thelowerrateappliesifthebeneficialownerofthedividendsisacompanythatholdsdirectlyatleast25%ofthevotingpowerofthepayer.UndertheIrelandtreaty,ifIrelandleviestaxatsourceondividends,the0%rateisreplacedbyarateof5%.


(ll) The0%rateappliestodividendspaidtoacompany(otherthanapartnership)thatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsonthedatethedividendsarepaidandhasdonesoorwillhavedonesoforanuninterrupted24-months.The0%ratemayalsoapplytodividendspaidtocertainpensionsfunds.

(mm)The10%rateappliestointerestpaidbefore1July2013.Forinterestpaidonorafter1July2013,the5%rateappliesunlessanexemptionapplies.The0%rateappliestosuchinterestifanyofthefollowingconditionsissatisfied:

• thebeneficialowneroftheinterestisacompany(otherthanapartnership)thatholdsdirectlyatleast25%sharecapitalofthepayeroftheinterest.

• thepayeroftheinterestholdsdirectlyatleast25%ofthesharecapitalofthebeneficialowneroftheinterest.

• anEU/EEAcompanyholdsdirectlyatleast25%ofthesharecapitalofboththebeneficialowneroftheinterestandthepayeroftheinterest.

(nn) Forroyaltiespaidbefore1July2013,the10%rateappliesifSwitzerlandimposesinitslocalprovisionsawithholdingtaxonroyaltiespaidtononresidents.Otherwise,a0%applies.Forroyaltiespaidonorafter1July2013,a5%rateappliesunlessanexemptionapplies.The0%rateappliestosuchroyaltiesifanyofthefollowingconditionsissatisfied:

• thebeneficialowneroftheroyaltiesisacompany(otherthanapartnership)thatholdsdirectlyatleast25%ofthesharecapitalofthepayeroftheroyalties.

• thepayeroftheroyaltiesholdsdirectlyatleast25%ofthesharecapitalofthebeneficialowneroftheroyalties.

• anEU/EEAcompanyholdsdirectlyatleast25%ofthesharecapitalofboththebeneficialowneroftheroyaltiesandthepayeroftheroyalties.

Furthermore,ifPolandentersintoanagreementwithanEUorEEAcountrythatallowsittoapplyaratethatislowerthan5%,suchlowerratewillalsoapplytoroyaltiespaidbetweenPolandandSwitzerland.

(oo) Thelowerrateappliesifthebeneficialownerisacompany(otherthanapartnership)thatholdsdirectlyatleast10%ofthecapitalofthecompanypayingthedividendsforanuninterruptedperiodof24months.

(pp) The0%rateappliesto:

• interestarisinginPolandandpaidtoaresidentofCanadawithrespectofaloanmade,guaranteedorinsuredbyExportDevelopmentCanada,oracreditextended,guaranteedorinsuredbyExportDevelopmentCanada,

• interestarisinginCanadaandpaidtoaresidentofPolandwithrespectofaloanmade,guaranteedorinsuredbyanexportfinancingorganizationthatiswhollyownedbytheStateofPoland,oracreditextended,guaranteedorinsuredbyanexportfinancingorganizationthatiswhollyownedbytheStateofPoland,

• interestarisinginPolandorCanadaandpaidtoaresidentoftheotherContractingStateinrespectofindebtednessarisingasaresultofthesalebyaresidentoftheotherContractingStateofanyequipment,merchandiseorservices(unlessthesaleofindebtednessisbetweenrelatedpartiesorwherethebeneficialowneroftheinterestisapersonotherthanthevendororapersonrelatedtothevendor).

(qq) Thelowerrateappliestocopyrightroyaltiesandsimilarpaymentswithrespectoftheproductionorreproductionofliterary,dramatic,musicalorartisticworkandroyaltiesfortheuseof,or


therighttouse,anypatentorforinformationconcerningindustrial,commercialorscientificexperience(withsomeexceptions).

(rr) TheagreementwiththeSocialistFederalRepublicofYugoslaviashouldapplytoBosnia-Herzegovina.

(ss) The5%rateappliesiftherecipientisacompany(otherthanapartnership)thatholdsdirectlyatleast25%ofthecapitalofthecompanypayingthedividends.

(tt) The0%rateappliestodividendspaidtoGovernmentofSingaporeorGovernmentofPoland,whichincludes:

• MonetaryAuthorityofSingapore,• theGovernmentofSingaporeInvestmentCorporationPteLtd,• NationalBankofPoland,• BankGospodarstwaKrajowego,• astatutorybody,• anyinstitutionwhollyormainlyownedbytheGovernmentofSingaporeorbytheGovernment

ofPolandasmaybeagreedfromtimetotimebetweenthecompetentauthoritiesofContractingStates.

Notes


Notes


Notes


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Documents

The Polish Real Estate Guide Edition 2017 Poland · Preface EY, a global leader in assurance, tax, transaction, advisory and legal services prepared this guide to the Polish real