Poland Poland is a medium size country in Europe. The Polish flag is white and red.
The Polish Real Estate Guide Edition 2015 Poland › Publication › vwLUAssets › The...Poland –...
Transcript of The Polish Real Estate Guide Edition 2015 Poland › Publication › vwLUAssets › The...Poland –...
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The Polish Real Estate GuideEdition 2015
Poland The real state of real estate
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Preface
page 1
Polish Real Estate Market1.1. Officemarket 3
1.2. Retailmarket 10
1.3. Warehousemarket 15
1.4. Residentialmarket 19
1.5. Investmentmarket 23
1.6. KeycitiesinPoland 30
Legal and tax aspects of investing in real estate2.1. Legalbackground 44
2.2. Investmentvehiclesandstructures 50
2.3. Realestatefinancing 61
2.4. Acquisitionofrealestate–assetdealandsharedeal 74
2.5. Developmentandconstruction 88
2.6. Operationandexploitation 99
2.7. Exitingtheinvestment 107
2.8. Saleandleaseback 108
2.9. Duediligenceaspartoftheacquisitionprocess 110
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3Accounting aspects of investing in the Real Estate market3.1. Polishaccountingregulations 121
3.2. SelectedAspectsofAccountingforRealEstate underInternationalFinancialReportingStandards(applicableforannualperiodsbeginningon 1January2013) 134
3.3. SelectedIFRSissuesandtheirimplicationsfor realestateentities 152
Contact
page 160
Appendix
page 170
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Preface
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EY, a globalleaderinassurance,tax,transaction,advisoryandlegalservicespreparedthisguidetothePolishrealestatemarket.Thisguideaimstoprovideitsreaderswitha broadviewofthemarketandthecurrentinvestmentclimate,aswellaslegalandtaxinformation,ina practicalformattohelpyoumakeinformedinvestmentdecisions.OurcombinedexpertiseinthismarkethasenabledustoproducewhatwehopewillbecomeanindispensablereferencetoolonthestateofthePolishrealestatemarket.
Inconjunctionwiththeviewscontainedinthisguide,itisimportanttoseekcurrentanddetailedinformationonthecommercialclimateatthetimeofconsideringyourinvestment,asthiscanchangeatanytime.Thisguidereflectsinformationcurrentasof1January2015unlessstatedotherwise.
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Polish Real Estate Market
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1.1.OfficemarketPoland–general
Followingmajorreformsin1992,Polandexperiencedaboomineconomicactivityinthe1990s.Likeothermarkets,themodernofficemarketbegantoemergewithaninitialwaveofnewofficeconstructionstartinginthefinancialandpoliticalcapital–Warsaw.
Until1996,annualsupplyremainedbelow50,000m2, whichwassubstantiallylessthantherapidlyincreasingdemand.Becauseofthedifficultlocaldevelopmentandfinancingconditions,supplywasinitiallyslowtorespond.Thesecondhalfofthedecadeshowedarapidincreaseinsupply,asPolanddemonstrateditspoliticalstabilityandsoundeconomicfundamentals.Therapidincreasescontinuedintothefirstpartofthisdecade,initiallyaddressingpent-updemandfromdecadesoflowsupply,butlaterresultinginanofficeoversupplyinmanymajorcitiesandtownsinPoland.Generally,rentswereinsteadydeclinefromthe1990suntil2005.Therunupto2009showedareversalofthistrend,withindicationsofamaturingofficemarketwherenewbuildingscometomarketinamoretimelyresponsetodemand,thusstabilizingrentsandvacancies.Althoughthefinancialcrisistemporarilyaffectedthesituation,WarsawremainsbyfarthelargestofficemarketinPolandandstillattractsmajordevelopmentactivity.Ontheotherhand,otherregionalbusinesscentershaveenteredthepathofstrongeconomicgrowth,increasinginterestinmodernofficeaccommodationeveninsmallercitiesandtowns.OnthemajorityofPolishofficemarkets2011wasoneoftheweakestyearsintermsofnewsupply.Thestrictlendingcriteriaimplementedbybanksafter2008verifiedmostoftheinvestmentprocesses.Currentlyconstructionactivityisrecoveringquickly.Theannuallevelofnewsupplyin2013amountedtonearly670,000m2,whichrepresentedsignificantlyhighergrowthincomparisontopreviousyears.Theleveloftotalcompletionsin2013wasthehighestyearlyvaluerecordedinPolandsince2000.
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13,0
6,0
11,510,5
13,7
7,5
13,8
15,8
10,4
0
5
10
15
20
25
-
500 000
1 000 000
1 500 000
2 000 000
2 500 000
3 000 000
3 500 000
4 000 000
4 500 000
5 000 000
Warsaw Krakow TriCity Wroclaw Poznan Lodz Katowice Szczecin Lublin
Supply Rents Vacancy rate (%)
Rent
s in
EUR
/m2 /m
onth
Supp
ly in
m2
Source: EY
Office market in Poland
Newsupplyin2014amountedto600,000m2,buttakingpipelineintoconsideration,growingtrendshallcontinueinfollowingyears.Asfarasnewprojectsunderconstructionandproposedareconcerned,in2014thebiggestconstructionactivitywasobservedinWarsaw,Kraków,Tri–CityandKatowice.
Focus on Warsaw
ThemodernofficemarketinWarsawstartedtodeveloprapidlyatthebeginningofthe1990sinresponsetothePolishpoliticaltransitionandeconomicreforms,followedbyagrowthperiodduringrecentyears,inwhichtheWarsawareaplayedamajorrole.
Becauseofitscentralfunctionsandconvenientlocation,thePolishcapitalcityhasreceivedasignificantshareoftheinflowofforeigncapital.Largeforeigncompanies,includingvariousfinancialinstitutions,consultingcompanies,aswellasinternationalfirms,usuallychooseWarsawasalocationoftheirheadquartersinPoland.Inaddition,Warsawhastraditionallybeenthemostimportantadministrativeandbusinesscenterfordomesticcompanies.Thisledtorapid
growthofdemandformodernofficespaceinthecity,whichintheperiodfrom1990untilthefirsthalfof1998resultedin98%to100%occupancyratesaswellasoneofthehighestrentallevelsforofficespaceamongEuropeancities.
Supply
Theendof1998markedthefirstdramaticdateformodernofficespace,whenoverthecourseofoneyearthemodernofficesupplydoubledfromthe300,000m2completedbetween1989and1997to680,000m2.Twoyearslater,stockrosetoapproximately1,360,000m2andalthough54%ofthiswasinthecitycenter,2001markedtheendofthecentrallocation’sdominanceinnewannualsupply.Withtheexceptionof2003,annualdeliveryofmodernofficespaceinnon-centrallocationsexceededcentral,andthetrendcontinuedthrough2013.Attheendoffirsthalfof2013,thetotalmodernofficespaceinWarsawhasexceeded4millionm2,withnon-centrallocationsaccountingforaround70%.WarsawremainsthemostmatureofficemarketinPolandwithatotalofficestockofapproximately4.4millionm2.
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Source: EY
Annual delivery of modern office space (m2) in Warsaw
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-
50 000
100 000
150 000
200 000
250 000
300 000
350 000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Vac
ancy
rat
e
Supl
ly in
m2
Non-central City center Vacancy
Asthesupplyofnewspacereachedandsurpasseddemand,themarketsawvacancyratesrisetoveryhighlevels.Startingfrombetween4and6%in1998,thebuildingboomfrom2000to2002helpedvacancyratesriseasfaras20%inthecitycenterand16%intheoutskirts.Asthemarketstabilized,andnon-centrallocationsbecamethenormratherthantheexception,centralandnon-centrallocationsfluctuatedbackandforthbetween15and19%,withnon-centrallocationsfallingbelowthe10%mark(7%onaverage)in2004.
Regardlessoftheproportionofcentraltonon–centrallocations,theoverallvacancylevelinWarsawhassystematicallydecreasedfrom2002until2007,whencentralandnon-centralvacancyratesstoodatthe3.4%and2.9%respectively.Withthecrisescameareversalofthistrend,in2008and2009vacanciesdoubledtoover7%overall.In2010,vacancyrateremainedstableatthelevelof8%.Duetogrowingdemandforofficeaccommodationandlimitedcompletionsin2011,thevacancyrateinWarsawfellandreached6.7%.Howeverattheendof2012,approximately8.8%wasunoccupied.Duetothesignificantvolume
ofnewprojectscompletedin2014,thevacancyrateexceeded13%.Itisexpectedthatthevacancylevelwillrisewithinthenextfewyears.
Onthebasisoflocation,themodernofficestockinWarsawcanbedividedintotwogroups:centralandnon–central.Thecitycenterisboundbyul.Towarowa,ul.Grójecka,ul.Wawelska,al.ArmiiLudowej,theVistulaRiverandal.Solidarności.Themostsignificantofficebuildingslocatedwithinthisareainclude:Rondo1,Lumen,Skylight,Metropolitan,WarsawFinancialCenter,FocusFiltrowa,WarsawTradeTower,SpektrumTower,PlacUniiandAtrium1.Non–centralofficelocationsincludeMokotów,Ochota,Wola,WłochyandPragadistrict.Intheselocations,WiśniowyBusinessPark,BusinessGarden,TrinityPark,MarynarskaBusinessPark,PlatiniumBusinessPark,PoleczkiBusinessPark,CristalPark,JerozolimskieBusinessParkandLipowyOfficeParkwarrantcloserattention.
Yearlynewstockpeakedin2000when360,000m2wasaddedtosupplyandtherehasbeenyear-on-yeargrowthsince2005,when120,000m2ofnewsupplywasadded.
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Major office developments completed in 2014
Name Location Area (m2) Developer
GdańskiBusinessCentreNon-central InflanckaSt.
46,000 HBReavis
EurocentrumOfficeComplexI
Non-centralJerozolimskieAve.
38,700 CapitalPark
WarsawSpireBCentralGrzybowska/TowarowaSt.
20,000 Ghelamco
NimbusOfficeNon-centralJerozolimskieAve.
19,500 Immofinanz
Atrium1Central JanaPawłaIIAve.
16,500 Skanska
ParkRozwojuINon-centralKonstruktorskaSt.
16,000 EchoInvestment
Source: EY
Accordingtoprojectannouncements,morethan300,000m2ofmodernofficespacewillentertheWarsawmarketin2015.However,thatpredictionissubjecttoanumberofvariables,asdevelopers(andtheirlenders)takeamorecautious
approachtospeculativeprojects.Itisexpectedthatsomeoftheseprojectswillbedelayeduntilsuchtimewhenreasonablelevelofpre-leasinghasbeenachieved.
Theyear2010sawthecompletionofover200,000m2ofnewstock,thoughthiswasplannedwellbeforethecrisisandtheseprojectshadsecuredfinancinginadvanceofnowstricterlendingcriteria.In2011approximately120,000m2weredeliveredtothemarket.Themajorityofspaceisinofficebuildingslocatedoutsideofthecitycenter.In2012themarketwitnessedahighergrowthinnewofficesupply,whichamountedto270,000m2.
In2013arecordamountofnewofficespacedeliveredtothemarketwasobservedexceeding300,000m2.Year2014broughtslightslowdowninnewsupplywithnearly280,000m2ofnewspace.Similarlytopreviousyears,mostofthenewofficebuildingsweresituatedinnon-centrallocations.ThereisexpectedthatWarsawwillstrengthenitspositionintermsofnewofficesupplyoverthenextfewyears.
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Demand
Thedemandformodernofficespacecomesmainlyfrom:
• PolishandforeigncompanieswhoarebasedinPolandandhaveparticipatedintherapideconomicgrowth;
• newentrantsintothePolishmarket,particularlyevidentin2004,justafteraccessiontotheEuropeanUnionandagainduring2007and2008;
• thenew“ServicesandInformationEconomy”acceleratingtheneedforup–to–dateofficespace.PolandinparticularhasbenefitedfromBusinessProcessOffshoring(BPO);
• stateentitieswhicharemoreandmoreinterestedinleasingofficespaceratherthanoccupyingself-owned,oldandlowqualitybuildings.
Growthsurgedin2007,withtake–upreachingalmost500,000m2.Take-upmoderatedto525,000m2in2008and
Major office developments under construction
Name Location Total office area (m2) Developer
WarsawSpireC&A Central Grzybowska/TowarowaSt. 95,000 Ghelamco
GenerationPark Central Wronia 84,000 Skanska
Q22 Central JanaPawłaIIAve. 55,000 EchoInvestment
GdańskiBusinessCenterII
Non-central InflanckaSt. 45,000 HBReavis
Postępu14 Non-central PostępuSt. 33,700 HBReavis
AstrumBusinessPark
Non-central ŁopuszańskaSt. 30,000 Prochem
RoyalWilanów Non-central Klimczak/PrzyczółkowaSt. 28,000 CapitalPark
DomaniewskaOfficeHub
Non-central DomaniewskaSt. 27,000 PHN
EurocentrumOfficeComplexII
Non-central JerozolimskieAve. 25,000 CapitalPark
Wołoska24 Non-central Wołoska 21,000 Ghelamco
Atrium2 Central Rondo ONZ 20,000 Skanska
PrimeCorporateCenter
Central GrzybowskaSt. 20,000 GolubGetHouse
Source: EY
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bytheendofthatyearsymptomsofadecliningmarkethademerged,particularlyforofficespaceintheWarsawcitycenter.In2009thetotalvolumeofleasingtransactionsamountedto210,000m2,orapproximately40%ofthepreviousyear’svolume,withamarketrelegatedtomainlysmallleasetransactions.
Currently,demandismuchlessdrivenbybusinessexpansionandratherincreasinglybytenantsrelocatingeithertoimprovetheiraccommodationortoreducecostbyoptimizingspace.Duetothecrisisin2008/2009manytenantsreducedtheirspaceandwereseekingtosublettheexcess.Thissituationchangedin2010,when,duetoamorepositiveeconomicenvironmentandoptimisticforecasts,demandhasrecovered.In2013recordofamountofofficespace(633,000m2)wereleased.In2014demanddroppedby3%to612,000m2,butaccordingtoforecastsdemandwilcontinuetoincreaseinthenearfuture.
Rents
Alongtheclassicsupplyanddemandmodel,rentsinthelate1980sandearly
1990sescalatedasPolandopeneditsborderstoforeigninvestment,andsupplyofmodernofficespacewasextremelylimited.Demandforofficespacepushedrentstotheirpeakin1991ofUSD50/m2/monthforofficespaceofrelativelypoorquality.
Withsuchlimitedsupplyavailable,therewaslittlesegmentationintheWarsawofficemarket,resultinginbothcentralandnon-centrallocationshavingsimilarrentrates.
Thefirstbuildingboomofthelate1990spushedoverallrentsdown,butitwastheintroductionofout-of-townofficeparksaround1996,thathelpeddifferentiatepricesbetweencentralandnon-centrallocations.Thelate1990snoticedrentsformoderncitycenterofficestypically25%to30%higherthanfornewofficesinout–of–townlocations.However,notallofthedifferencecanbeaccountedforbylocationalone,asnon-centrallocationswerebuiltformoreprice–conscioustenantsreadytoacceptalowerstandard.
Thesecondpartoftheboomintheearly21stcenturybroughtwithitadditionalincreasesinsupplyandafurtherdropinoverallrentlevels.Thistemporarilypushedthegapbetweenlocationscloser,butmore
Prime office rents & cumulative office supply
Source: EY
Rent
s in
EUR
/m2 /m
onth
Supp
ly in
m2
0
5
10
15
20
25
30
35
40
45
0
500 000
1 000 000
1 500 000
2 000 000
2 500 000
3 000 000
3 500 000
4 000 000
4 500 000
5 000 000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Supply
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demandingclientshelpedraisethestandardofcentrallocationsandtwoaltogetherseparatemarketsemerged.
Currencieshavealsoplayedaroleintheleasingmarket.IntheearlyyearslowstandardpropertieswerepricedinPLN,withhigherstandardpropertiesgearedforinternationalclientelebeingdenominatedinDMorUSD.SinceaccessionintotheEU,theEurohasbecomePoland’sstandardreferencecurrencyforleases.Today,rentsforcentrallylocated,highqualityofficebuildingsarebetweenEUR20and24/m2/month.
CurrentrentsforprimeofficespacelocatedoutsideofthecitycenterrangefromEUR11to15/m2/month.Asexpectedinatoughmarket,newrentalcontractsarebeingsignedwellbelowaskingrates.Oursourcessuggesttypicaleffectiverentsareroughly15-25%lowerthanaskingrents.Askingrentsdependmainlyonlocation,buildingstandard,sizeandlengthofleaseterm.
Duetothegrowingdevelopmentactivityandnumberofnewprojectsscheduledforcompletionin2015,itisexpectedthattherentalratesmaydecrease,especiallyinthecentrallocations.Asaresultofintensecompetitionamonglandlords,thedifferencebetweenaskingandeffectiverentsmayincrease.
Standard lease terms
Thefollowingtermsformodernofficebuildingsareregardedascommonfeatureswithinatypicalleaseagreement:
• sincetheintroductionoftheEUR,mostnewleaseshavebeendenominatedinEUR,butpaidinPLNasregulatedby
Polishlawuntil2009(seesectiononlegalandtaxaspects);
• rentsaresubjecttoannualindexationonthebasisoftheconsumerpriceindexintheEurozone(MUICP,HICP);
• servicechargesincludingwater,electricity,heating,air–conditioning,service,cleaning,etc.areaddedtonetrentsandcalculatedaccordingtothearealeased.TheseratesgenerallyvaryfromEUR3.5to5.5/m2/month;
• achargeforcommonspaceisusuallyaddedtothenetofficespace.Thischargecalculationisbasedontheproratashareofcommonspaceused(lift,lobby,reception).Such“add–onfactors”generallyvaryfrom5%to10%oftheleasedarea;
• inadditiontorentandservicecharges,tenantsareobligedtopay23%ValueAddedTax(VAT);
• landlordsusuallyrequiretenantstoprovidearentaldepositorbankguaranteeequalto3-6monthrent;
• leasesrangefrom3to10years;typicalcontractsare5years,withatrendtowardlongerleasesforlargertenantsandnewdevelopments;
• Incentivesfortenantsarecurrentlyacommonpracticeandtheirrangeissubjecttoindividualnegotiations,whichdependmostlyonthesizeoftheoccupiedpremisesandthetermoftheleaseagreement.Typicalleaseincentivesinclude:
• rent–freeperiodofapprox.1monthper1yearofleaseormore;
• fit-outallowanceofapprox.EUR150–200perm2ofnetofficespace.
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1.2.Retailmarket
Poland – General
Polishretailmarkethasundergonesubstantialchangesinrecentyears,particularlyinlargerurbanareas.Fromjustalimitednumberofstate–ownedandsmallprivateenterprisesatthebeginningofthe1990s,thesupplyhasgrowntoencompassanincreasingnumberofinternationalretailchainsandgoodqualitylocaloutlets.
Foreignshoppingcenteroperators,investorsanddevelopershavemovedacrossnationalbordersinordertoaccessneworlesscompetitivemarketsortoexploitmarketniches.Inthiscontexttheownershipofshoppingcenters,aswellasthemixofretailtenants,isbecomingincreasinglyinternational.
Intheearly1990sPolishretailsupplygrewtosatisfythedemandforfood.ThisledtothearrivalofinternationalbrandsupermarketsincludingBilla,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).Moreover,anexpansionofdiscountstoresrepresentedbyLidl,PlusDiscount,NettoandBiedronkahasbeenobserved.
Currently,thetotalmodernretailsupplyaccountsfor12.4millionm2.AlthoughthelargestshareintheretailmarketisheldbyWarsawfollowedbyothermaincitiessuchasTri–City,Poznań,Wrocław,Kraków,ŁódźandKatowice,investorshavebeenseekingopportunitiesinsmallercities,
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thusmoreandmoreprojectsarebeingopenedandbuiltintownssuchas:Leszno(GaleriaGoplana),Lublin(AtriumFelicity,TarasyZamkowe),JeleniaGóra(GaleriaSudecka,NowyRynek),StarogardGdański(GaleriaNeptun),Olsztyn(GaleriaWarmińska),Kalisz(GaleriaAmber),Ełk(BramaMazur)andPiła(GaleriaVIVO!).
Modernretailspacecompletedin2014amountedtoaround450,000m2. Majornewopeningswithspaceabove40,000m2includedAtriumFelicity(Lublin)andGaleriaWarmińska(Olsztyn).Majorprojectsinthepiplinewithopeningplannedinyears2015-2016areGaleriaPosnania(Poznań),ZieloneArkady(Bydgoszcz),TarasyZamkowe(Lublin)andSukcesja(Łódź).
Developer’sactivityinsmallandmediumcitieshasbeenobservedforafewyears.Theactualamountofspacethatwillbedeliveredtothemarketin2015willdependuponavailabilityoffinancingandtenantdemandforretailspace.Apartfromthemedium-sizeretailprojectsthemarketistendingtowardstheopeningof“stripmalls”(conveniencecenters)-smallretailparkswithanareanotexceeding5,000m2,oftenlocatedintheregionalcitiesandconstitutingcompetitionforregularshoppingcenters.
Asinpreviousyearsin2014trendconsistingmodernizationand/orextensionofexistingshoppingmallshasbeenobservedonthemarket.Themainextensionscompletedin2014wereextensionsofGeminiPark(BielskoBiała)andCHRywal(BiałaPodlaska).Expansionsbeingunderconstructionare
AtriumPromenada(Warsaw),WolaPark(Warsaw)FactoryUrsus(Warsaw),Ogrody(Elbląg),AtriumCopernicus(Toruń),GaleriaSudecka(ex.CHEchoinJeleniaGóra),MagnoliaPark(Wrocław)andGaleriaPomorska(Bydgoszcz).
Supermarketsorhypermarketsarestillthepreferredformulaforanchortenancy,althoughanincreasingnumberofprojectsarelookingtowardsentertainmentfunctionstodecreasegroceryretailingasthebasicdemanddriver.Standardcomplementaryfunctionsstillincludegalleryshops,servicepoints,andafoodcourt.
Overthelastfewyears,newretailformattypeshavealsoemerged,includingshoppingcenterswithachoiceofinteriordecorationbrands(e.g.DomotekainWarsaw),DYIstores(Jula,Castorama,OBI,Praktiker,LeroyMerlin)andretailparks.Themarketforretailoutletcentershasbeendevelopingrapidlyoverthelastfewyears.Twelvecentersarecurrentlyinoperationinthesurroundingareasoflargercities.Theyareoperatedmainlybythreechains-FactoryOutlet,FashionHouseOutletCentreandOutletCenter.Themainschemesdeliveredtothemarketin2014wereOutletCentersinLublinandBiałystok.ThemostsignificantoutletcenterunderconstructionisextensionofFactoryUrsusinWarsaw.
Moreover,someofthelargesthypermarketoperatorslikeTescoorCarrefourhavebeenintroducingnewformatssuchasmini-hypermarketsandsupermarkets(e.g.CarrefourExpressandCarrefourMarket).
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Inresponsetotherapiddevelopmentofsupermarketanddiscountchainsacrossthecountry.Astothegeographicaldistribution,developmentsfeaturingahypermarketaretypicallybuiltoutsideofthecitycenterwhiledowntownmallsusuallyofferonlyasupermarket.
Themajorhyperandsupermarketchainsintermsofsalesrevenuesinclude:MetroAG(MakroCash&Carry,MediaMarkt,Saturn),JeronimoMartins(Biedronka,Hebe),Tesco,Carrefour,AuchanGroup(Auchan,Real,Simply),SchwarzGroup(Lidl,Kaufland),EmperiaHolding(Stokrotka,Milea),ITM(Intermarche,Bricomarche),E.Leclerc.
Focus on Warsaw
TotalmodernretailsupplyinWarsawexceeds2.1millionm2, but only approximately1.6millionm2ofitcould
beconsidered“modern”retailspacesuitableforinternationaloccupiers.Thisequatestoaround1m2oftotalretailspaceperperson,whicheventakingintoconsiderationthedisposableincomeofWarsaw’sinhabitants,ismuchlowerthaninmajorWesternEuropecities,wheretheratioisonaverage2m2perperson.Modernretailspaceincludesshoppingmallsandhypermarkets,mostofwhicharelocatedoutsidethecitycenter.
Theremainingretailersoccupymostlyretailunitssituatedonthegroundfloorsofresidentialbuildingsordepartmentstoresbuiltbeforethe1990s.
LimitednewretaildevelopmentswererecordedinWarsawin2013and2014.Apartfromthe5,000m2extensionofGaleriaMokotówandopeningofPlacUniiShoppingCenter(15,500m2)(bothin2013),therewasnootherkeydevelopments.
Major shopping centers in Warsaw
Name Location Area (m2) Owner Completion
Arkadia Śródmieście JanaPawłaIIAve. 110,000 Unibail-Rodamco 2004
BlueCity OchotaJerozolimskieAve. 82,000 Singspiel PhaseI–2004
PhaseII-planned
WolaPark Wola GórczewskaSt. 73,000 InterIkeaCenter
PolandPhaseI–2002PhaseII-planned
AtriumPromenada
PragaPołudnieOstrobramskaSt. 66,000 AtriumEuropean
Real Estate
PhaseI–1996PhaseII–1999PhaseIII–2005PhaseIV-planned
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Name Location Area (m2) Owner Completion
ZłoteTarasy Śródmieście ZłotaSt. 65,000
AXAREIMJVCBREGlobalInvestors
2007
GaleriaMokotów
Mokotów WołoskaSt. 62,500 Unibail-Rodamco
PhaseI–1999PhaseII–2002PhaseIII-2013
SadybaBestMall
Sadyba PowsińskaSt. 27,000 KlepierreGroup 2000
Klif Wola OkopowaSt. 17,800 AEWEurope 1999
PlacUniiShoppingCenter
Mokotów PuławskaSt. 15,500 InvescoReal
Estate 2013
Source: EY
IntherecentyearsWarsaw’shighstreetlandscapehasrecoveredandgainedimportance,althoughincomparisontootherEuropeancapitalsthereisstillmuchtobedone.Highstreetsarelocatedacrossthecentralquadrantofthecity.TworetailcategoriesdominatethehighstreetsprofileinWarsaw:gastronomyandclothing.Anotherwellrepresentedcategoryishealth&beauty.AlsopresenceofluxuryretailersisnoticeableinsomehighstreetsinWarsaw.NowyŚwiatStreetishistoricalaxisofthecitylinkingPlacTrzechKrzyżytotheOldTownandimportanttouristdestination.Therearenumerousrestaurantsandcafeslocatedonthestreet.PlacTrzechKrzyży,ontheotherhand,isdominatedbyprimeandluxurybrands,stylishrestaurantsandcafes.AnotherimportanthighstreetinWarsawisMarszałkowska.ChmielnaStreetispedestrianwalkwayconnecting
NowyŚwiatandMarszałkowskawhichoverflowwithcafesandrestaurants.TheopeningofthesecondmetrolineisexpectedtoenhancetheattractivenessofNowyŚwiatandŚwiętokrzyska.Primehighstreetrentsforunitsofca.100m2 oscillateinrangeEUR70-100month/ m2. UnitsincentralWarsawvaryheavilyintermsofstandardandaccessibility.ForeignanddomesticretailershavealsoestablishedastrongpresenceonthegroundfloorofbuildingsfacingJerozolimskieAvenueandMarszałkowskaStreet.ThesectionofJanaPawłaIIAvenuetothenorthoftheAtriumBusinessCenterhastraditionallybeenknownasashoppingdestinationandtodaystillfeaturesamixofmoderatelypricedstores.Smallclustersofexpensiveshopsarealsofoundinhotelarcadesandonthegroundfloorsofthemajorofficebuildings.
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Currently,asaresultoflowsaturationwithretailspaceinWarsawandlowvacancyrate(approximately1,6%),highstreetlocationsaregaininginpopularity.
SeveralmoresmallshoppingcentersarecurrentlyunderconstructionwithintheagglomerationofWarsaw:FerioWawer(12,500m2),FabrykaWołomin(31,000m2)andGaleriaLegionowo(10,500m2).Additionaly,threeexistingschemesareduringextensionworks(AtriumPromenada,WolaParkandFactoryUrsus)andoneisbeingrefurbished(HalaKoszyki).
Amongshoppingcentersintheplanningphase,thereareGaleriaPółnocna(64,000m2),GaleriaWilanów(61,000m2)andNowaStacjaPruszków(25,000m2).
Retailrentratesvarywidelyanddependmainlyonthetypeofafacility,locationandquality.Over2014therentallevelwasstablewithminorupwardtrendinWarsaw’sprimelocations.Theratesforretailunitsinprimelocations,reachlevelsashighasEUR110/m2/month.
AveragerentsforsmallunitsinmodernshoppingcentersinWarsawrangefromEUR40to50/m2/monthdependingonlocation,unit–sizeandtypeofmerchandise.Primeunitsof100–150m2areletatEUR65to90/m2/month(includingrentsinZłoteTarasyandArkadia,whichrepresentthehighestretailrentsinPoland).LargerunitsleaseforapproximatelyEUR15to30/m2/month.Usuallyanchorstoreoperators
occupyingunitsofmorethan1,000m2 paymuchlessthanothers,withaveragerentsfromEUR9to12/m2/monthandevenlower,aroundEUR5to8/m2/monthforhypermarkets.ServicechargesforsmallerspacevaryfromEUR5to9/m2/month.MajortenantsarechargedEUR2to3.5/m2/month.
Standard lease terms
Standardleasetermsforretailspacearesimilartothoseintheofficemarket.However,thetypicalleaselengthforretailspaceinmodernshoppingcentersrangesfrom5to10years.Anchortenantsusuallyprefer10-yearleaseagreementswithextensionoptions,typicallyforanadditional10-yearperiod.
Withtheincreasingsupplyofretailspace,tenantshavebecomemoredemandinganddevelopersseekingattractivetenantsfrequentlyoffernotonlylowerrentalratesbutalsoincentivessuchas:
• rentfreeperiodrangingfrom1–2monthsforsmallershopsandupto6monthsforlargerunits;
• fit-outallowanceatthelevelof EUR50–200/m2forlargeunitsanduptoEUR600/m2foranchortenants(i.e.withminimum10-yearleaseagreements).
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1.3.Warehousemarket
Poland – General
ThemodernwarehousemarketinPolandbeganitsdevelopmentintheearly1990s,andcurrentlyincludesover8.8millionm2ofwarehousespace.AlthoughinitiallycentralizedwithintheWarsawmetropolitanarea,themodernmarketcannowbesubdividedintosevenregions,eachofwhichhasawelldevelopedwarehousespace.Theseinclude:Warsaw,Poznań,UpperandLowerSilesia,CentralPoland(Łódź,PiotrkówTrybunalski),Tri-City,andKraków.Logisticscentersarelocatedoutsidecitylimitsandofferinggoodaccesstomajorexistingandplannedhighways.
Oneactivitythathascontinuedeventhroughthecrisishasbeenroadandinfrastructureconstruction.ThiscontinuestoboostinvestorinterestinalternativeregionsincludingSzczecin,ZielonaGóra,Lublin,Toruń,BydgoszczandRzeszów,butthesearenowmostlybuilt-to-suitprojects.Intherecentyearssituationinthefinancialmarketshasdampenedaccessibilitytofinancingwhileraisingthecostofcapital,renderingsomeinvestmentsnolongerfeasible.Thiswasevidentinthe“tightening”bywarehousedevelopers,whowerereducingspeculativeprojectsinordertofocusonmanagingcurrentstock.
Afterafewstableyears,2014broughtastrongupturntothemarket.Newsupplyin2014amountedto1.1Mm2whichismorethan14%growthoftotalmodernwarehousestockandalmost3timesmorethaninyear2013.Despitethelargenewsupply,vacancyratesdecreasedsignificantly–fromc.a.10%in2013to5,5%in2014.Rentsremainonstablelevel.
PositivetrendshouldcontinueinfollowingyearsandwillprobablyaffectalsoregionalmarketssuchasRzeszów,Lublin,BydgoszczandOpole.
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The most active warehouse developers in Poland
Company Country of origin
Major locations (existing and proposed)
AIG/Lincoln USA Gliwice,Łódź,Piaseczno,Stryków,WarsawBiuroInwestycjiKapitałowych Poland Kraków,OżarówMazowiecki,PruszczGdański,
Sosnowiec
Goodman Australia Gdańsk,Gliwice,Kraków,Łódź,Poznań,Toruń,Sosnowiec(underconstruction),Warsaw,Wrocław
MenardDoswell&Company USA Błonie,Czeladź
MetropolGroup Poland Błonie,Warsaw
MLPGroup IsraelBieruń,Lublin(underconstruction),Łódź(underconstruction),Poznań,Pruszków,Tychy,Wrocław(underconstruction)
Panattoni USA
Bielsko-Biała,Błonie,Bydgoszcz,Czeladź,Garwolin,Gdańsk,Gliwice,Kraków,Łódź,Mysłowice,OżarówMazowiecki,Poznań,Pruszków,Robakowo,Rzeszów,Stryków,Święcice,Teresin,Toruń,Warsaw,Wrocław
PointParkProperties UK Mszczonów,Poznań
ProLogis USA
Błonie,Chorzów,DąbrowaGórnicza,Gdańsk,Katowice,Nadarzyn,PiotrkówTrybunalski,Poznań,RawaMazowiecka,RudaŚląska,Sochaczew,Stryków,Szczecin,Teresin,Ujazd,Urzut,Warsaw,Wrocław
SEGRO UK Gdańsk,Gliwice,Łódź,Poznań,Stryków,Tychy,Warsaw,Wrocław
Source: EY
Focus on Warsaw
TheWarsawmodernwarehousestockisdefinedaspropertieswithinapproximately50kmofthecitycenterandissplitintotwozones:
• zoneI:approximately630,000m2 in propertieslocatedwithina15kmradius(Okęcie,Służewiec,Targówek,Żerań),warehousefacilitiesinthiszonehost
mostlypharmaceuticals,cosmeticsandelectronics;
• zoneII:approximately2,150,000m2 inpropertieslocated15to50kmfromthecitycenter(e.g.Piaseczno,OżarówMazowiecki,Błonie,Teresin,Nadarzyn,Pruszków).
AlthoughtheWarsawmetropolitanareacontinuestoaccountforthelargestsingleshareinthePolishmarket(40%
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oftotalspaceinPoland),thisdominancehasbeensteadilyerodingasdeveloperspushforapresencealongtheemergingmotorwaysoutsidethemajorcities.
ThetotalmodernwarehousespaceintheWarsawMetropolitanArea(ZonesIandII)isestimatedatalmost2.8millionm2 of modernspace.
In2013,around78,000m2ofwarehousespacewascompleted,whichwasover20%decreaseincomparisonto2012.IncontrarytothewholePolishmarket,newsupplyinWarsawin2014was
significantlylowerthaninpreviousyearandamountedto38,000m2.Currentlyabout51,000m2ofwarehousespaceisunderconstructioninWarsawarea.Futuresupplyishardtopinasdevelopersmovetoclientfocusedbuilt-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 AIGLincoln 2001-2007
EuropolisParkBłonie Błonie 178,000 MenardDoswell/
CAImmo 2006–2012
MilleniumLogisticParkPruszkówII Brwinów 80,000
/302,000 MLPGroup 2007-2014
PanattoniParkOżarów Ożarów 67,800 Panattoni 2009
PanattoniParkPruszków Pruszków 85,300 Panattoni 2007-2009
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
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Project LocationArea (m2) [existing / proposed]
Developer / Owner Completion
ProLogisParkWarsawII
Warsaw,Targówek 38,300 ProLogis 2006
ŻerańPark Warsaw,Żerań 52,000 ApolloRida/
Prologis 1999–2000
SEGROBusinessParkWarsawŻerań
Warsaw,Żerań 49,900 ApolloRida/
SEGRO 2005–2011
Source: EY
In2013thedemandforleasablewarehousespaceinWarsawareaamountedtoapproximately344,000m2 anddecreasedc.a.23%ascomparedto2012.In2014demandincreasedmorethan150%reachingamountof863,000m2–thehighestscoreinPoland.
Themostsoughtafterunitsizesare1,000–3,000m2, usually leased in office/warehousefacilitiesofabove10,000m2,locatedinlogisticsparks.Areaslargerthan10,000m2areusuallyleasedbylogisticsoperators.
VacancyratesinWarsawhavedecreasedtothelevelof7%comparingtothe14%in2013.
Warsawbigboxrentsstayonthestablelevelandfor2014arecurrentlyquotedatthefollowinglevels:
• zoneI:EUR4.0to5.5/m2/month;
• zoneII:EUR2.0to3.2/m2/month.
Incentiveshavealsomoderated,withonemonthforeachyearofleasetermbeingageneralbenchmark.Inadditiontorent,tenantsareobligedtopayservicechargesforpropertymanagement,maintenance,propertytaxandsecurity.AfixedamountpaidinadvanceandadjustedannuallyonthebasisofactualcostsvariesfromEUR0.7to1.3/m2/month.
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1.4.Residentialmarket
Poland – current picture
Year2014wasthebestyearforresidentialmarketsincethefinancialcrisisof2008.Recordlevelofsaleswasobserved.Themarketwasdrivenbymanyfactorswhichcumulateinthatyear,especiallylowinterestrates,newgovernmentprogram“MieszkaniedlaMłodych”andannouncementofnewrestrictionsformortgagegrantingtobeimplementedin2015aswellasstableprices.
ThestockofunitsforsaleonthePolishprimaryresidentialmarkethasbeenrisingseveralyearsinarowuntilthebeginningof2012.AsforQ42012,aggregatedstockofunitsforsaleinsixmainagglomerations(Warsaw,Kraków,Poznań,Wrocław,TricityandŁódź)accountsforapprox.41,000dwellings,whichmeans27%dropincomparisontothesameperiodin2011.Itisaconsequenceofthe“DeveloperAct”enteredintoforceinApril2012.Afterevenworseyear2013(approx.35,000dwellingsattheendoftheyear),2014broughtupturnreaching45,000dwellings.
Onthedemandside,mortgagefinancinghasbeenhamperedbyregulationsbythePolishFinancialSupervisionAuthority(KNF),restrictinggenerallendingtermssuchascreditworthinessandforeigncurrenciesloans,leadingtotheascendanceofPLN-denominatedloans.Ontheotherhand,thedemandisdrivenbyexceptionallylowinterestratesandthenewmortgage-assistancescheme“MieszkaniedlaMłodych”.Howevertheprogramwasintroducedinthebeginningof2014itwillhavemajorimpactinfollowingyears.AlthoughspecifictypeofapartmentsfulfillingMdMprogramparametersareavailableonthemarketthereishugedisproportionregardingpricelimitswithinthecities.
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Poland - fundamentalsInthelasttwodecadesPolishresidentialmarketgrowthhasbeendrivenbytheoverallgrowthofthecountry’seconomy,mortgagefinancingdevelopmentaswellaspositivedemographictrends.
Oneoftheturningpointsdeterminingthemarketshapewastheboomperiodof2004-2007,triggeredbytheEUaccessionandresultinginflowofinvestors,mortgagefinancingreleaseandhistoricallylowinterestrates.Theboomreshapedthestateoftheresidentialmarket,pumpingupthepricesofhousingandofresidentialland.
Despitethecontinuingneedforadequatehousing,demandstillreliesonaffordability,andtocapoffafewgoodyearsofstrongpricegrowth,2007markedanotherturningpoint.Moderationinlate2007ledtostagnationin2008,whichultimatelygavewaytopricedecreasesin2009.
AccordingtodatapublishedbytheCentralStatisticalOffice,over143thousandunitshavebeendeliveredin2014(1.2%lesscomparedtothesameperiodof2013),outofwhich58,8thousand(41%)wereconstructedbydevelopers,and76,6thousand(53%)byindividuals.Theremainingsupplywasdeliveredbyhousingcooperativesandmunicipalities,whoseshareremainsmarginal.Althoughnumberofdelivereddwellingsin2014wasabitlowerthaninpreviousyear,therewasasignificantincreaseinbuildingsstarted(16%)andissuedbuildingpermissions(13%).
ThePolishresidentialmarketispresentlythelargestinCentralandEasternEurope,however,itstilllagsbehindwesternEUmembersintermsofquality,ageofstockandlevelofmarketsaturation.
Moreover,statisticalindicators,suchasnumberofresidentialunitsper1,000inhabitants,usablefloorareaperoneinhabitantandperaverageresidentialunit,arebelowtheEuropeanaverage.
AmajorobstacleconstraininghousingsupplyinPolandismainlyadministration-drivenandconsistsofthelimitednumberofzoningplans,coveringbelow30%ofcountry’sarea.Ineachsinglecase,lackofzoningplanresultsinatime-consumingadministrativeprocedure,whichtakesfromafewmonthsuptoevenayear.Itisnecessarytoobtainzoningdecision(WarunkiZabudowy),beforethebuildingpermitcanbeappliedfor.
Focus on Warsaw
Warsaw’sresidentialmarketremainsthemostdevelopedinPoland:demandisdrivenmainlybyin-migration,thehighestincomelevelinPolandandthelowestunemploymentrate.EmploymentandeducationpossibilitiesinWarsawareamagnetforyoungpeoplefromotherregionsofPoland,resultinginthedominanceofmultifamilydevelopmentsintheWarsawresidentialmarket.Morethan10%ofPolishresidentialsupplyisprovidedonWarsawmarket.Theshareofnewhousingunitsinsingle-familydevelopmentsbuiltinWarsawremainsunder1%.Currentlythemarketisdeterminedbyrisingvolume
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oftransactions,resultingmainlyfromlowinterestrates,savingswithdrawalandreinvestmentaswellasfinancingrestrictionswhichstartedfrom2014andwillbetightenedinfollowingyears(sincethebeginningof2015owncontributionshallbeatleast10%anditwillbeincreasedby5percentagepointsin2016and2017).
Aftertherecordyearof2001,completedunitsinWarsawfluctuatedbetween10,000and15,000p.a.forseveralyears.Followingtheboomperiod,unitcompletionsincreasedto19,049andto19,482,for2008and2009,respectively.However,in2009unitstartswerestarklycurtailed,resultinginthedeliveryofonly12,462dwellingsin2010and9,408in2011.Inthebeginningof2012thesituationontheresidentialmarketwasmainlyinfluencedbyaveryhighsupplyofdwellingsreleasedinJanuary-Aprilperiod.Thiswasmainlydrivenbyintroductionof“DeveloperAct”intheendofApril.Theyear2013showedamoderatedeveloper’soutput:accordingtothedataprovidedbytheCentralStatisticalOffice,nearly13,200apartmentswerecompleted.
Accordingtomarketdata,theprimarymarketinWarsawinQ42014offeredover18,000unitsforsale,outofwhich3,500havebeenalreadydelivered.Warsawremainedthemostexpensiveresidentialmarketwithanaverageapartments’transactionpriceofapprox.7,300PLN/m2.
Buyerspayonaverage7.5%lessthaninitialprice.Thismainlyconcernsthesecondarymarketandisalsoduetobetteralignmentofdemandandsupply,aswellaslargenumberofcompletednewresidentialinvestments.AccordingtoNationalBankofPolandtheaverageaskingpriceofapartmentsontheprimarymarketinWarsawiscurrentlyatthelevelof7,900PLN/m2,whilethehighestaveragepriceswereobservedinŚródmieście(PLN11,400/m2)andthelowestinBiałołękadistrict(belowPLN6,000/m2).ApartfromŚródmieście,themostexpensivedistrictsinWarsawremainMokotów,Ochota,Bielany,UrsynówandŻoliborz.
Similartotherestofthecountry,demandonWarsawmarketisontheupturnduetolowinterestratesandgovernmentsupportbutthereisathreatofaslowdownaftermortgagefinancingregulationsthatwillbetightenedgraduallyinfollowingyears.
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1.5.InvestmentmarketInitially,developmentofPolishcommercialinvestmentmarkettrailedbehindtherestoftherealestatemarket.Investorswerefewandyieldswereinthedoubledigits.Itwasnotuntil2004andtheadventofEUmembershipthatthesituationimproved.ThatyearmarkedthebeginningofanintensivefouryearperiodofforeigninvestmentinthePolishmarket.Overthisperiod,thevolumeoftransactionsaveragedjustunderEUR4billionayear;afarcryfrom2001whenforeigninvestmentsweremoreorlesslimitedtotheWarsawofficemarket.Furthermore,theearlyyearssawthecommercialinvestmentmarketplaguedwithalackofavailableinvestmentschemes,ormismanagedandoverrentedpropertieswithhighvacancyrates.Theincreasingnumberoftransactionshasnotonlystabilizedinvestments,butcompletelychangedthestructureofyields(downward)andprices(upward).
Thequestionforinvestorsgoingforwardis,whetherPolandwillbouncebackfromthe2008and2009droporwhetherthefundamentalsofpricinghavechangedforever.Earlyindicationssuggestsustainedcomeback.
WarsawremainsanimportanttransactionmarketinPolandperceivedbymanyinvestorsascore,butsmallerscalepropertiesinsecondarytownscontinuetogainground.In2014thetotalvolumeofinvestmenttransactionsinPolandamountedtoapproximatelyEUR3.1billion.Itis6%lessthanin2013butitisstillthesecondbestvaluesince2006whenhighestvolumeeverwereachieved.Themajorinvestmentactivitywasobservedinwarehouseandofficesectors.
Transactionvolumeslooksettorise,supportedinlargepartbyinternationalinvestment,butalsoPolishcapitalseemstocatchup.In2014aPolish
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closed-endinvestmentfundacquiredaEUR140mlnwarehouseportfolio.ThetransactionwasoneofthebiggestmadebyPolishinvestor.
Major investors
Themainplayersontherealestateinvestmentmarketareforeigninvestmentfunds,andtoalimitedextentinsurancecompanies,banksandwealthyforeignindividuals.
ThePolishActonInvestmentFundsallowsPolishoperatedandregisteredfundstoinvestinrealestateorincompaniesholdingrealestateassetswithoutanyspecificlimitations;asinthecaseofArka(BZWBK),BPH,KBCandSkarbiec.
ThemajorityofrealestateinvestmentfundsoperatinginPolandareforeignfundstreatingtheirpropertiesasinvestmentsinaccordancewiththelegal
regulationsoftheircountriesoforigin.TheirsubsidiariesinPolandworkunderthestandardregulationsoftheCodeofCommercialCompaniesandthusinvestmentsinrealestatearesubjectonlytotheActonPurchaseofRealEstatebyForeigners.Priorto2005theinvestmentmarketwasdominatedbyGerman,American,andAustrianplayers.AfterEUaccessionPolandwitnessedaninitialinfluxofIrishinvestors,lateraccompaniedbySpanishandBritishinvestors.By2009thetrendseemedtohavereversed;GermanfundshaveemergedwellintactwhiletheIrish,andevenmoresotheSpanishinvestors,appeartobehamperedbytheirownmarketsbackhome.
ThelargestrealestatefundsactiveinPolandincludeBlackstone,CAImmo,IVG,DEKA,CBREGlobalInvestors,GriffinandRREEF.
0
1000
2000
3000
4000
5000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
in m
ln E
UR
Total investment volume in all sectors (office, retail, warehouse) 2000–2014
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Major real estate funds investing in Poland
Name Segment Major Assets in Poland
AEWCapitalOfficeWarehouseRetail
GoodPointPuławska,WarehousesinGliwice,KlifWarsaw,KlifTri-City,AtriumTowerinWarsaw
AIBPoloniaPropertyFund/PeaksideCapital
Office Retail Warehouse
AtriumPlazaWarsaw,AtriumCentrum,WiśniowyBusinessPark,FashionHouseOutletsinSosnowiec,GdańskandWarsaw,DiamondBusinessPark,WarsawDistributionCentre
Allianz RE Office Retail
SilesiaCityCenter,WarsawFinancialCenter,PlatiniumBusinessPark
AtriumEuropeanRealEstate
RetailRedutaShoppingCenter,PromenadaShoppingCenter,GaleriaDominikańska,FocusParkinBydgoszcz,LublinFelicity
AvivaCentralEuropeanPropertyFund
Office Retail
Irydionofficebuilding,Shoppingmalls(FocusMall)inPiotrkówTrybunalski,ZielonaGóra,Rybnik
AxaGroup Retail ZłoteTarasyShoppingCenter-partialinterest
Azora Office
AquariusBusinessHouseinWroclaw,CristalPark,MokotówPlaza,HarmonyOfficeCenterComplexinWarsaw,GreenOfficeComplexandAvatarinKraków(JV)
BlackRock Retail CHKarolinkainOpole,PogoriainDąbrowaGórnicza
Blackstone Retail Warehouse
Shoppingmalls:TwierdzaKłodzko,GaleriaLeszno,MagnoliaPark(Wrocław),TwierdzaZamość(Zamość),WzorcowniaWłocławek,GaleriaPestka(Poznań),GaleriaTęcza(Kalisz),warehouseportfolioinŁódź,Łazy,Błonie,Czeladź,Gliwice,Kraków,Piaseczno
CAImmo OfficeWarehouse
PoleczkiBusinessPark,SaskiPoint,SaskiCrescent,SiennaCenter,EuropolisParkPolandCentral,EuropolisParkBłonie
CBREGlobalInvestors
OfficeWarehouseRetail
WarsawDistributionCentre,ManhattanBusiness&DistributionCentre,IdeaIdea,CHSarniStok,CHOgrody,ZłoteTarasy-partialinterest,GaleriaMazovia,WarsSawaJunior,KingCrossPraga,ProstaOfficeCenter,TrinityOfficePark
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Name Segment Major Assets in Poland
DEKA Immobilien
Office Retail Hotel
Atrium1,AtriumCity,BemaPlaza(Wrocław),NorthGate,MokotowskaSquare,ForumGliwice,IbbAndersiaHotel(Poznań),Andel’sHotel(Kraków),InternationalBusinessCenter(Warsaw),IntercontinentalWarsaw(50%)
GriffinRE Office Retail
DHRenoma,CentrumBiuroweLubiczI&II,MicrosoftHouse,NordicPark,BliskiCenter,PrimaCourt,PhilipsHouse,BatoryOfficeBuildingI,GreenHorizon
Heitman Office Retail
MarynarskaBusinessPark,EMPARK,GaleriaTarnovia,GaleriaMalta
ImmofinanzOffice Retail Warehouse
SilesiaLogisticPark,ŁopuszańskaBusinessPark,STOP.SHOPLegnica,IO-1,CrownTower&Point,BramaZachodnia,Equator,BokserskaOfficeCenter,ParkPostępu,EMPARK
Invesco Office Retail
PlacUnii,ZaułekPiękna,GaleriaKazimierz,CrownSquare
IVG Office Retail
CHPlatanZabrze,CHSosnowiec,DrukarniaBydgoszcz,BTA,NorwayHouse,VictoriaBuliding,JerozolimskieBusinessPark,JerozolimskieOffices,Nowogrodzka21,Miodowa10,Metron,Ujazdowskie10,LePalais,Feniks,RoyalTraktOffices
KulczykSilversteinProperties
Office Retail
StratosOfficeCenter,PlacMałachowskiego,Mazowiecka2/4,ETHOS,UfficioPrimo,WartaTower,KruczaHouse
London&CambridgeProperties
Retail Warehouse
CHZieloneTarasy,CHEchoPiotrkówTrybunalski,CHEchoRadom,CHEchoTarnów,CHEMKA,Logistic&BusinessParkBydgoszcz,CentrumLogistyczneJasin
PZUTFIRetail OfficeWarehouse
GaleriaJeziorak,GaleriaEchoPabianice,AlmaNowyTarg,GreenTowers,PanattoniWarehousesŁódź,Gdańsk&Wrocław
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Name Segment Major Assets in Poland
RREEF OfficeRondo1,Metropolitan,GreenConrer&NordeaHouse,GrunwaldzkiCenter,KopernikOfficeBuildings,NefrytWarsaw,TopazWarsaw,Focus
SEBInvestment Office
PhilipsBuildingŁódź,ArkonskaBusinessParkGdańsk(partlysold),UniversityBusinessCenter,RiversideParkWarsaw,SalzburgCenterWarsaw,TrinityParkIII,MarynarskaPoint2
StarwoodCapital Office KatowiceBusinessPoint,T-MobileOfficePark,
ŁopuszańskaBusinessPark,QuattroBusinessPark
TristanCapitalPartners
Office Retail
WarsawFinancialCenter(JV),Jantarshoppingcenter(JV),MokotówNova,Arena,CHBorek,CHDąbrówka,GaleriaTurzyn,Zakopianka
Unibail-Rodamco Retail GaleriaMokotów,Arkadia,WarszawaWileńska
Union InvestmentRE
Office Retail
DominikańskiOffice,Senator,Manufaktura,ZebraTower,HorizonPlaza
Valad Retail Warehouse
TechnicznaIndustrialPark,RaszynBusinessPark,PiasecznoBusinessPark,BłonieBusinessPark,GazowaIndustrialPark,CityPoint,CHSter,CHRondo,CHKrokus,CHKingCross,CHTulipan,CHKometa
Source: EY
Overthepastseveralyears,economicdevelopmentsandpoliticalstabilityhaveplayedakeyroleintheincreaseoftransactions,notingsuchfactorsas:
• EUmembership;
• fallingPLNinterestrates;
investorsseekingtobuyathighyieldsandsellatloweryields,expectingconvergencewithEUlevels(i.e.capratecompression).
Whilerisingpricesfromcapratecompressionhaveexceededeventhemostaggressiveexpectations,bythethirdquarterof2007theeconomyhadlostsomeofitsmomentum.
By2008financialturmoilaroundtheglobehadplacedmanyinvestorsinthe“waitandsee”mode.Recentfewyearsshowthatinvestmentmarketisontheriseagain.Howeveritismorestableandlessaggressivethanbefore2007.
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Office properties
CapitalizationrateshadseenasteadydeclineinWarsawfromthedoubledigitdaysof1995to2002.Theybrokethe10%markforthefirsttimein2003,andwentontoshedroughlyapercentagepointayearuntil2007,whendealsaslowas5.5%werestruckforthebestperformingproperties,andprimeofficeyieldshoveredbetween6and6.5%.
In2009onlyafewtransactionstookplace,mostlyinitiatedbeforethecrisis.Years2011,2012and2013showedasignificantincreaseinactivityofinvestors.Capitalizationratesgenerallyappeartobearound6%-7%.In2014primeofficeyieldsforCBDlocationswereintherangeofthesamelevelasyearbefore.
Major office building transactions in Poland, 2014
Building Location Seller Purchaser
Rondo I Warsaw BlackRockRealEstate RREEF
Matropolitan Warsaw Aberdeen RREEF
LipowyOfficePark Warsaw CAImmo WPCarey
KatowiceBusinessPoint,T-MobileOfficePark,ŁopuszańskaBusinessPark
Katowice,Warsaw Ghelamco StarwoodCapital
Group
FDSPlaza,LightHouse,QuattroForum,WinogradyBusinessCenter,RedTower,Alfa Plaza
Warsaw,Łódź,Wrocław,Poznań,Tri-City
ArkaBZWBK OctavaFIZAN
Ambasador Warsaw KronosRealEstate Hines
PlacUnii WarsawLiebrecht&wooD,BBIDevelopment
InvescoRealEstate
LibraBusinessCentreI Warsaw MermaidProperties
ViennaInsuranceGroup
Dominikański Wrocław Skanska UnionInvestmentRE
Kapelanka Kraków Skanska ReinoPartners
LubiczOfficeCenter Kraków PeaksideCapital GriffinRE
AquariusBusinessHouse Wrocław EchoInvestment Azova
Source: EY
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Intermsofregionalcities,investorsaremorecautiousandprefertobuyA-classproperties,wellleasedandcentrallylocatedinlargecities.Whilein2011noinvestmenttransactiontookplace,in2012and2013severaltransactionsintheregionalcitiesweremade.Year2014broughtsignificantincrease,officeinvestmentvolumeinregionalcitieswasdoubledcomparingto2013,reachingEUR400million.
Retail properties
Significantinvestmentsintheretailmarketdidnotstartuntil2001.ThefirstmajortransactionswereinvestmentsbyRodamcoinGaleriaMokotówandinZłoteTarasythattookplacein2003,withcapitalizationratesatthelevelof9–10.5%.
SincethattimenearlyeverysignificantpropertyinWarsawandotherPolishcities
hasbeenthesubjectofatransaction.By2005capitalizationrateswerepusheddownwardtoroughly8%andcontinuedthisdownwardtrendthroughQ3,2008whentheyrangedbetween5.7%and6.5%.Duetothecrisis,thecapitalizationrateshasincreasedbyapproximately1–1.5%.
Afterveryintensiveyear2013,year2014appearstobepullbackforthemarket.Volumein2014was2.5timeslessthaninpreviousyear,butprognosisarethatthisisonlytemporaryslowdownandyear2015shallbecomparableto2013.In2014thelargestretaildealsincludedPoznańCityCenter,FocusMallBydgoszczandGaleriaMazoviainPłock.Themajormodernretailtransactionsarepresentedinthetablebelow.Capitalizationratesgenerallyappeartobearound7.5-8%.In2014primeretailyieldsinPolandwereintherangeof5.75-7%.
Major modern retail transactions, 2014
Building Seller Purchaser
PoznańCityCenter Trigranit,EuropaCapital,PolskieKolejePaństwoweS.A. ResolutionProperty,ECE
GaleriaMazovia Lewandpol CBREEuropeanShoppingCentreFund
FocusMallBydgoszcz AvivaInvestors AtriumEuropeanRealEstate
PlacUnii Liebrecht&wood,BBIDevelopment InvescoRealEstate
GaleriaPiła RankProgress ImmofinanzGroup
GaleriaOstrowiec USS FirstPropertyGroupNovaPark(50%) CaelumDevelopment Futureal
Source: EY
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Warehouse properties
Thewarehousemarkethashistoricallybeenperceivedastheleastmatureoftherealestatesectors,withonlyafewsignificanttransactionsclosed.Thelowtransactionlevelmayhavebeenpartlyexplainedbythelargenumberofbuilt-to-suitpropertieswhichareeitherowner-occupiedorpresoldbyfundsbeforeconstructioniscomplete,thereforethesetradesnevershowuponthetransactionradarscreen.After
thecrisisyear–2009–whenonlyonetransactionwasregisteredinthemodernwarehouse/industrialsector,2010showedamajorincreaseininvestoractivity.In2011therewereonlyafewinvestmenttransactionsobserved.In2012and2013asignificantincreaseinthenumberofindustrialtransactionswasobserved.Year2014continuesthetrendwithvolumeofEUR700millionsand17%annualgrowth.Capitalizationratesforthemodern,bestperformingpropertiesarearound8%.
Major warehouse space transactions, 2014
Building Location Seller Purchaser
Warehouseportfolio Mysłowice,Stryków,Robakowo StandardLife LogiCor
PramericaandPanattoniportfolio
Błonie,Czeladź,Gliwice,Kraków,Łazy Pramerica LogiCor
Tescowarehouse(BTS) Gliwice Invesco Prologis
ŻerańParkI Warsaw Heitman PrologisBokserskaDistributionPark Warsaw Immofinanz UK&European
InvestmentsPrologisParkSosnowiec Sosnowiec Prologis Hines
PrologisParkGliwice Gliwice Invesco Prologis
Warehouseportfolio Pruszków,Łódź,Poznań
TristanCapitalPartners,AEW,AlphaIndustrial
Segro,PSP
Idea Idea I, II, III Warsaw BPHTFI CBREGlobalInvestors
PanattoniBusinesParkPortfolio
Łódź,Gdańsk,Wrocław Panattoni PZUTFI
CastoramaBTS Łódź Invesco Prologis
EuropolisParkPortfolio Błonie,Łódź CAImmo,EBRD P3,IvanhoeCambridge
PanattoniParkI Błonie,Wrocław StandardLife Hillwood
PanattoniPark Bielsko-Biała Invesco Hillwood
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1.6.KeycitiesinPoland
WARSAWPopulation 1,729,000
Unemployment 4.3%
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,MostostalExport,Nestle,PGNiG,PKO,BP,PLLLOT,Polkomtel,Procter&Gamble,PwC,PZU,RBS,RWE,SamsungElectronicsPolska,Shell,Skanska,Strabag,Unilever
Office sector
Rental level (m2/month) EUR21–24(class–Aspace)EUR11–13(class–Bspace)
TotalofficeStock 4,4millionm2ofmodernspace
Currentsupply(selectedbuildings)
AdgarPlaza,Ambassador,Atrium1,AtriumComplex,BusinessGarden,CatalinaOfficeCenter,CristalPark,DeloitteHouse,EMPARK,Equator,Eurocentrum,Focus,GdańskiBusinessCentre,HarmonyOfficeCenter,HorizonPlaza,FeniksOfficeBuilding,Focus,IO-1,JerozolimskieBusinessPark,KonstruktorskaBusinessCenter,KopernikOfficeBuidlings,LipowyOfficePark,Lumen,MarynarskaBusinessPark,MarynarskaPoint,Metropolitan,MilenniumPlaza,MokotówBusinessPark,MokotówNova,MokotówPlaza,Nefryt,NorthGate,OkęcieBusinessPark,ParkPostępu,PlatiniumBusinessPark,PoleczkiBusinessPark,PlacUnii,Rondo1,SaskiCrescent,SaskiPoint,Senator,Skylight,TrinityPark,TulipanHouse,WarsawFinancialCenter,WarsawTradeTower,WilanówOfficePark,WiśniowyBusinessPark,WolfMarszałkowska,ZebraTower
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Futuresupply(selectedbuildings)
ArtNorblin,AstrumBusinessPark,Atlantic,Atrium2,BalmoralBuisinessCentre,BusinessGardenIII-VII,Cedet,CentrumMarszałkowska,CopernicusSquare,DomaniewskaOfficeHub,EmparkMokotówBusinessParkVega,Eqlibium,EurocentrumOfficeComplexII,Flandersnextphases,GenerationPark,GrójeckaOffices,Grzybowska43,HalaKoszyki,Infinicity,KarolkowaBusinessPark,LibertyTower,LibraBusinessCenterII,LincolnPark,MennicaTower,MokotówOne,Neopark,ParkRozwojuII,PlatiuniumBPVI,Postępu14,Proximo,PrimeCorporateCenter,Q22,RomaTower,RoyalWilanów,SiennaTowers,SilverTower,SouthPark,SpinnakerTower,Vector,WestPoint,WestStation,Wołoska24,WarsawSpire
Generalvacancylevel 13%
Retail sector
Rental level (m2/month)
EUR90–100forprimeshoppingcenterunitsuptoEUR75-90forprimestreetunits
Totalretailstock 1,8millionm2ofmodernspace
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,FactoryOutletAnnopol
Futuresupply GalerioLegionowo,GaleriaWilanów,GaleriaPółnocna,FactoryUrsus,NowaStacja,HalaKoszyki(reconstruction)
Warehouse sector
Rental level (m2/month) EUR2.5–5.0
Totalwarehousestock 2,8millionm2
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CurrentandplannedsupplyinWarsawarea
AnnopolLogisticPark,CityPoint,DiamondBusinessParkPiaseczno,DiamondBusinessParkWarsaw,EuropolisParkBłonie,KrakowskaDistributionCenter,ŁopuszańskaBusinessPark,ManhattanBusinessandDistributionCenter,MilleniumLogisticParkPruszków,PanattoniParkOżarów,PanattoniParkBłonie,PanattoniParkGarwolin,PanattoniParkPruszków,PanattoniParkTeresin,PlatanPark,ProLogisParkBłonie,ProLogisParkNadarzyn,ProLogisParkSochaczew,ProLogisParkTeresin,ProLogisParkWarsaw,TulipanParkWarszawa,ŻerańPark,GoodPoinPuławska
KRAKÓWPopulation 760,000
Unemployment 5.2%
Majorindustries Tourism,steelworksandmetallurgy,tobacco,pharmaceuticals,IT
Majorcompanies
Bayer,BP,CanPack,Capgemini,Coca–ColaNiepołomice,ComArch,Delphi,Google,HSBC,Hutaim.Sendzimira,InternationalPaper,Motorola,PhilipMorris,Pliva,Shell,StateStreet,UBS,Vistula&Wólczanka,Wawel
Office sector
Rental level (m2/month)
EUR14–15.5(class–Aspace) EUR12–14(class–Bspace)
Totalofficestock 651,000m2ofmodernspace
Currentsupply(selectedbuildings)
AlmaTower,AlstarOfficeCenter,Avatar,AzbudBusinessCenter,Bonarka4Business,BramaBronowicka,BumaSquare,CBiICopernicus,CentrumBiuroweEuromarket,CentrumBiuroweKazimierz,CentrumBiuroweLubicz,CracoviaBusinessCenter,DiamantePlaza,Edison,EnterprisePark,Fronton,G21,Galileo,GreenOffice,K1,KazimierzOfficeCenter,KrakówBusinessPark(Zabierzów),M65,Meduza,Newton,NowaKamienica,Onyx,Pascal,Portus,QuattroBusinessPark,RondoBusinessPark,VinciOfficeCenter.
Futuresupply AlejaPokoju5,Axis,Bonarka4BusinessE,F,G,DotOffice,EnterpriseParkII,GOCenter,OpolskaBusinessPark,OrangeOfficeParkII,ParkClub,QuattroBusinessPark(nextphases),Topos,WawelHQ
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Generalvacancylevel 6%
Retail sector
Rental level (m2/month)
EUR65-75forprimeshoppingcenterunits EUR50–80forprimestreetunits
Totalretailstock 750,000m2ofmodernspace
Currentsupply GaleriaKrakowska,GaleriaKazimierz,CHKrokus,CHZakopianka,M1Kraków,IKEA,KrakówPlaza,CHCzyżyny,SolvayPark,FuturaPark,CHDekadaPark,Castorama,CHWielicka,Bonarka,GaleriaBronowice
Futuresupply SerenadaShoppingCenter
Warehouse sector
Rental level (m2/month) EUR3.75-4.50
Totalwarehousestock 189,000m2
Currentandplannedsupply
LogisticCenterKrakówI,II,III,KrakówAirportLogisticsCentre,MARRBusinessPark,MKLogisticsPark,PanattoniParkKraków
POZNAŃPopulation 547,000
Unemployment 3.2%
Majorindustries Foodprocessing,electrotechnical,chemical,automotive,retail,services(includingfinanceandbanking),constructionindustry,locationofmajortradefairsinPoland
Majorcompanies AluplastAustria,Beiersdorf,Bridgestone,Carlsberg,CPCInternational,Enea,FranklinTempletonInvestments,GlaxoSmithKline,IKEA,KompaniaPiwowarska,LorensBahlsen,MAN,MiędzynarodoweTargiPoznańskie,Nestle,Volkswagen,Wrigley,Wyborowa
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Office sector
Rental level (m2/month)
EUR14–15(class–Aspace) EUR11–13(class–Bspace)
Totalofficestock 334,000m2ofmodernspace
Currentsupply(selectedbuildings)
AndersiaBusinessCentre,AndersiaTower,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,WinogradyBusinessCenter
Futuresupply BałtykTower,BusinessGardenPoznań,Maraton,Ubiq
Generalvacancylevel 13.7%
Retail sector
Rental level (m2/month)
EUR70–80forprimeshoppingcenterunits EUR45forprimestreetunits
Totalretailstock 705,000m2ofmodernspace
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
Futuresupply Posnania,CHMetropolis,GaleriaA11
Warehouse sector
Rental level (m2/month) EUR3.2-3.5
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Totalwarehousestock 1,023,000m2
Currentandplannedsupply
CLIPPoznań,DoxlerBusinessPark,MillenniumLogisticParkPoznań,PanattoniPoznańI,II,III,PanattoniRobakowo,ParkMagazynowyLogit,PointParkPoznań,ProLogisParkPoznańI,II,III,ProLogisParkWrześnia,TulipanParkPoznańI,II,SegroLogisticParkPoznań,AmazonWarehouse
TRI–CITYPopulation 747,000
Unemployment 5.6%
Majorindustries Maritimeindustry,fuelindustry,construction,foodprocessing,tourism,IT
Majorcompanies BalticMalt,BaltisInvestment,BayerSSC,BlueMedia,Bomi,DGT,DrCordesmeyer,ElektrociepłowniaWybrzeże,Elektromontaż,Energa,Fazer,GdańskaStoczniaRemontowa,GdańskieZakładyNawozówFosforowych,GEMoneyBank,GrupaLotos,HydrobudowaGdańsk,Hydroster,IKEA,IntelTechnologyPoland,JyskPolska,LidoTechnologyPoland,LPP,LufthansaSystems,MetroAG,MostostalGdańsk,Neste,PepsiCo,Satel,Shell,Siarkopol,StoczniaPółnocna,STUErgoHestia,ThomsonReuters,Tengelmann
Office sector
Rental level (m2/month)
EUR14–15(class–Aspace) EUR11–13(class–Bspace)
Totalofficestock 540,000m2ofmodernspace
Currentandplannedsupply(selectedbuildings)
Akwarium,AlfaPlaza,Alchemia,ArkońskaBusinessPark,BCBBusinessPark,CentrumBiuroweHossa,CentrumKwiatkowskiego,CentrumBiuroweNeptun,CityArkade,IdalHouse,Grunwaldzka413,Grunwaldzka417,Grunwaldzka48-50,Ka5,ŁużyckaOfficePark,MorskiParkHandlowy,Nordika,OfficeIsland,OliviaBusienssCentre,OperaOffice,PasażPrzymorze–Kołobrzeska32,PianoHouse,TrytonBusinessHouse,WAN–Śląska,ŁużyckaPlusSadowaBusinessPark,Sanipor,Vigo,Waterside
Generalvacancylevel 11.5%
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Retail sector
Rental level (m2/month)
EUR35–50forprimeshoppingcenterunits EUR25–45forprimestreetunits EUR8–12forretailparkunits
Totalretailstock 619,130m2ofmodernspace(24shoppingmalls)
Currentsupply Smallshopsandboutiquesalongshoppingstreets(ŚwiętojańskainGdynia,DługaandGrunwaldzkainGdańskaswellasMonteCasinoinSopot).Modernshoppingcenters:GaleriaBałtycka,AuchanPortRumia,CHKlif,Batory,ETCGdańsk,CityForum,KrewetkaCinemaCity,AlfaCenter,MadisonShoppingGallery,CHManhattan,CentrumKwiatkowskiego,CHWzgórze,MatarniaRetailPark,OsowaShoppingCenter,CentrumRodzinneWitawa,FashionHouseGdańsk,Castorama,Real,Tesco,SelgrosCashandCarry,TescoChełm,IKEA,CHOliwa,GaleriaPrzymorze,CentrumHaffnera,SzperkGdynia,CHRiviera,MorskiParkHandlowy,CentrumKowale
Futuresupply ForumRadunia
Warehouse sector
Rental level (m2/month) EUR3.0–3.5
Totalwarehousestock 210,600m2
Modernwarehousestockunderconstruction
ProLogisParkGdańsk,CentrumLogistycznePruszczGdański,PanattoniParkGdańsk,SEGROLogisticsPark,7RLogisticParkGdańsk,PortGdyniaWarehouse
ŁÓDŹPopulation 709,000
Unemployment 10.8%
Majorindustries Textile&clothes,foodprocessing,mechanicalengineering,chemicalproduction,tradefairs
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Majorcompanies ABB,Amcor,Bosch–SiemensHausgeräte,HP,CacaoBerry,Coca–Cola,Dell,GrupaAtlas,Fujitsu,Idesit,Infosys,Nordea,Phillips,PolishPharmaceuticalGroupPollena–EwaS.A.,SanitecKoło,Textilimpex,VFPolska,Vistula&Wólczanka
Office sector
Rental level (m2/month) EUR11–14(class–A/Bspace)
Totalofficestock 300,000m2ofmodernspace
Currentsupply(selectedbuildings)
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 Aurus,UniversityBusinessParkII
Generalvacancylevel 7.5%
Retail sector
Rental level (m2/month)
EUR45-60forprimeshoppingcenterunits EUR23–35forshoppingcenterunits EUR20–40forhighstreetlocations
Totalretailstock 630,000m2ofmodernspace
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
Futuresupply ŁódźPlaza,Sukcesja
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Warehouse sector
Rental level (m2/month) EUR3.4–4.3formodernspace
Totalwarehousestock 1,06millionm2
CurrentandplannedsupplyinCentralPolandregion
BusinessParkŁódź,DiamondBusinessParkŁódź,DiamondBusinessParkStryków,PanattoniBusinessCenterŁódź,PanattoniŁódźEast,PanattoniParkŁódźSouth,ParkridgeBusinessCenter,ProLogisParkStryków,TulipanParkŁódź,TulipanParkStryków,SEGROLogisticsParkStryków,PanattoniCastorama
WROCŁAW
Population 633,000
Unemployment 4.3%
Majorindustries automotive,IT,businessprocessoffshoring,pharmacy/medicalassortment,finances,medicalmachineryproduction,electrical,metallurgy,houseappliancesandfoodprocessing
Majorcompanies 3M,Alcatel,Bosch,BZWBK,Cadbury,CreditAgricole,Eurobank,EYSSC,CreditSuisse,Google,Hewlett–Packard,IBM,KRUK,LG,MacoPharma,Nokia,Polifarb,Siemens,Toyota,Ultimo,USPharmacia,Volvo,Wabco,Whirlpool
Office sector
Rental level (m2/month)
EUR14–16(class–Aspace) EUR11–13(class–Bspace)
Totalofficestock 541,000m2ofmodernspace
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Currentsupply(selectedbuildings)
AquariusBusinessHouse,ArkadyWrocławskie,AscoBusinessCentre,BemaPlaza,BetaCentre,CuprumNovum,DługoszaBusienssPark,FocusPlaza,GlobisWrocław,GreenTowers,GrunwaldzkiCenter,HeritageGates,HubskaOfficeCenter,LegnickaPark,MillenniumTower,NewPointOffices,Oniro,OławskaPrestige,PasażPkoyhof,Platon,PromenadyEpsilon,QuattroForum,RacławickaCenter,RenaissanceBusinessCentre,SilverForum,SilverTower,SkyTower,SzwedzkaCentrum,WratislaviaTower,WrocławskiParkBiznesu,WestHouse
Futuresupply BusinessGarden,Dominikański,Dubois41,GammaOffice,NorthOffice,Nobilis,WestGate
Generalvacancylevel
10.4%
Retail sector
Rental level (m2/month)
EUR65–75forprimeshoppingcenterunits EUR40–60forprimestreetunits EUR8–12forretailparkunits
Totalretailstock 670,000m2ofmodernspace
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,RetailParkBielany
Futuresupply GaleriaIdylla
Warehouse sector
Rental level (m2/month) EUR2.9-3.5
Totalwarehousestock 895,000m2ofmodernspace
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Currentsupply ProLogisParkWrocław(I&II)–BielanyWrocławskie,ParkridgeBusinessCenter,TinerLogisticCenter–Pietrzykowice,PanattoniParkWrocław–BielanyWrocławskie,PrologisParkWrocławV,PanattoniBTSforLear,PanattoniforAmazon,GoodmanforAmazon
KATOWICE
Population 303,000
Unemployment 4.7%
Majorindustries Coalmining,metallurgical,steel,machinery,electrical,ceramic,automotive,printing,informationandIT
Majorcompanies Capgemini,CartotecnicaPolska,DelphiAutomotiveSystem,DuPont,ElectrabelPolska,Elektromontaż1Katowice,GeneralMotors,GKFarmakol,GKTauronPolskaEnergia,IBM,ING,IsuzuMotors,KatowickiHoldingWęglowy,PepsiCo,Philips,PolskiKoks,PowertrainPolska,PwCSSC,Roca,Unilever
Office sector
Rental level (m2/month)
EUR13–14(class–Aspace) EUR10–12(class–Bspace)
Totalofficestock 352,000m2ofmodernspace
Currentsupply(selectedbuildings)
Altus,ApissCenterPoint,ArmiiKrajowej6,Atrium,CentrumBiuroweFrancuska,CentrumBiuroweKatowice,Chorzowska50,Euro-CentrumKatowice,GórnośląskiParkPrzemysłowy,JesionowaBusinessPoint,Kostki,MillenniumPlazaKatowice,NoweKatowickieCentrumBiznesu,RawaOffice
Futuresupply A4BusinessParkII,III,PiaskowaBusinessCenter,SilesiaBusinessParkI,SilesiaStarI,SteelOffice,Żelazna
Generalvacancylevel
13.8%
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Retail sector
Rental level (m2/month)
EUR50–65forprimeshoppingcenter EUR25–45highstreetlocations EUR9–11forretailparkunits
Totalretailstock 1,3millionm2ofmodernspace
Currentsupply SilesiaCityCenterIandII(extension),3Stawy,CHDąbrówka,Castorama,OBI,MediaMarkt,RetailParkRAWA(IKEA),DomHandlowyZenit,GaleriaAuchan,GaleriaKatowicka,RawaParkHandlowy,GaleriaSkarbek,GaleriaNowyRóździeń
Warehouse sector
Rental level (m2/month) EUR3.5-4.0
Totalwarehousestock 1.4millionm2
CurrentandfuturesupplyintheUpperSilesiaregion
TulipanParkGliwice,PanattoniParkGliwice,ProLogisParkBędzinI&II,ProLogisParkSosnowiec,ProLogisPark–DąbrowaGórnicza,ProLogisParkChorzów,ProLogisParkUjazd,DiamondBusinessParkGliwice,CrossPointDistributionCenterŻory,MilleniumLogisticParkTychy,AllianceLogisticCenterSilesia,PanattoniParkCzeladź,PanattoniParkMysłowice,PanattoniParkBielsko-Biała
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Legal and tax aspects of investing in real estate
2
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ThisChapterconsidersthemostimportantlegalandtaxissuesarisingduringeachofthefollowingfivestagesofarealestateinvestment:
• Financing
• Acquisition
• Developmentandconstruction
• Operationandexploitation
• Sale
TheChapterisarrangedsothateachoftheaboveaspectsisdealtwithinaseparatesection(2.3.–2.8.),consideringlegalimplicationsfirst,followedbyanassessmentofrelatedimportanttaxconsequences.
Thesection2.1.onthelegalbackground(below)willintroducethereadertocertainconceptsandtermsthatmaynotbecommonplaceintransactionselsewhereinEurope.ThisshouldbereadasageneralintroductiontothelegalenvironmentinPoland.Thechapteralsocontainssection2.2.oninvestmentvehiclesandstructurespresentinginformationonthemostcommonstructuresusedinrealestateinvestmentsinPoland.Takentogether,theyformthebasisforunderstandingthemostrelevantlegalandtaximplicationsofinvestinginrealestate in Poland.
Legal,financialandtaxduediligencearealsofundamentaltoanyinvestmentcycleandgiventheimportanceofduediligencetoanytransaction,wediscusstherelevantproceduresandkeyconsiderationsindetailinsection2.9.
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Ingeneral,Polishrealestatelawprovidesquiteclearandstableruleswhichallowpotentialinvestorstomakewell-foundeddecisionsaboutenteringintorealestatetransactions.Additionally,therearemeasuresandinstitutionswhichenableinvestorstosafelyconcludetransactionsadaptedtotheirneedsandexpectations.Inparticular,mostrealpropertydeeds(sale,othertransfers,establishingofamortgage)mustbeexecutedbeforeanotarypublic.Apubliccredibilitywarrantyofthelandandmortgageregisterisanadditionalinstrumentwhichprotectsthepurchaseragainstthirdpartyclaimsandguaranteesthevalidityofthetitleacquired(aslongasthepurchaseractedingoodfaith).
BelowwepresentsomekeyinformationonrealestatelawinPolandwhichshouldbethebaseforothercommentsinthischapter.
2.1.2. Legaltitlestorealestate
ThebasicsourceofrealpropertylawinPolandistheCivilCodeof23April1964(withmanyamendmentssince;hereinafterreferredtoastheCivilCode).Althoughitdoesnotregulatethisbranchoflawexhaustively,itconstitutesabasisforotherregulationsregardinglegaltitlestorealestateandtheirlimitationsormodifications.
ThemostcommonlegaltitlestorealestateinPolandaretheownershipright,theperpetualusufructright,andobligationrights,suchaslease,tenancyorleasing.Polishlawalsoprovidesseverallimitedpropertyrightssuchaseasementsandusufruct.
2.1.Legalbackground
2.1.1. Generalremarks
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Ownership right
Ownership(prawowłasności)isthebroadestrighttorealestateinPoland,equivalenttoafreehold.Asarule,ownershipconveystherighttopossessanduserealestateforanunlimitedperiodoftime(withtheexceptionofownershipofanybuildingsconnectedwiththeperpetualusufructright;seeourcommentsbelow)andtransferorencumbertherealestate.Theownershiprightmaybelimitedbystatutorylaw,principlesofcommunitylifeandthesocioeconomicpurposeoftheright.Themostcommonlimitationsresultfromconstructionlawandzoningmasterplansadoptedbylocalauthorities(municipalities).
Right of perpetual usufruct
Perpetualusufruct(użytkowaniewieczyste)isarightofusetherealestatewhichmaybegrantedbytheStateinrelationtotheState-ownedlandorbyalocalauthorityinrelationtotheauthority-ownedland.Ineithercasetherespectiveentity(theStateorthelocalauthority)remainstheowneroftheland.
Theperpetualusufructrightissimilartotheownership,however,thereareseveralcrucialdifferences:
• Theperpetualusufructrightiscreatedforadefinedpurpose(developingaprojectorconductingaspecificactivity)setoutinthecontract.Iftheperpetualusufructuaryisinbreachoftheseprovisions,thismayleadtoanincreaseintheannualfeesoreventermination
ofthecontractbythecommoncourt.
• 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.
Thecontractunderwhichthelandistransferredforperpetualusufructmay
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laydownpotentiallimitationsontheuseanddisposalofrealpropertyandindicatethemannerinwhichtherealestateistobe used.
Iftherealestatetransferredforperpetualusufructisapieceofdevelopedland,thebuildingsandotherconstructionserectedthereonaresoldtotheperpetualusufructuaryinadditiontotheestablishmentoftheperpetualusufructright.Ifthebuildingsareerectedaftertheperpetualusufructrightisestablished,theyalsobecometheperpetualusufructuary’sproperty.Separateownershipofthebuildingsduetotheperpetualusufructuaryisarightstrictlyconnectedwiththerightofperpetualusufructand,inconsequence,thebuildingssharethelegal“lot”oftheland.Inparticular,theownershipofbuildingsmaybetransferredonlywiththerightofperpetualusufruct.Oncetheperpetualusufructrightexpires,theholderoftherightisentitledtoareimbursementcorrespondingtothecurrentmarketvalueofthebuildingsandotherimprovementslegallyimplementedonthelandthatisthesubjectoftheperpetualusufructright.
Theperpetualusufructuaryisobligedtopaytotheowneraone-offinitialfeewhichamountsfrom15%to25%ofthetotalmarketvalueoftherealpropertyandthenanannualfeeofupto3%ofthetotalmarketvalueoftheland.Therateof3%isthebasicrateprovidedbythelaw;however,therecanbeotherrates(0.3%,1%,2%)appliedtotherealestateassignedforspecificpurposes,strictly
listedinthelegalprovisions.Thevalueofthelandasestablishedforthepurposeofcalculatingtheannualfeeissubjecttoindexation(notmorethanonceforthreeyears).Theperpetualusufructuaryhastherighttoquestionanewvaluationbeforethelocalappealcommitteeand,ifunsuccessful,beforeacommoncourt.
Subjecttocertainconditions,theperpetualusufructuaryorhislegalsuccessorsmaydemandthattheperpetualusufructrightbeconvertedintoownership.Thelegalprovisionsdonotspecifywhethertheterm“legalsuccessor”referstogeneralsuccessiononly,orwhetheritmaybeapplicabletoentitiesacquiringrealpropertythroughasaleagreement.Thecourtsmoreoftentaketheviewthattheentitiesacquiringrealpropertythroughasaleagreementareentitledtodemandtheconversionintoownership.Thebasicconditionofacquiringtheownershipofrealestateisthepossessionoftherightofperpetualusufructasof13October2005.Theconversiontakesplaceunderanadministrativedecisionofarelevantlocalauthorityandisvalidasatthedatewhenthedecisionbecomesfinal.Suchadecisionalsoconstitutesabasisformakinganentryinthelandandmortgageregister.
Theconversionoftheperpetualusufructrightintoownershiprightissubjecttoafeewhichisequaltothedifferencebetweenthevalueofownershipandthevalueoftheperpetualusufructrighttothe land.
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Leases and Tenancies
Polishlawdistinguishesbetweentwotypesofleases:lease(najem)andtenancy(dzierżawa).Leasesareusedmainlyforcommercialandresidentialpremises.Tenanciesareusedespeciallyforindustrialandagriculturalproperty.Underaleaseagreement,thelessorundertakestohandovertherealpropertyforthelessee’suseforafixedornon-fixedterm,andthelesseeundertakestopaythelessoranagreedrent.Thetenancycontract,however,providesforthelesseeadditionalrighttocollectprofitsfromtherealestate.
Leasing
Byaleasingcontract,thefinancingparty,whoisanentrepreneur,undertakestoacquiretherealestatefromaspecifiedtransferoronthetermsandconditionssetforthinthatcontractandtogiveitovertotheuserforuseorforuseandcollectionofprofitsforaspecifiedperiod.Theuser,however,undertakestopaythefinancingparty,byinstallments,amonetaryremunerationequaltoatleasttheremunerationorthepriceatwhichthefinancingpartyacquiredtherealestate.
TherearetwotypesofleasingthatcanbeexecutedinPoland:
• operatingleasing,inwhichcasetheleaseholdisanassetofthelessorwhomakesdepreciationwrite-offsandthelesseehasanoptiontopurchasethepropertyattheendoftheleasingterm;
• financialleasing,inwhichcasetheleaseholdisanassetofthelesseewhomakesdepreciationwrite-offsandthe
transferoftheownershipofarealestateattheendoftheleasingtermmaybestipulateddirectlyintheleasingagreement.
Thelesseeshouldchoosethetypeofleasingaccordingtohisrequirementsandneedswithrespecttotaxsettlementsandtheperiodofusingtheleasehold.
Easements
Easements(służebności)overlandarelimitedpropertyrightswhichmaybegrantedoverapieceofrealestate(encumberedproperty)forthebenefitofanotherpieceofrealestate(masterproperty).Dependingonthecontentofaneasementdeed,theholderofthemasterpropertymaybeentitledtoalimiteduseoftheencumberedproperty(activeeasement),ortheholderoftheencumberedpropertymayberestrictedintheexerciseofhisownrightsforthebenefitofthemasterproperty(passiveeasement).
Polishlawdistinguishesbetweentwotypesofeasements:
• groundeasements,whichareestablishedforthebenefitoftheownerorperpetualusufructuaryofthelandandaretransferredtogetherwiththeproperty(whetherthatencumberedorthemasterproperty);
• personaleasements,whichareestablishedforthebenefitofanaturalpersonandarenon-transferrable(norcantherighttoexercisethembetransferred).
TheCivilCodealsolistsaseparatecategoryofeasement,i.e.utilityeasementwhich
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maybeestablishedforthebenefitofentrepreneursbeingutilityproviders.Autilityprovidermayaskthelandownertoestablishaneasementoverhislandinordertoinstall(andthenoperateandmaintain)e.g.electricitycables,installationsservingtosupplyandtochannelliquids,gas,steamorotherfacilities.Iftherealestateownerrefuses,theutilityprovidermaydemandthataneasementbeestablishedinreturnforanappropriateremuneration.
Inpractice,realestatemaybeencumberedwithmorethanoneeasementorotherlimitedpropertyright.Insuchacase,asarule,arightthataroselatercannotbeexercisedtothedetrimentoftheearlierright;however,therearealsoregulationswhichspecifypriorityinadifferentmanner.
Inparticular,ifoneoftherightsisenteredinthelandandmortgageregister,itbenefitsfrompriorityagainsttherightwhichisnotenteredintheregister,regardlessofthedatesoftheirestablishment.
Itshouldbenoted,however,thateasementsarenotalwaysdisclosedinthelandandmortgageregister.
Inconsequence,thepotentialinvestorshouldverifywhethersuchrightsarenotbeingexecutedbycarryingoutanon-siteinspection,i.e.duringaduediligencereview.
Usufruct
Usufruct(użytkowanie)ofrealestateisalimitedpropertyrightwhichallowsitsholdertousetherealestateandcollectbenefitssimilartothosetowhichthe
ownershipholderisentitled.Thescopeoftheusufructmaybelimitedbyspecifiedprofitsbeingexcluded,ortoadesignatedpartoftherealestate.Usufructiscreatedbyacontract.Usufructisnon-transferable,strictlyconnectedwiththeusufructuary,sotherightexpiresontheusufructuary’sdeath(orliquidation,inthecaseoflegalentities).Moreover,ausufructexpiresifnotexercisedfortenyears.
Usufructissimilartotenancy,yetitslegalnatureisdifferent.Usufruct,asalimitedpropertyright,iseffectiveergaomnes(itiseffectiveinrespectofthirdparties)andtenancyiseffectiveonlybetweenthepartiestoanagreement.
2.1.3. Realpropertyregisters
TherearetwotypesoflandregistersinPoland:thelandandmortgageregister(księgawieczysta),whosemainpurposeistoregistertitlesandencumbrancesoverrealestateandthelandandbuildingsregister(ewidencjagruntówibudynków),themainpurposeofwhichistodescribethephysicalfeaturesandtheuseoftheland and buildings.
Land and Mortgage Register
Landandmortgageregistersarekeptbydistrictcourtsandprovideinformationonthelegalstatusofrealestate,e.g.thelocationofparcelsofland,theownershipstatusofland,encumbrancesontheland,mortgages.
Thefollowingrealestaterightsareregisteredinthelandandmortgage
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register: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,anexcerptfromthelandand
mortgageregisteristhekeydocumentthatshouldbeobtainedandanalyzedbeforeadecisiontoacquirerealestateismade.
Thepubliccredibilitywarrantydoesnotconferprotectionongratuitousdispositionsorthosemadeinfavoroftheacquirerinbadfaith.Itisalsoexcludedbyanentryinthelandandmortgageregisterconcerninge.g.filinganapplicationorlodgingacomplaintagainstacourtdecision.
Land and Buildings Register
Thelandandbuildingsregisteriskeptbystarostasofthepoviats(orpresidentsoftownswiththerightsofapoviat)andisauniformcollectionforthewholecountryofsystematized,updateddataonland,buildingsandpremises,theirownersandothernaturalpersonsandcorporatebodiesholdingtheland,buildingsandpremises.
Informationonland,buildingsandpremisesisavailabletothepublicandcommonlyaccessible.However,feesarecollectedfordisseminateddatasetsanddistributedextractsfromtheregistersanddirectoriesaswellasforcopiesofcadastralmaps.Additionally,thepartyintendingtoinspecttheregistershouldprovehis/herlegalinterestifthedemandedextractincludespersonaldata.Thepubliccredibilitywarrantydoesnotapplytothelandandbuildingsregister,hence,theregisterdoesnotprovidethepersonacquiringtherightofownershiporanotherrealpropertyrightwiththeprotectionwhichisprovidedinthecaseoflandandmortgageregistersheldbycourts.
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2.2. Investmentvehiclesandstructures
2.2.1 Generalremarks
FurthertothePolishCommercialCompaniesCodeof15September2000(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.
ThechoiceofthelegalformfortheSPVwilldeterminethestructureunderwhichsuchanentitywillbeoperating.TheforeigninvestormayeitherbeadirectshareholderintheSPV,remainaparentcompanyforaforeign/PolishcompanycontrollingtheSPV,orarrangeanyotherstructurethatwouldsuititsneedsfromthelegalandtaxperspective.
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TherearetwowaysforaninvestortointroducetheSPVintoitscapitalstructure:theSPVmaybeboughtorestablishedbytheforeigninvestor.Therearenumerousservicefirmsofferingthesaleofestablishedcompaniesorpartnerships(so-called“shelfcompanies”),thatcanbeusedstraightaway.However,thisisalwaysmoreexpensivethansettingupanewentity.
Apartfromthelegalformsmentionedabove,aforeigninvestormayalsooperateinPolandandinvestinrealproperty:
• directlythroughitsbranch;
• byenteringintoajoint-venture.
Formorecomplexanddiversifiedinvestmentsaformulaofaclosed-endfund(FunduszInwestycyjnyZamknięty;FIZ)canbeused.
2.2.2.Limitedliabilitycompany
Alimitedliabilitycompany(spółka z ograniczoną odpowiedzialnością)iscommonlyusedastheSPVforrealestateinvestmentsordevelopmentprojects.
ThefeaturesofthelimitedliabilitycompanyaresetoutintheCommercialCompaniesCode,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.TheprocedureissimplifiedincomparisontothestandardprocedureandrequirestheregistrationofthecompanythroughadedicatedwebsiteoftheMinistryofJustice(https://ems.ms.gov.pl/).However,duringtheonlineregistrationofthelimitedliabilitycompanyitisnotpossibletomakeanin-kindcontribution,hence,theentiresharecapitalmustthereforebepaidincash.
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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
2.2.3Partnerships
Themainfeaturesofpartnershipsarethefollowing:
• partnersactinthenameofthepartnership;
• partnersareresponsiblefortheliabilitiesofthepartnership;
• theassetsofthepartnershipincludeanypropertycontributedtothepartnership;
• therearenominimumcapitalrequirements(excludingthepartnershiplimitedbysharesincaseofwhichtheminimumsharecapitalamountstoPLN50,000,i.e.ca.EUR12,000);
• althoughitisnotclassifiedasalegalperson.apartnershipmayacquirerightsonitsownbehalf,includingtherightofownershipofrealestateandotherrights,incurobligations,sueandbe sued.
Inrecentyearsthenumberofpartnershipsusedforthepurposesofinvestmentstructuressignificantlygrew.
Limited partnership
Alimitedpartnership(spółkakomandytowa)isapartnershipofwhichatleastonepartnerisliabletothecreditorsfortheobligationsofthepartnershipwithoutlimitation(thegeneralpartner-komplementariusz)andtheliabilityofatleastonepartner(thelimitedpartner-komandytariusz)islimitedtothevaluedefinedinthepartnershipagreement.
Thisfeatureofthelimitedpartnershipresultsinthespecificstructurethatneedstobeimplemented.Rightsandobligationsinthepartnershipshouldbesplitbetweentwoentities(limitedpartnerandgeneralpartner).Itisacommonpracticethattheinvestortakestheroleofthelimitedpartnerinordertoavoidthefullliability,whereasanadditionallimitedliabilitycompanyisestablishedto
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serveasageneralpartnerintheSPV.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(generalpartnerkomplementariusz)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.
DuetoCITlawchangesfrom1January2014partnershiplimitedbysharesisnolongerconsideredtaxtransparentandbecameacorporateincometaxpayer.Untiltheendof2013,taxationoftheshareholderinapartnershiplimitedby
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shareswasdeferreduntiltheprofitsweredistributedtohimbythepartnership.Consequently,iftherewasnoeconomicprofitavailablefordistribution-ornodistributionwasmade-notaxationshouldoccurattheleveloftheshareholderofapartnershiplimitedbyshares.ThedeferralwasnotdirectlyindicatedinthetaxlawbutwasbasedonthegeneraltaxrulingofthePolishMinistryofFinance.Duetotransitionrules,theuseofpartnershipslimitedbysharesthatcanstillenjoytheabovemaybestillpossible,incasepartnershipswhichfinancialyearextendsbeyond2015.
Inthecaseoflimitedpartnership,taxablerevenuesandcostsgeneratedbythepartnershipareallocatedtothepartners(bothlimitedandgeneral)andrecognizedforcorporateincometaxpurposesonanon-goingbasisattheirlevel.
Partnershipspayothertaxes,suchasVAT,realestatetax,andcivillawtransactiontax,andtheymaypaywithholdingtaxes(e.g.withholdingtaxoninterestandpersonalincometax).
Thetablebelowcomparesthebusinessandtaxationaspectsofthelimitedpartnershipsandlimitedliabilitycompanies:
Limited liability company Limited partnership
possesseslegalpersonality YES NO
canbeestablishedbyasingleshareholder/partner
YES (NO if to be established by
aPolishLLC,whichhasonlyoneshareholderitself)
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
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Limited liability company Limited partnership
Taxationofincome(fromexploitationorsaleofassets)
19% atthecompanylevel
19% atthelevelofthepartners
Taxationofthedistributionofincometoshareholders/partners
19% undercertainconditionstherecanbereliefforshareholders
whoarelegalpersons(basedinPolandorintheEU/EEA). Reducedratesforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)
NO
Civillawtransactiontaxonshareholder/partnerloans NO
0.5% on the value of the loan
payablebythepartnership
Applicabilityofthincapitalizationrules YES
NO althoughinterestpaidto
thepartnerbeingthelendercannotberecognizedasataxdeductiblecostofthispartner(ontheotherhand,interestreceivedconstitutestaxable
incomeofthispartner)
Abilitytooffsetprofitsandlossesfromvariousprojects(carriedoutinseparatecompanies/partnerships)
NO onlyinthecaseof
establishingataxcapitalgroup
YES profitsandlossesare
compensatedatthelevelofpartners
TaxationinPolandofthesaleofsharesinthecompany/partnership
19% possiblereliefforforeignshareholdersonthebasisofdoubletaxationtreaties(dependingonthetreaty)
19% itisnotclearwhetherthe
samepossible reliefexistsinthecaseof
partnerships
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Themainadvantagesofusingalimitedpartnershipinaninvestmentstructureareasfollows:
• profitdistributionsarenottaxed:thereisonlyoneleveloftaxation;
• limitationofliabilityvis-à-viscreditorsforthelimitedpartner(whoisliableonlyuptotheamountagreedbythepartnersinthearticlesofassociation,calledthecommendamsum);
• theabilitytooffsetprofitsandlossesondifferentprojectsconductedatthelevelofthepartners.
Alimitedliabilitycompanycanbetransformedintoalimitedpartnership,althoughsuchaprocessmayincurtaxationinPoland.Adetailedanalysisisrequiredineachcase.
2.2.4.Jointventure
Polishlegalregulationsdonotprovideanydefinitionofajointventure,nevertheless,itisausefulsolutiontocombineentrepreneurs’effortsinachievingthecommongoal.
Thetermjointventuremaybeunderstoodasacooperationoftwoentitiesresultinginsettingupanewcompany(theinvestmentonsuchbasisiscarriedthroughthegivencompany,asdescribedbefore)oritmaybeonlyaveryclosecooperationbetweenthetwoentities,whichallocatecapitalforactivitiesimplementedjointlybysharingcostsandrevenuesunderajointventurecontract,withoutcreatingaseparatebusiness entity.
Theobjectivesforthecreationofjointventuresare:
• gainingaccesstonewmarkets,
• synergies,
• riskdiversification,
• achievingeconomiesofscale,
• providingaccesstocheapersourcesofsupply,
• jointdevelopmentandsharingoftechnology,
• overcomingbarriersandadministrativedutiescreatedbythecountryofoneofthepartners.
2.2.5 InvestmentFund-closed-endfund
ThePolishInvestmentFunds’activityiscomprehensivelyregulatedbytheActof27May2004onInvestmentFunds(hereinafterreferredtoastheActonInvestmentFunds).AccordingtothatAct,thesoleobjectoftheinvestmentfund’sactivityistoinvestthemoniesacquiredfromtheparticipantsinshares,securities,moneymarketinstrumentsandotherpropertyrights–includingrealproperty.
Investmentfundsdifferfromregularlegalentitiessuchascapitalcompanies,asaninvestmentfundmerelyformsanassetbaseconsistingofthepaymentsoftheparticipantsandtheassetsacquiredforthesaidpayments.
TheActontheInvestmentFundsdifferentiatesingeneralbetweenOpen-EndInvestmentFundandClosed-End
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InvestmentFund(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,itiscommonpracticethatalreadyexisting
ManagementCompaniesareengagedtotakethisrole.InsuchacaseaninvestormakesanagreementwithaManagementCompany.Consequently,theinvestoronlyholdsinvestmentcertificatesintheFIZandthroughthisstructureinvestsinparticularproperty.
TheManagementCompanyfulfilstwoprimaryfunctions:(i)atthebeginning-itactsasafounderoftheFIZ,(ii)whentheFIZisestablishedandregistered-itbecomesitsgoverningbody(representsFIZintransactionswiththirdparties).
InaccordancewiththeActonInvestmentFunds,theManagementCompanyshallbeliabletotheparticipantsintheFIZforallthedamagecausedbythefailuretoperformorimproperperformanceofitsdutiesasregardsthemanagementoftheFIZanditsrepresentation.
TheaboveshowsthatthestructureneededtoimplementFIZiscomplexandrequires:
a) engagingaManagementCompany,
b) establishinganFIZ,
c) establishingtheoperatingcompanies,whichmayacquiretherealproperty.
Nevertheless,establishinganFIZstructurehasimportantadvantages.Firstofall,itallowsforadditionalfinancingfortheinvestmentstoberaisedbysellinginvestmentcertificates.Thismaybeveryusefulinenteringinlarger,long-termrealpropertyinvestments.
Theuseofthisstructuremayallowthedeferral,orevenexemptionfromtaxation,oftheoperatingandcapitalgainsgeneratedfromtherealestate.
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Similarly,aforeigninvestmentfundestablishedintheEUorEEAcountrymaybeused(thePolishCITlawinforcefrom1January2011providesforsuchapossibilityexplicitly).Inthatcasealsoflow-throughpartnershipsmaybeusedtocreatetaxeffectivestructuresforoperationsonthePolishrealestatemarket.However,lackofwellestablishedpracticemakesitadvisabletoverifytheapplicabilityofthetaxexemptionineachcase.
InviewofthechangesintroducedintheCITlawasof1January2014,accordingtowhichpartnershipslimitedbysharesbecametaxpayers(similartolimitedliabilitycompanies),alternativestructuresusingaPolishorforeigninvestmentfundcanbeused.Thesetupoftheinvestmentstructureshouldbeplannedinadvance,duetoatime-consumingimplementationprocess.
Example of a FIZ structure
Foreign Investor
FIZ
SPV
Management Company
investment certificates
2.2.6 Public-privatepartnership
General remarks
Public-privatepartnership(hereinafterreferredtoasPPP)isoneoftherisingformsofcooperationbetweenpublicauthoritiesandtheprivatesector.Itallowsforanincreaseintheefficiencyofpublicservicesthroughtheuseofprivatesectorexperienceandforthesharingofriskbetweenpublicandprivateentities.
PPPenablesamutualadvantageforthepublicandprivatesector–forpublicentitiesitguaranteesanadditionalsourceofcapitalandasaconsequenceprovidesthepublicsector-withfundstoallocateforotherpurposes.Ontheotherhand,thepublicsectormayprovidetoprivateinvestorsthelong-termcertaintyofcashflowsfrompublicsources.
InPolishlawthelegalframeworkforPPPisestablishedbytwoactsthatregulatethecooperationbetween
publicentitiesandprivatepartners:
• theActof19December2008onPublic-PrivatePartnership,hereinafterreferredtoastheActonPublic-PrivatePartnership,
• theActof9January2009onConcessionforWorksandServices,hereinafterreferredtoastheActonConcessions.
ThemainsimilaritiesbetweentheActonPublic-PrivatePartnershipandtheActonConcessionsareasfollows:
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• cooperationbetweenapublicandprivatepartner,
• riskdivisionbetweenapublicandprivatepartner,
• privatepartnersreceivepaymentsfortheservicerendered,
• constituteaspecialformoftenderagreements.
Selection of the private partner
TheActonPublic-PrivatePartnershipbasicallydistinguishestwowaysofselectingtheprivatepartner.Thewaysofselectiondependonthetypeoftheprivatepartner’sremunerationandareasfollows:
• Iftheremunerationoftheprivatepartnerisrepresentedbytherighttocollectbenefitsfromthesubjectofthepublic-privatepartnership,ormainlysucharighttogetherwithpaymentofanamountofmoneytheselectionoftheprivatepartnershallbedoneapplyingtheActonConcessionssubjecttoprovisionsoftheActonPublic-PrivatePartnership.
• Inothercases,theselectionoftheprivatepartnershallbedoneapplyingtheprovisionsoftheActofJanuary29,2004onPublicProcurementLaw(hereinafterreferredtoasPublicProcurementLaw)subjecttoprovisionsoftheActonPublic-PrivatePartnership.
IncaseswheretheActonConcessionsandPublicProcurementLawdonotapply,theselectionoftheprivatepartnerismadeinawaythatensuresthemaintenanceoffairandfree
competition,aswellastheprinciplesofequaltreatment,transparencyandproportionality.Ifthepublicpartnerbringsinrealestateasitsowncontribution,theprovisionsoftheActofAugust21,1997onthePropertyManagement(hereinafterreferredtoastheActonPropertyManagement)mustbetakenintoaccount.
Implementation of PPP
PursuanttotheActonPublic-PrivatePartnershippublicandprivateentitiesconcludeanagreementunderwhichtheprivatepartnercommitsitselftoimplementtheprojectatanagreedremunerationandtocoverinwholeorinparttheexpendituresforprojectimplementation,orcoverthemthroughathirdparty,whilethepublicentitycommitsitselftocollaborateforthepurposeofachievementoftheprojectgoal,inparticularbymakingitsowncontribution.ThePPPcontractcanalsoprovidethatforthepurposeofitsperformance,thepublicentityandtheprivatepartnershallestablishacompany,alimitedpartnershiporapartnershiplimitedbyshares.
Financial restrictions
ThetotalamountuptowhichbodiesofgovernmentadministrationcancontractfinancialliabilitiesonthebasisofcontractsofPPPinagivenyearisspecifiedintheBudgetAct.In2011,2012aswellasin2013itwasPLNonethousandmillion.
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However,asarule,thefinancingofaprojectfromtheStatebudgettotheamountexceedingPLN100millionrequiresaconsentissuedbytheministerresponsibleforpublicfinance(excludingthefundsallocatedforfinancingofoperationalprograms,thatarespecifiedintheActof6December2006onPrinciplesofDevelopmentPolicy.Whenissuingtheconsenttheministerresponsibleforpublicfinanceshallconsidertheinfluenceoftheplannedbudgetexpendituresonthesafetyofpublicfinance.
The concession contract – legal basics
TheActonConcessionsspecifiestherulesandproceduresforcontractingconcessionsforworksorservicesandthelegalprotectionmeasures.
Thedurationofaconcessioncontractshouldtakeintoaccounttherecoveryoftheconcessionaire’sexpenditureincurredwithreferencetotheperformanceoftheconcessionandshallbenolongerthan:
• incaseofconcessionforworks–30years;
• incaseofconcessionforservices–15years.
Wheretheexpectedtimelimitofrecoveryoftheconcessionaire’sexpenditureincurredwithreferencetoperformanceoftheconcessionislongerthantheperiodspecifiedabove,thecontractmaybesignedforalongerterm.
Theconcessionaireundertheconcessionsignedwiththeconcession-grantingauthorityisobligedtoperformthesubjectofconcessionforremuneration,whichconstitutesincaseof:
• theconcessionforworks–exclusivelytherighttousetheworkorsuchrightwiththepaymentbyconcession-grantingauthority;
• theconcessionforservices-exclusivelytherighttousetheserviceorsuchrightwiththepaymentbyconcession-grantingauthority.
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2.3.Realestatefinancing
2.3.1.ModesoffinancingtheSPVs/investments
Themostimportantthinginstartinginvestments,istoprovidefinancingfortheSPVs,sotheycanoperateandacquirerealproperty.
Thereareseveralmethodsoffinancingthecompany,somefundscanbereceivedfromoutside,butsomemaycomefromthecapitalgroup–e.g.fromtheparentcompany.Inmanycasesbothsolutionsarepossible.
Loan and credit agreement
Byloanagreementalenderundertakestotransfertheownershipofacertainamountofmoneyorgoodstoaborrower,whileaborrowerundertakestoreturnthesameamountofmoneyorthesameamountofgoodsofthesamekindandthesamequality.Loanscanbegrantedbyanyentity/personandmayberelativelyfreelyregulatedbytheparties.
Acreditagreementisaspecifickindofexternalfinancing,whichisregulatedbytheBankingLawof29August1997andcanbegrantedonlybybanks.Byacreditagreementabankagreestoprovideaspecificamountofmoneyforaspecificpurposeandtime,andtheborroweragreestousethecreditforitsintendedpurpose,andpaybacktheamountofcreditalongwithduerewardintheformofbankinterest.
Onthefinancialmarketthereisawidechoiceofbankcreditsandtheirpricedependsonvariousfactorsas:duration,securitiesavailable,financialconditionoftheborrower.Additionally,banksmay
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chargetheborrowerapreparationfeeforallworkconnectedwiththepreparationofthecredit.
Banksalsogenerallyrequiresecuritiesforthecredits.Amongothers,themostpopularare:
• mortgages;
• sharepledges;
• assetandbankaccountpledges;
• powersofattorneytobankaccounts;
• securityassignmentsofreceivablesoftheborrower;
• submissionstoexecution;
• subordinationagreements.
AmortgageisthecommonformofsecurityrequiredbyPolishbanks–especiallyrequiredinrealestatefinancingtransactions.
Mortgageshallbedefinedasaright,underwhichthelender(creditor)maysatisfyhisclaimsfromtheproperty,regardlesswhoisthecurrentowneroftheproperty,andwithpriorityoverotherpersonalcreditorsoftheborrower,whosecreditsarenotsecuredwithmortgage.
AmortgagebecomeseffectiveafterenteringintheLandandMortgageRegister.Theentrytakeseffectatthedateoffiling,soeventhoughtheregistrationmaytakeseveralmonths,marketpracticeissuchthatbankspayouttheamountofthecredituponreceiptofconfirmationoffilingoftheapplicationforregistration.
Amortgageisaverysecuresolutionforthebank,asinthecaseofthedebtornotbeingabletopayoffhisdebt,thereal
propertymaybesoldinapublicauctionandthus,thebankmayretrievethewholeamountofdebt.
Shareholder’s loan
Aloanfromshareholdershastwoimportantadvantagesoverthebankloan.First,itisingeneralacheapersolutionandwhatismore,itdoesnotbaretheriskofenforcementincaseofdifficultfinancialsituationoftheborrower.
Itisimportanttomentionthespecificrulesresultingfromart.14§3oftheCommercialCompaniesCode,whichprovidesthatshareholder’sclaimresultingfromaloanshallbeconsideredtobehiscontributiontothecompanyincaseofdeclarationofbankruptcywithintwoyearsfromthedateoftheloanagreement.However,theabovedoesnotconstituteanincreaseinthesharecapitalofthecompany,andthecontributionistreatedasmadeonthesupplementarycapital.Thisprovisionisintendedtoprotectcreditorsofthebankruptcompany.
Bonds
Bondscanbeissuedbyajoint-stockcompany,alimitedliabilitycompanyandapartnershiplimitedbyshares.Bondscanbedefinedassecurities,whichobligetheissuer(thecompany)togivecertainbenefitsincashorinkindtothebondholder(thebuyerofthebonds).Companiescanissueregisteredorbearerbonds.
Theadvantageofthisformoffinancingistheabilitytofairlyfreelydetermine
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thebenefitsthatareassociatedwithbonds.Theconstructionofthesecuritydoesnothavetobelimitedtoasimplefinancialbenefitintheformofrepaymentofthebondsplusinterestrepresentinganincomeofthebondholder.Whileissuingbonds,thecompanyisfreetoformulatethegratificationtobeprovidedtobondholders,suchasthepossibilityofparticipatinginprofitsofthecompany,ortheconversionofbondsintoshares.
Thebondsmaybedistributedonanopenmarket,insearchforanoutsidefinancing,orserveasamodetotransferfundsfromanotherrelatedcompany.ItshouldbenotedthatthereareseveralcompaniesintherealestatesectorlistedonthePolishbonds’openmarket.
InthecaseofSPVswhichaimtoobtainfinancingfromtheshareholders,thegratification(amutualbenefit)totheparentcompanyasabondholderwillbeofsecondaryimportance.ApracticalsolutionisthatiftheSPVgeneratefutureearningsfromrealproperty,bondscouldentitlebondholderstoparticipateintheprofit.Duetothehighdegreeoffreedomintheframeworkofthisinstrument,itisveryrecommendedasanoptimalwaytobringthefundsdownwards.
Wewouldliketonote,however,thattheissuingofbondscreatesadditionalobligationsforthebondissuer,relatedtoprovidingdatatoassessthefinancialconditionofthatentity.Additionally,iftheissueroperatesformorethanayear,itisrequiredtoprovidefinancialstatementspreparedasatthebalance
sheetdate,noearlierthan15monthsbeforethedateofthepublicationofthetermsofissuingthebonds,alongwiththeauditor’sopinion.
Promissory notes
InordertoobtainfinancingSPVsmayissuepromissorynotes.
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.
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Increase of share capital
Raisingcapitalisacommonwayoffinancingcompanies.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.
AsignificantdrawbackofthismethodoffinancingSPVsisrelativelydifficult
processofwithdrawingtheinvestedcapital.Thisiscarriedthroughthereductionofsharecapital(Articles263-265oftheCommercialCompaniesCode),whichinvolvesagainadditionalcosts(notification,registration)andistime-consuming(e.g.includesthreemonthsforobjectiontothereductionthatcanbebroughtbycreditors).
Additional contributions
ThismethodoffinancingisprovidedbytheCommercialCompaniesCode,butitisapplicableonlytothelimitedliabilitycompany.Accordingtotheprovisions,thearticlesofassociationofthecompanymayrequirethepayments(additionalcontributions)fromtheshareholdersinaspecificamountpaidbytheshareholdersinproportiontotheirshares.Infact,itisworthnotingthatpartnershipagreementscanalsoobligethepartnerstoadditionalpayments–suchasolutionispossiblebasedonthefreedomofcontractprinciple.
Paymentsofadditionalcontributionsinalimitedliabilitycompanydonotaffectthevalueofsharesinthesharecapitalofthecompany,andthereforethesharecapitalofthecompanyremainsunchangedaftertheadditionalcontributions.Thepaymentsincreasethecompany’sownfunds,whicharethusquitefreelyallocatedforthespecificneed,andthisiscertainlybeneficialfortheSPV.Theamountandtimingofpaymentsisdecidedbytheshareholders’meeting.
Asmentionedabove,thegeneralobligationtoadditionalcontributionshastobe
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stipulatedinthearticlesofassociation(ifsucharticlesdonotcontainsuchprovisions,itwouldbenecessarytoamendthem,asotherwiseadditionalcontributionsarenotpossible).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 financing
WhenaPolishcompanyisfinancedthroughequity,thefundsrequiredfortheinvestmentarereceivedinexchangeforthesharesinthecompany.Equityfinancingisgenerallysubjecttoa0.5%civillawtransactiontaxwithcertainexceptionsforrestructuringandreorganizationtransactions.Contributionstoareservecapital(sharepremium)shouldnotbesubjecttocivillawtransactiontax.
Generally,forPolishcorporateincometaxpurposes,acontributioninkind(exceptforthecontributioninkindofabusinessoranorganizedpartthereof)isataxableeventforthecompanymakingthecontribution,andissubjecttothestandardcorporateincometaxrate,currently19%.However,foreignentitieswillusuallybeexemptfromPolishtaxationundertherelevanttaxtreaty.
Sharesinthecompanygiveshareholderstherighttocontrolthecompanyandtherighttofinancialbenefitsfromthecompany.Theincomeofthecompanygeneratedthroughitsoperationsissubjecttocorporateincometax.Anyafter-taxprofitscanbedistributedtoshareholdersintheformofdividends.Theshareholdersarenotonlyentitledtodividendsbutalsotoashareofanyproceedsuponliquidationinproportiontotheirshareholdings.
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Additionalpaymentsarecontributionsmadebytheshareholder(s)ofalimitedliabilitycompanywherenosharesareissuedinexchange.Usuallythesepaymentsaremadewhenthecompanyhasmadeafinanciallossanditslevelofequityislowerthanthenominalvalueofitsissuedsharecapital.Ifthecompany’sarticlesofassociationallowsuchadditionalpaymentstobemade,andlaterrepaidtotheshareholders,thenreceiptandrepaymentisnotsubjecttotaxation.Compensationformakingtheadditionalpaymentsmaybepaidtotheshareholdersintheformofinterestpayablebythecompany.Whenpaid,suchinterestshouldbetreatedasanon-taxdeductiblecost.
Taxation of dividends
DividendsdistributedbyaPolishcompanytoaforeignowneraregenerallysubjecttoa19%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.
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Itisuptothecompanypayingthedividendtodeterminetheapplicablewithholdingtaxrate.ThePolishwithholdingtaxsystemisnot“apayandrefundsystem”.ThePolishcompanydistributingthedividendcanbeheldliableformistakes,e.g.ifitappliesanincorrecttaxrate.AcertificateissuedbyaforeignlocaltaxofficeconfirmingthetaxresidenceoftheforeignshareholderreceivingdividendpaymentsfromPolandmustbeobtainedbythePolishcompanyinordertoallowapplicationofthelowerwithholdingtaxrateorexemption.AnadditionalrequirementisthatthePolishentity paying dividends should also hold awrittenconfirmationfromtherecipientthatthelatterdoesnotbenefitfromtaxexemptiononitsworldwideincome.
DividendspaidbetweencompanieswhichareresidentinPolandfortaxpurposesareexemptfromwithholdingtaxprovidedthatthedividendrecipienthasheldorwillhold(onorafterthedaywhenthedividendisreceived)atleast10%ofsharesinthedividendpayingcompanyforatleasttwoyears.Iftheaboveconditionsarenotmet,non-creditablewithholdingtaxisleviedondividendsattherateof19%.
Redemption of shares and liquidation distributions
TheredemptionofsharesandthereturnofequitytoshareholdersarepermittedunderPolishlaw.Theformalprocedureistime–consumingandusuallytakesseveralmonths.
Standard,voluntaryredemptionofsharesissubjecttothesametaxtreatmentasdisposalofshares.ItmeansthatasarulesuchredemptionwillbesubjecttotaxinPoland,unlessrelevantdoubletaxtreatyprovidesfortaxexemption.
Otherthanvoluntaryredemptionofshares(compulsoryredemptionofshares)aswellasliquidationistaxedinthesamewayasdividendsandissubjecttotheapplicablewithholdingtax(takingintoconsiderationtheappropriatetaxtreaty)orwithholdingtaxexemptionbasedonthePolishCITlawprovisionsimplementingtheParent–SubsidiaryDirective.
Asregardsliquidationproceeds,accordingtothecurrentapproachofthePolishtaxauthorities,uponliquidation,theentitythatceasestoexististaxedasifitdisposedassetswhicharetransferredtotheshareholder.Thisapproachisnotsharedbythecourtsthough.
Thesimilarapproachtendtobeappliedtoinkindremunerationforredeemedsharesordividendsinkind.
However,asof1January2015thePolishCITprovisionsexplicitlystatethatincaseofinkindremunerationforsettlingtheliability(e.g.uponsharesredemptionorinkinddividendpayment)thevalueofliabilitysettledinsuchawayconstitutesataxablerevenueofthepayingentity.Thisappliesrespectivelyalsotolookthroughentities.
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Debt Financing (Loans): civil law transaction tax
Loansaregenerallysubjecttocivillawtransactiontaxatthelevelof2%oftheloanprincipal.Thetaxmustbepaidwithin14daysofthedateoftheloanagreement,andthetaxliabilityrestswiththeborrower.
Nevertheless,thefollowingtypesofloansareexemptfromtaxation:
• loansgrantedbyshareholderstoalimitedliabilitycompanyorjointstockcompany;
• loansgrantedbyforeignentitieswhichareengagedincreditandfinancingactivities(suchasgrouptreasurycompanies);
• loansrecognizedasanactivitysubjecttoPolishorforeignVAT(e.g.bankloans);
• financinggrantedasapartofbusinessactivityisrecognizedasafinancialservicespecificallyexemptfromVAT;therefore,nocivillawtransactiontaxapplies.
Withholding tax on interest
Generally,interestpaidfromPolandtoaforeignlenderissubjecttoa20%withholdingtax.Thisrateappliesunlesstherelevanttaxtreatyprovidesotherwise.PleaseseeAppendixforalistofwithholdingtaxratesunderPoland’svarioustaxtreaties.Underthetaxtreaties,itisgenerallystipulatedthatifwithholdingtaxispayableitcanbecreditedagainstthecorporateincome
taxoftheforeignlender.Asinthecaseofdividends,inordertoapplyatreatyrate,acertificateconfirmingthetaxresidenceoftheforeignlendermustbeobtained.
AfterjoiningtheEuropeanUnion,PolandimplementedtheEUDirective2003/49/EConthecommonsystemoftaxationapplicabletointerestandroyaltypaymentsmadebetweenassociatedcompaniesofdifferentMemberStates.OneofthemainpurposesoftheDirectiveistoabolishwithholdingtaximposedbythecountryfromwhichpaymentsofinterestandroyaltiesoriginatewhensuchpaymentsaremadebetween“qualifyingEUentities”,i.e.paymentsmadebetweenparentandsubsidiary,subsidiaryandparentandbetweendirectsistercompanies(inallcasesaminimum25%stakeand2yearholdingperiodisrequired).Asaresultofthat,awithholdingtaxexemptiononinterestpaymentsmadebetweenparentandsubsidiary,subsidiaryandparent,andbetweendirectsistercompanies(inallcasesaminimum25%stakeand2yearholdingperiodisrequired)isavailablefromJuly2013.The2-yearholdingperiodconditioncanbealsometprospectively,i.e.aftertheactualinterestpayment.Iftheconditiontoholdsharesforanuninterruptedperiodof2yearsisnotsatisfied,outstandingwithholdingtax(asarule20%)togetherwiththepenaltyinterestforlatepaymentwillbedue.Penaltyinterestischargedfromthedayfollowingthatthedayonwhichtheaboveperiodexpires.
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PolandwasgrantedaneightyeartransitionalperiodforthefullimplementationoftheDirectiveintoPolishdomesticlaw.Asaresult,until30June2013withholdingtaximposedoninterestandroyaltypaymentsmadetoqualifyingEUentitiesbyPolishentitywas5%.
Inordertobenefitfromthatfavorabletreatmentthepayershouldholdrecipient’scertificateoftaxresidence.Anadditionalrequirementisthatthepayershouldalsoholdtherecipient’sconfirmationthattherecipientdoesnotbenefitfromthetaxexemptiononitsworldwideincome.
Tax deductibility of interest paid on loans
Generally,interestonloansisdeductiblefortaxpurposeswhenactuallypaidorcompounded(addedtotheprincipalsothatitconstitutesabasisfornewinterestcalculation),i.e.accruedinterestmaynotbetreatedasataxdeductiblecostuntilitisactuallypaidorcompounded.
Ingeneral,itshouldbepossibletotreattheinterestonloansdrawntoacquiresharesinaPolishcompanyastaxdeductible.Carefultaxplanningis,however,alwaysrequiredinall“debtpushdown”structures.
Itisimportanttonotethatinterestaccruedduringthedevelopmentofrealestateonthepartoftheloanusedto
financethatdevelopmentisnotdirectlydeductible.Thecostofsuchinterestshould be added to the initial value of thenewlydevelopedrealestate(i.e.thenewbuilding)inordertoincreasethescopeofitsfuturedepreciationfortaxpurposes.However,thisruleappliesonlytorealestatewhichisthecompany’sownfixedasset.Itdoesnotapplytoprojectsconstructedforresale(e.g.residentialprojects).Insuchcases,interestistreatedastaxdeductibleunderthegeneralrules.
Level of interest
ThePolishtaxauthoritiesareusuallyinterestedintheconditionsofloanagreementsconcludedbetweenrelatedparties.Theseconditionsshouldbethesameas,orcomparableto,thesortoffinancingconditionswhichnon–relatedpartieswouldagreeupon,inaccordancewith“thearm’slengthprinciple”.Toohigh
aninterestratecouldleadtoanadjustmentofthePolishborrower’staxableincome.Inaddition,otherconditionsintheloanagreementwhichareunjustifiableorunfavorabletotheborrowercouldresultinfurthertaxadjustments.Accordingtoregulationsgoverningthedocumentationoftransactionsbetweenrelatedparties,taxpayersarerequiredtopreparespecifictransferpricingdocumentationorriskpayinga50%rateonanyadditionaltaxableincomeassessed.
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Restrictions on the tax deductibility of interest paid on loans
ThePolishthincapitalizationruleshavebeenamendedasof1January2015.
Accordingtothetransitionalprovisionsnewrulesapplytointerestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerafter1January2015.Therefore,asregardsinterestpaidonloanswithrespecttowhichfundsweremadeavailabletotheborrowerbeforethatdate–oldrulesapply.
Old rules
ThePolisholdthincapitalizationrulesrestrictthetaxdeductibilityofinterestontwotypesofloans(credits)grantedbycertainentities:
• loans(credits)grantedtothetaxpayingcompanybyitsshareholderholdingnotlessthan25%ofthevotingrightsinthecompanyorloans(credits)fromshareholdersholdingjointlynotlessthan25%ofthevotingrightsinthecompany(“mothercompany”loans);
• loans(credits)grantedtothetaxpayingcompanybyanothercompany,ifthesameshareholderholdsnotlessthan25%ofthevotingrightsineachofthesecompanies(“sistercompany”loans);
wherethedebttoequityratio(theratioofthevalueofthedebtpayabletocertainentitiestothevalueofthesharecapital(seebelowfordetails)exceeds3:1atthedateoftheinterestpayment.Intereston
theloans(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:
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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
Polish Real Estate Company
Assumption:
PREC’snominalsharecapitalis 50
Debtlimitis 150
Total loans 200
Partofloansexceedingthreshold 50
Example 3
Polish Company
Polish Real Estate Company
CorporateInvestor50
50
100
Investment Company
Assumption:
PREC’snominalsharecapitalis 50
Debtlimitis 150
Total loans 200
Partofloansexceedingthreshold 50
= minimal 25% voting right relationship
= loans subject to thin-cap
= loans qualifying for calculation of debt limit
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New rules
Thenewrulesrestrictdeductibilityofinterestonabroaderrangeofloansthantherulesinforceuntiltheendof2014.Asof1January2015,generallyinterestonallintra-grouploans(alsothosefromindirectlyrelatedentities)maybesubjecttodeductibilityrestriction.
Underthenewthincapitalizationrules,ifthevalueofdebtowedtospecifiedrelatedpartiesexceedsthenetequityoftheborrower(1:1debttoequityratio),part(calculatedbasedonaproportion)ofinterestpaidonaloanfromarelatedpartyisnotdeductiblefortaxpurposes.Forthepurposesoftheserules,equityisdeterminedonthelastdayofthemonthprecedingthemonthofinterestpaymentwithouttakingintoaccountrevaluationreserveandsubordinatedloans.Thevalueofequityisfurtherdecreasedbythevalueofthesharecapitalthatwasnotactuallytransferredtothiscapitalorwascoveredwithshareholder’sloans’receivablesandintangiblesthatarenotsubjecttoamortization.
Thedefinitionofaloancoversanyformofdebtfinancing,includingtheissuanceofbonds,creditsandbankandnonbankdeposits.Thedefinitiondoesnotcoverderivatives.
Thethin-capitalizationrulesapplytointerestonloansgrantedbyPolishandforeignqualifiedentities.Theycoverthefollowingloans:
• loansgrantedbyanentitythatholdsdirectlyorindirectlyatleast25%ofthevotingrightsintheborrower,
• loansgrantedjointlybyentitiesthatjointlydirectlyorindirectlyholdatleast25%ofthevotingrightsintheborrower,
• loansgrantedbyonecompanytoanothercompanyifthesameentityholdsdirectlyorindirectlyatleast25%ofthevotingrightsinboththelenderandtheborrower.
Forgeneralpartnersinalimitedjoint-stockpartnership,theconditionsconcerningtheminimumshare(votingrights)arefulfilled,regardlessofthegeneralpartner’sshare.
Asof1January2015thetaxpayershavealsoarighttooptforanewalternativethin-capitalizationcalculationmethod.Ifchosenbythetaxpayer,theabovementionedmethodappliestointerestpaidtobothrelatedandunrelatedparties.TherecognitionofsuchinterestfortaxislimitedtotheamountoftheNationalBankofPoland’sreferencerateplus1.25percentagepointandthetaxvalueofassetswithinthemeaningofAccountingAct(excludingintangibleassets).
Thevalueofinterestrecognizedbytheentitycannotbehigherthanthevaluecorrespondingto50%oftheprofitfromoperatingactivities(thisconditiondoesnotconcern,generallyspeaking,banksandfinancialinstitutions).
Interestnotdeductedinagiventaxyearcanbedeductedinthefollowingconsecutive5taxyears.Ifataxpayerdecidestousethismethoditshouldbeusedforatleast3taxyears.
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Tobeentitledtoapplytheaboverules,taxpayersaregenerallyobligedtofilerelevantnotificationtothetaxauthoritiesnotlaterthantilltheendoffirstmonthoftheirnewtaxyear.
Foreign currency financing
AstheforeigncurrencyliabilitiesarereportedforaccountingpurposesinPLN,foreignexchangedifferences(gainsorlosses)accrueintheaccountingbooksofthePolishcompany.Foreignexchangedifferencesaccruealsoonloanliabilities
inPLNdenominatedinforeigncurrencies.Thesegainsorlossesarerecognizedfortaxpurposesonlywhenrealized,i.e.whentherelatedliabilityispaidorsetoff.However,auditedcompaniescanreportforeignexchangegainsorlossesinaccordancewithaccountingstandardsuponnotifyingthetaxauthorities,providedthatsuchreportinginaccordancewithaccountingstandardswillcontinueforaperiodofatleastthreetaxyears.
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2.4.Acquisitionofrealestate–assetdealandsharedeal
2.4.1.Generalremarks
Asmanyotherjurisdictions,Polishlawprovidesdifferentmethodsofacquiringrealestatebyaninvestor,amongwhichanassetdealandasharedealarethetwomostcommonlyused.
Bothmethodsbearvariouslegalandtaxconsequenceswhichhavetobeconsideredinanygivencaseandthereforethereisnogenerallyacceptedrulewhenasharedealoranassetdealshallbeapplicable.Theinterestsofthesellerandthebuyer,theparticularsofthecaseandthepowerofeachpartytonegotiatehavetobeconsideredwhilechoosingoneofthesetwoforms.
Inpractice,ifasharetransactionisproperlystructured,thiscanbethemosttaxefficientdisposalmethodtouse.Inawell–organizedcorporatestructure,taxesoncapitalgainscanbeentirelyavoidedorinsomecasesdeferred.
Fromthebuyer’sperspective,itisusuallymoretaxefficienttobuythepropertydirectlythantobuysharesinacompanyholdingtheproperty.Thebuyercanthendepreciateasmuchastherealmarketvalueofthebuildingfortaxpurposes.Ontheotherhand,ifthesharesareboughtatahigherpricethanthebookvalueofthecompany’sassets,goodwillpaidinreturnforthesharescanberecognizedforaccountingpurposes.Unfortunately,suchgoodwillcannotbeamortizedfortaxpurposes.Furthermore,acompanyowningrealestatewithalowbookvaluehasadeferredtaxexposurewithrespecttoanyfuturecapital
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gainsmadeonthedisposalofthatrealestate.Thus,thebuyerofshareswillmostlikelytrytonegotiateadiscountonthetransactionpricetoeliminatethisnegativetaxaspect.
Thepurposeofthischapteristooutlinethemainfeaturesofthesetwotypesofrealestatetransactionfrom
boththelegalandtaxperspectives,andtoexaminetheconsequencesofeachstructure.
2.4.2.Legalaspects
Definition of a share deal and asset deal
Despitethefactthatthesharedealandassetdealareequallypopular,theirobjectandmannerofconductingaredifferent.Thekeydifferencesbetweenthesetwomethodsofacquisitionconcerntheextensionandnatureofpurchaseditemsandarepresentedbelow.
• Asharedealisdefinedasatransactioninvolvingacquisitionofsharesinacompanyasaresultofwhichthebuyerpurchasesthewholeorapartofthesharesinthesharecapitalofthecompany(i.e.thetargetcompany).Thus,insuchtransaction,thepurchaserbecomestheownerofthesharesanddoesnotobtainanydirectrightstotheassets(i.e.forinstancerealestate)whichremainthepropertyofthetargetcompany.Sinceinthistransactionaninvestorpurchasessharesinthetargetcompany,italsoacquirestheriskrelated
totheliabilitiesofthiscompany(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.onedoesnotactingoodfaithifknew,orshouldhaveknown,thatthelegalstatusofthepropertyisdifferentthantheoneresultingfrom
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theregister).Suchaguaranteedoesnotapplytothepurchaseunderasharedeal,inwhichthevalidityofthecompany’stitletothepropertyissupportedbytheseller’srepresentationsandwarrantiesthatareincludedinthesharepurchaseagreement.
Representations and warranties
Inordertosecurethepurchaser’sinterestextensiverepresentations,warrantiesandrelatedindemnitiesshouldbeincludedinthesharepurchaseagreement.Thisisusuallyoneofthemostimportantpartsoftheagreementsubjecttoextensivenegotiations.ThescopeofwarrantiesandrepresentationsaswellasdetailedlegalconsequencesoftheirbreachhavetoberegulatedinthesaleagreementindetailsasPolishlawdoesnotprovideforaspecificlegalregulationofthisissue.
Pleasenotethatrepresentations,warrantiesandaccompanyingindemnitiesincludedintheassetsaleagreementareusuallylessextensivethaninasharepurchaseagreement.
• Inanassetdeal,theseller’srepresentationsandwarrantiesconcern,inparticular,thevalidityoftheseller’stitletotherealestate,theinformationregardingencumbrances(ifany),thestatementconfirmingthatthedevelopmenthasbeencarriedoutinaccordancewiththebindingprovisionsoflawandtechnicalplansandthatrelevantpermitsarevalid.
• Theseller’srepresentationsandwarrantiesinasharedealusuallyincludetherepresentationsand
warrantiestypicalforanassetdealregardingrealestate,butalsoextensiverepresentationsandwarrantiesrelatingtoallaspectsofthecompany’sactivity:inparticulartax,employment,accounting,corporateandcontractualmatters.
Itisrecommendedthatthesaleagreementprovidesforspecificinstrumentssupportingtheenforceabilityoftheindemnitiessecuringtherepresentationsandwarranties.Inmarketpractice,partofthepurchasepriceisretainedinanescrowaccountorabankguaranteeisobtainedfromtheseller.
Types of agreements
Thereisanumberofdocumentsrelatedtobothtransactions.Usually,inordertoclearlystatetheintentions,goalstoachieveduringnegotiationsandthekeyprinciplesofthetransaction,thepartiessignaletterofintentpriortosigningtherealestatepurchaseagreement.Suchletterisagoodsolutionforpartieswhointendtoconductmulti-stagenegotiationsandtothosewhowouldliketoagreeonminordetailsofthetransaction.Insuchacase,partiesmaydeterminethetimeframeofthenegotiationsandthemomentoftheircompletion,aswellasallissuesthathavetobediscussed.
PursuanttothePolishlaw,thelegaltitletothepurchasedpropertyorsharesofacompanyholdingtherealestateistransferredonthebasisofanagreementexecutedintherelevantform.
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Incasewhencircumstancessurroundingthetransactionarestraightforward,suchagreementmaybeexecutedimmediately,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,allconditionsforeseenbyapreliminaryagreementneedtobefulfilledortheobligationtosatisfytheseconditionsneedstobedisclaimed.Inthatcase,theexecutionofanunconditionalagreementcompletesthetransaction.
Transfer of the property-related rights
Inmanytransactions,itisnecessarytoobtainvarioustypesofconsentsorpermitsregardingthetransferoftherightsrelatedtotheproperty,thelackofwhichmayaffectthelegaleffectoftheentiretransaction.
Inthesharedealthepurchaserdoesnotobtainanydirectrightstotheassetsastheseremainthepropertyofthetargetcompany.Consequently,theproperty-relatedrightsandobligations(suchasleases,propertymanagementagreements,warrantyclaimsunderconstructioncontractsandcontractsofinsurance,permits)remainwiththecorporateentityholdingtherealestateandnoformalassignmentisrequired.
Intheassetdeal,theproperty-relatedrightsandobligationsarenotautomaticallytransferredasaresultofthesaleagreement.Incaseofcontractsasfortheformalassignmentitis,ingeneral,necessarytoobtaintheconsentoftheotherpartyofeachcontract.Incaseoflicenses,decisionsetc.itshouldbeanalyzedcasebycasewhatactionshavetobeundertakeninordertotransferthemtothepurchaser.This
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meansthattheabilitytoassigntheproperty-relatedrightsorassumingtheobligationsisexaminedindividually,inlightofspecificregulationsorcontractualprovisions,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.Suchrequirementdoesnotapplytothesharepurchaseagreementwhichcanbegovernedbyaforeign
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law(providedthatconclusionoftheagreementisconnectedwiththelawofatleasttwodifferentcountries).
• Costs
Propertypurchaseagreementrequiresthenotarialdeedform,whichissubjecttoanotarialfee,depending on the value of the transaction,butnotexceedingPLN10,000foreachagreement.ThefeeforthecertificationofsignaturesismuchloweranddoesnotexceedtheamountofPLN300forcertificationofeachsignature.
Merger control
Duediligencereviewprecedinganyassetorsharedealshouldanswerthequestionwhetherthelegislationgoverningmergercontrolwillbeapplicable,inparticular,whetheranotificationofthetransactiontotheOfficeofCompetitionandConsumerProtectionisrequired.Shouldsuchnotificationberequired,theclosingofthetransactionmustbesuspendeduntilthepermitoftheOfficeofCompetitionandConsumerProtectionis issued.
AnotificationontheplannedtransactiontotheOfficeofCompetitionandConsumerProtectionisrequiredifanyofthefollowingconditionsismet:
• thecombinedworldwideturnoverofundertakingsparticipatingintheconcentrationinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR1billion,or
• thecombinedturnoverofundertakingsparticipatingintheconcentrationintheterritoryofPolandinthefinancialyearprecedingtheyearofthenotificationexceedstheequivalentofEUR50million.
However,thePolishantitrustlawprovidesforcertainexceptionsfromtheobligationofnotificationeveniftheaboveconditionsaremet,inparticular,whentheturnoveroftheundertakingoverwhichthecontrolistobetakendidnotexceedintheterritoryofPolandinanyofthetwofinancialyearsprecedingthenotification,theequivalentofEUR10million;theconcentrationarisesasaneffectofinsolvencyproceedings,excludingthecaseswherethecontrolistobetakenoverbyacompetitororaparticipantofthecapitalgrouptowhichthecompetitorsoftheto-be-takenundertakingbelong;theconcentrationappliestoundertakingsparticipatinginthesamecapitalgroup.
The pre-emption rights
Itmayhappenthatthepublicauthoritieshaveastatutorypreemptiverighttorealestatewhichisabouttobesold.Therightofpre-emptionisarighttoacquirethepropertybeforeitcanbepurchasedbyanyotherpersonorentity.Wheretherealestateissubjecttoarightofpre-emption,itmayonlybesoldtoathirdpartyundertheconditionthatthebeneficiaryofthatrightdoesnotexerciseit.Ifsuchapropertyissoldwithoutobservingthisright,thesaleisconsideredtobenullandvoid.
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Thenotaryexecutingtheconditionalagreementwillsendacopyofittothelocalauthority,whichmaythenexerciseitspreemptiverightwithinonemonthofreceivingtheconditionalagreement.Ifthepublicauthoritydoesnotexerciseitspreemptiverightwithinthatperiod,thepartiescanconcludethefinalagreement,whicheffectstheunconditionaltransferofthetitletotherealestate.
Acquisition of real estate by foreigners
ForeignersfromtheEuropeanEconomicAreaorSwitzerlandmayquitefreelyacquirerealestateinPoland.TheyarerequiredtoobtainaspecialpermitoftheMinisterofInternalAffairsonlyiftheywishtoacquireagriculturalandforestlandduringtheperiodof12yearsfromPoland’saccessiontotheEuropeanUnion(i.e.upto1May2016).Inconsequence,obtainingapermitisnotnecessaryinthecaseofacquiringotherrealestateinPolandandacquiringortakingupsharesincompaniesthatareownersorperpetualusufructuariesofrealestatelocatedinPolandeveniftherealestateisagriculturalorforestryland.
Asfarasotherforeignersareconcerned,ingeneraltheacquisitionoftherightofownershiptorealestateortherightofperpetualusufructonthebasisofanylegaleventbysuchentitiesrequiresapermitoftheMinisterofInternalAffairs.Apermitisissueduponthewrittenrequestprovidedthat:
• aforeigner’sacquisitionofrealestatedoesnotposeathreattotheState’s
defense,nationalsecurity,publicorderandisnotcontrarytothesocialpolicyandpublichealthconsiderations;
• theforeignerprovesthattherearecircumstancesconfirminghisbondswithPoland(i.e.forexamplethebuyerhasPolishoriginsorisconductingbusinessoragriculturalactivitiesintheterritoryofPolandunderthePolishlaw).
TheMinister’sdecisionconcerningrealestateacquisitionshouldbeissuedwithinonemonth(twomonthsinparticularlydifficultcases).Thepermitisvalidfortwoyearsfromthedayofissuance.
Theacquisitionofrealestatewithoutapermitisinvalid.AforeignerintendingtoacquirerealestateinPolandmayapplyforapromiseofthepermit.Thepromiseofthepermitisvalidforoneyear.Duringthisperiodapermitcannotberefusedunlesstheactualcircumstancespertinenttothedecisionhavechanged.
Acquisition of real estate from public entities
InPoland,realestateisoftenacquiredfromtheStateorlocalauthorities.Suchtypeofacquisitionisconsideredtobesafeandanattractivealternativetoacquisitionofrealestatefromprivateowners.Nevertheless,inpractice,acquisitionofrealestatefrompublicentitiesissubjecttoadditionalspecificrequirementssuchasanobligationtodisposethelandviapublictenders.
AninvestorinterestedinacquiringrealestatefromtheStateorlocalauthorities
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shouldasktheauthoritiesforinformationonthecontemplatedpropertytobeacquired.Unfortunately,itisnotpossibletopurchasesuchrealestateonthespot,asthereisaspecialprocedureofsellingrealestateheldinpublicentities’possession.Withonlyafewexceptionsprovidedbythelaw(e.g.realestatebeingsoldtoitsperpetualusufructuary),realestateheldbytheStateorlocalauthoritiesmaybedisposedbywayofpublictender,afteralengthyprocedureiscompleted.
2.4.3.Taximplications
Asmentionedabove,realestatecanbesoldeitherthroughadirectsaleoftheproperty(anassetdeal)orindirectlythroughasaleofthesharesinthecompanyowningtheproperty(asharedeal).ThesetwotypesoftransactionsareaffordeddifferenttreatmentbythePolishtaxregulations.
Asset deal
TherevenuesgeneratedonthesaleofrealestatearesubjecttothestandardtaxationrulesofPolishcorporateincometax.Taxablerevenuesarereducedbythenetbookvalueoftheproperty.Effectively,onlythe“capitalgain”istaxedattherateof19%.Therevenuefromthesaleofrealestatemustbevaluedatthepricesetinthesalecontract.However,ifthepricedifferssubstantiallyandwithoutgoodreasonfromthemarketvalueoftherealestate,therevenuemaybeassessedbythetaxauthoritiesaccording
tothemarketvalue.Thistransactionpriceadjustmentmaybeappliedtotransactionsbetweenrelatedandunrelatedentities.Adjustmentstriggernotonlyahighertaxburdenbutalsopenaltyinterest.
ThePolishtaxsystemdoesnotincludeareplacementprovision.Therefore,thecorporatesellercannotdefertaxationofacapitalgain.
Costsincurredbythebuyerfortheacquisitionofrealestate:purchaseprice,transactioncostsincludingadvisory,civillawtransactiontax–ifapplicable,financialcostsaccruedtillthepurchase,etc.,formtheinitialvalueoftherealestateandarerecognizedastaxdeductiblecoststhroughdepreciationwrite-offsoruponsale.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofanybuildingseparately.
Starting1January2013taxdeductiblecostshavetobeadjustediftherelatedliabilityisnotsettledwithinthespecifieddeadlines.Effectivelythecostrecognitionisdeferreduntilthesettlementdate.Thisrulealsolimitstaxdeductibilityofdepreciationwriteoffs.
VAT on the acquisition of real estate
Thesupplyofbuildings,infrastructure,orpartsofbuildingsorinfrastructureisgenerallyVATexempt,exceptfor:
• thesupplyofabuilding,infrastructureorpartofabuildingorinfrastructurein
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thecourseofitsfirstoccupationorpriortoit;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)overlandfollowstheVAT
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treatmentofthebuildingsdevelopedonthe land.
AnexceptiontotheaboveruleiswhenanRPUisacquiredforthefirsttimefromtheStateorlocalauthority,inwhichcase,theRPUisalwayssubjectto23%VAT,eventhough the buildings developed on the land maybeexemptfromVAT.
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,includinganygoodwillthatwouldcrystallizeonsuchtransfer).Civillawtransactiontaxconstitutesanadditionalcostofthetransactionandisnon-recoverable.
Recoverability of input VAT
InputVATisrecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhicharesubjecttoVAT(e.g.leaseofthecommercialrealestate).InputVATwillnotberecoverableifthecompanyperformsorintendstoperformactivitiesinthefuturewhichareVATexempt.Ifthisisthecase,theinputVATwillincreasetheinitialtaxbasisoftherealestate.
Forexample,certainfinancialactivitiesperformedbybanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT:theseinstitutionshaveno(orlimited)outputVATandthereforetheyarenotentitledtorefundsoranyotherkindofrecoveryofinputVATincurredinthecourseoftheirVATexemptfinancialactivities(incertaincasestheremaybealimitedrecoveryavailable).
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Ifbusinessactivitiesarepartlyexempt,therecoveryofanyinputVATwhichcannotbematcheddirectlyeithertoVAT-ablesalesorVATexemptsalesshouldbeeffectedinlinewiththeproportionofthenetvalueofthetaxedsuppliestothetotalvalueofallsupplies(asocalledproratarecovery).Duringacalendaryear,theproportioniscalculatedbasedonthevolumeofsuppliesmadeinthepreviousyear.Attheyearend,theamountofdeductionsisadjustedtotheactualpercentagecalculatedforthewholeyear.Inthecaseoftangibleorintangibleassetssubjecttodepreciationfortaxcalculationpurposes,thepercentageofinputVATwhichmaybedeductedissubjecttoadjustmentsovertheperiodof5oreven10years(inthecaseofrealestate).
CalculationofthepercentageofinputVATtobedeductedisnecessaryonlyifitisnotpossibletomatchinputVATwithtaxedactivitiesorexemptactivitiesdirectly.
Starting1January2013therecoveredinputVAThastobeadjustediftheliabilityresultingfromtheinvoicedocumentingtheexpenseincurredisnotsettledwithinthespecifieddeadlines(asarule150days).Additionalsanctionsmayapplyifnoadjustmentismade(i.e.additionaltaxliabilityupto30%oftaxresultingfromthenotsettledinvoices,whichhasnotbeenaccordinglyadjusted).
Date of input VAT recovery
TherighttorecoverinputVATarisesintheperiodwhen–withrespecttotheacquiredgoodsorservices–thetax
pointarose(i.e.inthemonthinwhichtheserviceswererenderedto,orthegoodswereacquiredbythepurchaser).Itcannotbe,however,recoveredearlierthanintheperiodinwhichthetaxpayerreceivestherespectiveinvoice(prepaymentinvoicesdonotfallunderthisrule:theymustbepaidinorderforinputVATtobereclaimable).
Direct refund of input VAT
AdirectrefundofanysurplusinputVATincurredshouldbemadewithin60daysofthesubmissionoftheapplicationfortherefund(theVATreturn)onconditionthatthetaxpayerperformedVAT-ablesupplyintheperiodforwhichtherefundisclaimed.
Pleasenotethatthisdeadlinecanbeshortenedto25daysatataxpayer’srequestiftheinputVATtoberefundedresultedfrominvoicesthathavebeenpaid in full.
ItispossibletogetarefundofinputVATevenifVAT-ablesuppliesarenotmadeintheperiodforwhichtherefundisclaimed.However,insuchcasetheperiodfortherefundisextendedto180days,unlessaformofsecurity,e.g.abankguaranteeisprovided(inwhichcasetherefundmustbemadewithin60days).
Share deal
AcapitalgainonthesaleofsharesissubjecttoPolishcorporateincometaxatthestandardrateof19%.
Ifthesellingpartyisaforeignshareholder,theapplicabletaxtreaty
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influencesthetaximplicationsofsuchatransaction.UndermosttaxtreatiesconcludedbyPolandtherighttoimposetaxesonthesaleofsharesincorporateentitiesisallocatedtothecountrywheretheshareholderisataxresident.InsuchcasesPolishincometaxrulesarenotapplicableandthefiscalrulesofthecountryinwhichtheshareholderisataxresidentgovernthetransaction.Insomecountriescapitalgainsonsharesareexemptfromtaxation.Therationalebehindthisexemptionisthatthetaxationofcapitalgainsonsharesconstitutesdoubletaxation:theprofitwithinthecompanyistaxedusingthenormalincometaxrateand,therefore,theprofitonthesharetransactionshouldnotbetaxedagain.IninternationaltaxationterminologythisexemptionisknownastheParticipationExemption.SomecountrieslimitthisParticipationExemptiontocapitalgainsonsharetransactionsinvolvingdomesticsharesonly.OthercountriesenabletheParticipationExemptiontobeapplicabletotransactionsinvolvingthesharesofforeigncompaniesaswell.
SignificantpartofPolishtaxtreaties(e.g.withSpain,France,Denmark,Sweden,Germanyand–followingrecentchangesofPolishtaxtreaties-alsoLuxembourgthatusedtobeapreferredjurisdictionforholdingstructures)providethatasaleofsharesinacompanyholdingmainlyrealestateassetsshouldberegardedasasaleofrealestate.Consequently,incomeearnedonthesaleofsharesinthePolishcompanywillbetaxedinPoland.
ThesaleofsharesinthePolishcompanyissubjecttoa1%civillawtransactiontax
(onthemarketvalueofshares)payablebythebuyer.Thisisirrespectiveofwherethetransactiontakesplaceorwherethepartiestothetransactionareresidentfortaxpurposes.AsharetransactionisnotsubjecttoPolishVAT.However,whereasharetransactionistreatedasbeingmadeinthecourseofbusinessactivity(ratherthanasaone–offtransaction),itmaybeclassifiedasaVATexemptfinancialservice.However,itwillstillbesubjecttocivillawtransactiontax.
Costswhichmustbeincurredinordertoacquireshares(e.g.purchasepriceandnotarypublicfees)mayberecognizedastaxdeductiblecostsuponthesaleofshares.
Othercostsindirectlyconnectedwithacquisitionofsharessuchasfinancingcostsmayberecognizedastaxdeductiblecostswhenincurred(incertaincasesrecognitionovertimemayoccur).
Cross-border structure
Typically,foreigninvestmentsarestructuredinsuchawaythattheoverallleveloftaxationofthefinancing,exploitation,andpotentialcapitalgainiskeptaslowaspossible,seekingtoavoiddoubletaxation.Internationaltaxplanningshoulddeterminethefinalstructureoftheinvestment.Commonly,astructureinvolvingmorethantwojurisdictionsisusedtooptimizetheoveralltaxposition.ThetaxtreatmentofalltherelevantlegaltransactionsinvolvedinaPolishrealestateprojectdiffersaccordingtotheotherjurisdiction(s)involved.Thetaxtreatiesconcludedby
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Polandshouldpreventdoubletaxation.Investigatingthetaxtreatiesandtheapplicablerulesinthedifferentrelevantjurisdictionswillhelptodeterminewhatstructure,giventhespecificcircumstances,shouldbearranged.Therefore,itisfairtosaythatthereisnotypicalcross–borderinvestmentstructure,andthateachinvestmentprojectisunique.
Nevertheless,thefollowingpointsshouldbeconsideredwhendesigningthemostefficientstructure:
• interestpayableinrespectofanydebtfinancingoftheinvestmentshouldbefullytaxdeductible;
• interestincomeshouldbereportedastaxableincomeinajurisdictionwitharelativelymodesttaxrate;
• theexploitationandoperationalcostsoftherealestateshouldbetaxdeductibletothelargestextentpossible;
• profitsfromtheexploitationofrealestateshouldbetaxedatthelowestratepossible;
• after–taxprofitsshouldbeeasilydistributed;
• Polishwithholdingtaxshouldbereducedasmuchaspossible;
• revenuesfromthefuturesaleofrealestateorthesharesofacompanyshouldbetaxedatthelowestratepossibleorshouldbeexemptfromtaxation;
• allstrategiesforthepostponementofthetaxpaymentdateshouldbeexplored.
Addressingthesepointswillhelptodesignandimplementatailor–madestructure.
Additionally,bearinginmindthegeneralantiavoidanceregulationthatisconsideredtobeintroducedtothePolishtaxregulationsandintroducedasof1January2015CFC(“ControlledForeignCompany”)rules,thecrossborderinvestmentsshouldbeeachtimecarefullyexaminedandproperlystructuredalsofromthebusinessperspectivetoensuretheireffectivenessfromthetaxpointofview.
CFC Rules
ThenewCITregulationsregardingCFCdefinesCFCas:
1. aforeigncompanyseatedinataxheaven(asofficiallyblacklistedbythePolishMinistryofFinance)or
2. aforeigncompanyhavingitsseatorplaceofmanagementinthecountryotherthanmentionedinpoint1),withwhich:
a) Polandhasnotconcludedaninternationalagreement,inparticulardoubletaxtreaty,or
b) EUhasnotconcludedaninternationalagreement
• beingabasisforrequestingtaxinformationfromtaxauthoritiesofthatcountry,or
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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 assets
Polishtaxregulationsinsomecasesmayprovidetheopportunitytoincreasetheinitialtaxbasisofassets,whichprovidesataxshield(byincreasingtheabilitytomaketaxdepreciationwrite-offsandtominimizetaxablecapitalgainsuponsale).Carefultaxanalysisisalwaysrequiredbeforecarryingoutsuchtransaction.
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2.5.Developmentandconstruction
2.5.1 Legalaspects
2.5.1.1 Landdevelopmentissues
Landdevelopmentissuesareimportantforrealestateinvestors,astheydeterminethepossiblemethodofinvestinginagivenarea.Regulationsonlanddevelopmentmayinfluencetheshapeoftheplannedbuilding,butsometimestheyalsopreventtheinvestorfromtheinvestment.
Legal background
LanddevelopmentissuesrepresentoneofthemaindifficultiesintherealestateinvestmentprocessinPoland.AsaresultoftheintroductionoftheZoningActof27March2003(hereinafterreferredtoastheZoningAct),allzoningmasterplansadoptedbefore1January1995expiredasof1January2004.Forthisreason,aswellasduetothecomplexprocedureforadoptingazoningmasterplan,currentlyonlyapartoftheterritoryofPolandiscoveredwithzoningmasterplans,mostlywithintheboundariesofbiggercities.
TheZoningActsetsouttheprinciplesforthelanddevelopmentprocess.Inparticular,itgrantsauthorizationtotherelevantlocalauthoritiestodevelopandmanagespatialpolicy.TheZoningActalsosetsforththeprocedureunderwhichzoningactsaretobeadoptedbytheseauthorities.Thetwomainzoningactsdetermininglanddevelopmentwithinagivenmunicipality(commune)arethezoningstudyandthezoningmasterplan.However,frominvestors’perspective,thezoningmasterplan
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isofhigherimportance,asitdeterminestheirrightsandobligations,whilethezoningstudybindsthelocalauthoritiesonly.Inthecasewherenozoningmasterplanhasbeenadoptedforagivenarea,theinvestormayapplyforadecisiononlanddevelopmentandmanagementconditions(hereinafterreferredtoasthezoningdecision).Whereabuildingpermitisrequiredforaninvestment,eitherazoningmasterplanorazoningdecisionarerequiredtostartthedevelopmentoftherealproperty,since,asarule,nobuildingpermitmaybeissuedwithoutthem.
Therefore,beforebuyingtherealproperty,itiscrucialforinvestorstoverify:
• whethertherealpropertyinquestioniscoveredbyazoningmasterplan(orwhethersuchaplanwillbeadoptedsoon);
• intheeventthereisnozoningmasterplan,whetherazoningdecisionhasbeenissuedfortherealpropertyinquestion;and
• whethertheprovisionsofthezoningmasterplanorzoningdecisionallowfortheimplementationoftheirinvestmentplans.
Zoning study
Azoningstudyisaninternaldocumentissuedbyeachmunicipality(commune),whichcoversthewholeterritoryoftherelevantcommune.Azoningstudyprovidesthebackground/guidelinesfordraftingazoningmasterplan.Asaninternaldocument,azoningstudydoes
notbindinvestorsbutonlythelocalauthoritieswhichdesignandadoptzoningmasterplans.Zoningmasterplansmaynotbecontrarytotheassumptionsofazoningstudy.Therefore,zoningstudiesmaybeagoodsourceofinformationfortheinvestoronthefuturedirectionsofagivenarea’sdevelopment.
Zoning master plan
Thezoningmasterplanisadoptedbythecommunecouncilandisbindingforthirdparties(investors)asanactoflocallaw.Eachzoningmasterplandeterminesthemannerofdevelopmentoftheterritorycoveredbythatplan.Inparticular,itdeterminesthedesignationofplots(landuse–agricultural,forest,buildingpurposes,etc.),developmentconditionsandtypesoffacilitieswhichcanbelocatedontheplots.Theprocedureforadoptingazoningmasterplanisrathercomplexandtimeconsumingasthedraftzoningmasterplanissubjectto“publicconsultation”withthepartiesconcernedaswellasopinionsissuedbytherelevantadministrativebodies.
Theprovisionsofthezoningmasterplanarecrucialforinvestors,astheplanneddevelopmentoftheplotscoveredbysuchaplanmustcomplywithitsprovisions,inparticular,regardingthedistanceofabuildingfromtheplot’sborderortheheightofabuilding.Sometimestheprovisionsofazoningmasterplanmayrenderthedevelopmentofthegivenplotimpossible.Moreover,althoughstilldisputableinthelegaldoctrine,theprevailingviewisthatlargeretailunits
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withasurfaceexceeding2,000m2canonlybeconstructedifazoningmasterplanprovidingforretaildevelopmenthasbeenadoptedforagivenarea.
Therefore,tobeabletoimplementtheirinvestmentplans,sometimesinvestorsstartaprocedureofamendingthezoningmasterplan,whichmayprovetoberathertimeconsuming.
Zoning decision
Inthecasewherenozoningmasterplanhasbeenadoptedforthegivenarea,aninvestormayapplyforazoningdecision,whichsetsoutalltherequiredconditionsforthedevelopmentofthatarea.Beforethebuildingprocessisstartedonthegivenplotunderabuildingpermit,theplotmustbecoveredeitherbyazoningmasterplanorbyazoningdecision(therefore,itcanbesaidthatazoningdecisionsubstitutesazoningmasterplanforaninvestor).
Azoningdecisionisissuedbythegoverningauthorityofthecommune.Theprocedureforissuingzoningdecisionsincludesperformanceofazoninganalysisbythelocalauthority’sarchitecturedepartmentanditmay,therefore,takeevenuptoseveralmonths.
Ifazoningmasterplanisbeingadoptedforarealproperty,zoningdecisionsrelatedtothisareaexpireiftheprovisionsofthezoningmasterplandifferfromthoseofthezoningdecision.However,thisshallnothappenifafinalbuildingpermithasalreadybeenissuedfortherealpropertyinquestion.Therefore,in
thecasewherethereisnozoningmasterplanforagivenrealproperty,priortoinvestmentplanningtheinvestorshouldmonitorthestageofworksrelatedtothezoningmasterplanandshouldlearnifitispossibletoacquireafinalbuildingpermitbeforethezoningmasterplanisadopted.
Anapplicationforazoningdecisionmaybefiledwiththerelevantauthorityevenwhentheapplicantdoesnotholdanytitletothelandinquestion.Azoningdecisionmaybetransferredtothirdparties.
Thismeansthatinvestorsmayuseadecisionissuedforthesellerofarealproperty,astheydonothavetoapplyforthedecisiononceagainafteracquiringtherealproperty(theinvestoronlyappliesforthetransferofsuchadecisiontohimself).Investorsmayalsoapplythemselvesforsuchadecisionbeforedecidingontheinvestment.
Building permit
Abuildingpermitisanadministrativedecisionissuedbyalocalauthority(starostaormayorinbiggercities)whichallowsaninvestortostartthedevelopmentprocessonthesite.
Thedocumentsattachedbytheinvestortotheapplicationforabuildingpermitshouldinclude,inparticular,adeclarationofhavinglegaltitletousetherealpropertyforconstructionpurposes.Moreover,theapplicationmustalsoencloseapprovalsofthelocalauthoritiesresponsibleforlocalinfrastructure,inparticularutilities,roads,environmental
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protectionandsewagetreatment.Thebuildingpermitwillonlybegrantediftheconstructiondesignisconsistentwiththeassumptionsofthezoningmasterplanorzoningdecisionaswellaswiththeregulationsgoverningtechnicalconditionsforthedevelopment.
Asageneralrule,abuildingpermitexpireseitherifconstructionworkshavenotbeenstartedwithinthreeyearsofthedateonwhichthepermitbecamefinalorifconstructionworkshavebeendiscontinuedformorethanthreeyears.
Notallconstructionworksrequireabuildingpermit.ConstructionofcertainstructureswhicharelistedintheBuildingLawof7July1994(hereinafterreferredtoastheBuildingLaw)maybecommenceduponanotificationsenttotherelevantauthoritiesifnoobjectionshavebeenraisedbythemwithin30daysofthenotificationdate.
Usage of the building
Dependingontheindividualcase,theuseofabuildingorstructureafteritscompletionrequireseithernotifyingtheconstructionsupervisoryauthoritiesthatconstructionworkshavebeencompletedoracquiringapermitforuse.
Inthecasewhereonlyanotificationisrequired,underthegeneralruletheinvestormayoccupyandusethebuildingorstructureifnoobjectionhasbeenraisedbytheauthoritieswithin21daysofthedateofnotification.
Incaseswhereapermitforuseisrequired,thebuildingmaybeoccupied
onlyafterthedecisiongrantingthepermitforusebecomesfinal.Thegrantingofapermitforuseisprecededbyatechnicalinspectionofthebuildingorstructuretoconfirmthatallconstructionworkshavebeenperformedincompliancewiththetermsandconditionsofthebuildingpermitaswellastechnicalrequirements.
Occupyingabuildinginbreachoftheabove-mentionedregulationsmayresultinafine.
Environmental issues
Thebuildingprocesshasmanyenvironmentalaspectsthatmustbetakenintoaccount.ThePolishlawprovidesthatanenvironmentaldecisionmustbeobtainedpriortoobtainingazoningdecisionandabuildingpermitforthegivenproject.PursuanttothePolishlaw,fromtheenvironmentallawpointofview,theinvestmentsaredividedintotwogroups:
• projectsthatalwayshavesignificantimpactontheenvironment;
• projectsthatmayhavesignificantimpactontheenvironment.
Environmentaldecisionmustbeprecededbytheenvironmentalimpactassessmentproceeding(whichincludespreparationofenvironmentalimpactassessmentreport)incaseofprojectsthatalwayshavesignificantimpactontheenvironment(i.a.parkinglots,buildingsofaparticularsizeetc.).However,theenvironmentalimpactassessmentproceedingmaybealsoorderedbytheauthorityissuing
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theenvironmentaldecisioninrelationtoprojectsthatmayhavesignificantimpactontheenvironment.
Despiteofthefactthatenvironmentalimpactassessmentiscarriedoutatthestageofissuingtheenvironmentaldecision,itmayalsoberepeated(incertaincircumstances)atthestageofissuingabuildingpermit.
Environmentalimpactassessmentisalegalinstrumentthatallowstodeterminetheeffectoftheplannedinvestmentontheenvironment(i.e.water,landandairqualityaswellasimpactonfloraandfauna).Environmentalimpactassessmentproceeding,beyondtheidentificationofspecificimpactsthattheproposedprojectmayhaveontheenvironment,concentratesonthewaystopreventandminimizetheeffectsoftheplannedproject.
PursuanttothePolishlaw,authoritiesmustinformthegeneralpublicabouttheenvironmentalimpactassessmentproceedingandallowthegeneralpublictosubmitcommentsandrecommendationstotheproceeding.
Moreover,Polishlawincertaincircumstancesallowsabroadaccesstotheenvironmentalimpactassessmentproceedingtonon-governmentalenvironmentalprotectionorganizations.
Environmentaldecisionmaybetransferred(aswellasthebuildingpermitissuedonthebasisofazoningdecision).
Energy efficiency
Inimplementingtheirpro-environmentalpolicy,EUmemberstateshavedecidedtoadoptlegislationthemainpurposeofwhichistolimitemissionofgreenhousegasesbyincreasingenergyusageefficiency.Asaresult,anumberofregulationsregardingenergyefficiencyhavebeenintroducedintothePolishlaw,interaliabyestablishingenergyperformancecertificationsystemsforbuildingsandpremises.
Ingeneral,certificatesshoulddeterminetheamountofenergythatmustbeusedinordertosatisfytherelevantneedsofagivenbuilding/premises.TheprovisionsoftheBuildingLawdeterminethecasesinwhichenergyperformancecertificatesshouldbeissued.Inpractice,energyperformancecertificatesareobtainedfornewlyconstructedbuildings,inparticularpublicutilitybuildingswithusablefloorspaceexceeding1,000m2.
Theenergyperformancecertificatedoesnotonlyinformtheownerofthebuilding/premisesabouttheenergyusageinvolvedandtherelatedcostsbutmayalsopositivelyinfluencethevalueofthebuildingasbeing“environmentallyfriendly”.
Animportantthinghereisthatifsuchacertificateincludesfalsedata,itistreatedasaphysicaldefectofthebuildingundertheBuildingLaw.
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2.5.1.2 Constructionissues
Legal framework for construction works contracts
TheCivilCodeincludesprovisionswhichestablishthelegalframeworkforconstructionworkscontracts.Mostofthoseprovisionsaregeneralinnatureandenablecontractingpartiestostructuretheconstructionworkscontractsinawaythataddressestheirparticularbusinessneeds.Suchaflexiblelegalframeworkallowsthepartiesveryoftentouseinternationalstandardsforconstructionworkscontracts,includingthepopularFIDICforms.However,notalltheprovisionsofinternationalstandardsforconstructionworkscontractscomplywiththerequirementsoftheCivilCodeandtheBuildingLaw.
Inparticular,amoredetailedanalysisshouldbeperformedwithrespecttocontractualclausesregardingstatutorywarrantyperiods,contractswithandliabilitytowardssubcontractorsaswellascontractor’spaymentguarantees.Belowwepresentthekeylegalregulationsinthisareas.
Statutory warranty periods
UnderthePolishlaw,thestatutorywarrantyperiodforacquiredrealestates,includingbuildingsisfiveyearsfromtheproperty‘shand-overdate.Theabovementionedstatutorywarrantyperiodoffiveyearsappliesalsointheconstructionworkscontracts.
Approval of a contract with a subcontractor
Beforeasubcontractisconcludedbythegeneralcontractorwithasubcontractor,suchasubcontractshouldbeapprovedbytheinvestorinwriting.Uponbeingprovidedwiththedraftsubcontract,theinvestorreviewsitanddecideswhetherthesubcontractshouldbedismissedorapproved.Theinvestorshouldrespondinthematterofdismissingorapprovingthesubcontractwithin14daysofitsreceipt.Ifnoresponseisgivenbytheinvestor,thesubcontractisdeemedtohavebeenapproved.Inthecasewhereaninvestorhasdismissedasubcontract,suchasubcontractsignedbetweenthegeneralcontractorandthesubcontractorisunenforceableagainsttheinvestor.
Liability towards subcontractors
Inthecasewheretheinvestorhasapprovedthesubcontractbetweenthegeneralcontractorandthesubcontractor,theinvestorisjointlyandseverallyliablewiththegeneralcontractorforthepaymentoftheremunerationtothesubcontractor.Thepartiesmustnotchangethisruleinacontract.Therefore,contractsoftenincludeaclauseunderwhichtheinvestorisnotobligedtopaytheremunerationtothegeneralcontractorunlessthegeneralcontractorpresentsaconfirmationofpaymenttothesubcontractor.Therearealsosome
othermethodsofsecuringtheinvestor’sriskofadoublepayment(tothegeneralcontractorandtothesubcontractor),
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whichmustalwaysbeadjustedtothebusinessrequirementsofgiveninvestment.
Contractor’s payment guarantee
Oneoftheinconveniencesforinvestorssigningconstructionworkscontractsistheobligationtograntapaymentguaranteetothegeneralcontractor.Underthisobligationageneralcontractorisentitledtoastatutoryclaimagainsttheinvestorforapaymentguaranteeuptothemaximumamountofthecontractvalue.Theinvestormaysatisfythegeneralcontractor’sclaimbyissuingapaymentguaranteeintheformofabankguarantee,aninsuranceguarantee,aletterofcreditorabank’ssuretyship.Thestatutoryclaimforapaymentguaranteemayberaisedatanytimeandcanbeextendedtoincludethevalueofanyadditionalworksagreedinwritingduringthetermoftheconstructionworkscontract.
Construction design contracts
Oneofthekeyelementsofthebuildingprocessisdrawingupaconstructiondesign.Aconstructiondesignisaformalrequirementforobtainingabuildingpermitformostofbuildinginvestments.UnderthePolishlawaconstructiondesignmustbedrawnupandsignedbyacertifiedarchitect,whotakesresponsibilityforthetechnicalaspectsoftheconstruction.Thearchitectshouldprepareadesignunderacontractforarchitecturalserviceswhich,depending
onitsscope,mayeithertransferthecopyrighttotheconstructiondesigntotheinvestororprovidetheinvestorwiththerighttousetheconstructiondesignforthepurposesoftherelevantinvestment.Itisworthmentioningthatacontractforarchitecturalservicesmayincludevariousrestrictionswithregardtothecopyrightortheuseofthedesign.Suchrestrictionsmaybecrucialfortheinvestmentdevelopmentprocess,inparticularwhentheyregardthepossibilityofenteringmodificationstotheconstructiondesignortransferringthecopyrighttootherentities.
Public procurement contracts
General overview
ThankstoanumberofEUfundingprogramseveryyearPolishauthoritieshavebillionsofeurosattheirdisposaltobespentondevelopment.Aconsiderablepartofthisfundingwillbedesignatedforinfrastructuralprojects,inparticularroadandrailwayinfrastructure,whichisstillnotverywelldevelopedinPoland.Forthisreason,manyoftheinfrastructuralinvestmentsdevelopedonthePolishmarketwillbecarriedoutunderpubliccontracts.
Poland,asoneoftheEUMemberStates,wasobligedtoimplementregulationsgoverningpublicprocurementproceedings.TheprovisionsofEUdirectivesonpublicprocurementwereimplementedtothePublicProcurementLaw,whichconstitutesthelegalframeworkforthismatterinPoland.The
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PublicProcurementLawissupplementedbyadditionallegalactswhichrelateinparticulartopublic-privatepartnershipandlicensesforconstructionworksandservices.
Themaingoalofpublicprocurementregulationsistoestablishclearandcompetitiverulesandproceduresforawardingpubliccontractstothesuppliersofworksandservicesaswellastoprovidemeasuresforsupervisionoverthepublicauthoritiesawardingpubliccontracts.ThekeyobjectiveofthePublicProcurementActistoensurethatpubliccontractsareawardedwhileapplyingequaltreatmenttoallentitiestakingpartintenderproceedingsaswellastoensureimpartialityandobjectivityofthefinaldecision.
Procedure
UnderthePolishpublicprocurementregulationstherearenumerousdifferentproceduresforawardingpubliccontracts.Theonesthataremostcommonlyappliedareopentenderingandlimitedtendering.Bothproceduresmustbefollowedbyapublicnotice.Noticeoncontractperformstheaimofprovidingproperimplementationoftheruleofequaltreatmentintheverybeginningoftheprocedure.Theobligationofpublishinganoticealsoprovidesnon-confidentialityandtransparencyoftheappliedpubliccontractsystems.
Ingeneral,opentenderingisasimpleprocedure,meaningthatentitiesfamiliarizethemselveswiththeinformationinthenoticeandinSETC
and,iftheyareinterestedinsubmittingtendersinsuchprocedure,theysubmitatenderwhichshallthenbeevaluatedbyranking.
Underlimitedtenderingprocedure,entitiesinterestedinbeingawardedapubliccontractsubmitrequestsforparticipatinginthetenderandtheawardingpartydecideswhichbiddersmaysubmittheirproposals.Otherpublicprocurementproceduressuchascompetitivedialogue,negotiatedprocedurewithpublication,negotiatedprocedurewithoutpublication,singlesourceprocurement,requestforquotationsorelectronicauctioncanonlybeappliedunderspecificcircumstancesstipulatedinthebindinglaw.
Asimilarcourseofactionshouldbeappliedtotheabovemaintypesofthepublicprocurementprocedure.Eachofthemiscomprisedofpre-qualification,submissionofproposalsandselectionofthewinningtendererphases.Inthepre-qualificationphasetheawardingpartysetsouttherequirements/criteriatobemetbythetenderers.Basedonthespecificrequirements/criteria,tenderersdrafttheirproposalsandsubmitthemtotheawardingparty.Intheproposaleachtendererdemonstratesitscompliancewithtenderrequirementsbyreferringtoitscompetencies,suchasexperience,knowledgeandfinancialcapacitytoperformthecontractedwork.Afterreviewingallsubmittedproposalstheawardingpartyselectsthebesttendererwithwhomthepubliccontractistobesigned.
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However,thisisnotnecessarilytheendofthepublicprocurementprocessasthereisapossibilityofappealingagainstthedecisionoftheawardingparty.Inpractice,theappealprocedureisquitecommonlyusedbythetendererswholostapubliccontract,whichoftenresultsindelaysinthecompletionoftheinvestmentprojectconcerned.
2.5.2.Taximplications
Tax treatment of the construction costs
Costsrelatedtoconstructionprocessandaccruedpriortoputtingtheassetsintouseformtheinitialvalueoftherealestateandarerecognisedastaxdeductiblecostthroughdepreciationwrite-offsoruponsale.
Costsrelatedtofutureoperation/exploitationoftheassetsshouldberecognizedfortaxpurposesbasedongeneralrules.
VAT and the construction process
Duringtheconstructionprocess,themostimportanttaxisVAT.ThestandardrateofVATinPolandis23%.AreducedVATrateof8%appliestotheconstructionofresidentialhouses/apartmentsexceptforpartofresidentialbuildingswheretheusablefloorspaceexceeds300m2 andapartmentswheretheusablefloorspaceexceeds150m2.Insuchcasesonlyconstructionofthepartoftheresidentialbuildingand/orapartment,whichiswithin
theabovelimits,benefitsfrom8%VATrate,whereasconstructionofthepartexceedingthethresholdsissubjecttostandard23%VATrate.
PurchasestheinvestorneedstomakeduringconstructionwilltypicallyincludePolishVAT.ThisinputVATcouldbedeductedfromtheoutputVATthattheinvestorhastopaytothetaxauthoritiesasaresultofhisbusinessactivities.Astheconstructionprocessusuallytakesaconsiderableperiodoftimeandrequirestheavailabilityofsubstantialfinancialresources,itisessentialthattheinputVATpaidisrecoveredduringthisprocess.RulesofVATrecoveryandrefundsarepresentedinsection2.4.3.However,duringtheconstructionprocessthetypicalsituationisthatthecompanyhastopayhighinputVAT(resultingfrompurchaseinvoices),butnooutputVATisincurred.Therefore,specificrulesneedtobeobservedtoensuretherecoverabilityofinputVATpaidduringtheconstructionprocess.
Services of foreign contractors
Theplaceofthesupplyofservices(i.e.theplaceinwhichservicesaredeemedtoberenderedandshouldbetaxedaccordingly)dependsonthenatureofaparticularservice.Underthegeneralrule,servicesrenderedtoaVATtaxpayer(oralegalpersonnotbeingaVATtaxpayer)occurwheretheservicerecipientislocated.However,servicesconnectedwithrealestatearegenerallytaxedwheretherealestateislocated,i.e.inPoland.Servicesconnectedwithrealestateincludeconstructionworks,servicesof
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architectsandfirmsprovidingon-sitesupervisionandtheservicesofrealestateagentsandpropertyvaluers.
IftheplaceofsupplyofaparticularserviceisPoland,itispossibleforaforeignconstructioncompanytoregisterinPolandasaVAT–payer.ThisimpliesthattheforeigncompanywillitselfbeliableforPolishVAT.TherecipientoftheservicescanrecovertheVATpaidtotheserviceproviderasinputVATunderthegeneralrules.
IfservicesaredeemedtoberenderedinPolandandtheforeignservicesupplierdoesnotregisterandaccountforPolishVATonhisinvoice,thePolishrecipient(inthiscasetherealestatecompany)mustself–assesstheVATdueonthebasisofthereversechargemechanism.ThiscanthenbedeclaredbytherecipientasinputVATandbedeductedfromitsoutputVAT.SuchadeductionmaybemadeinthesamemonthinwhichtheoutputVATonimportationofserviceswasrecognized(whichmeansthatthecompanysuffersnoadversecashfloweffect).
Taxes due on imported goods
ImportedgoodsarealwayssubjecttoimportVATwhentheycrosstheEUborder(orintheEUdestinationcountrywhenthegoodsaretransportedunderaspecialcustomsprocedure).ThisVATiscalculatedbasedonthecustomsvalueofthegoodsincreasedbythecustomsdue. It is possible to offset this input VAT againstoutputVATinaccordancewiththegeneralVATrules.Typically,inPolandtheVATrateis23%.
ImportVATcanbesettledwithouttheneedforanupfrontcashpaymentthroughtheVATreturnratherthanbeingpaiddirectlytothecustomsofficeandthereafterreclaimed(thismechanismissometimesreferredtoas“postponedaccountingforVAT”).Thisruleappliesonlytoimportersusingthesimplifiedcustomsprocedure.
TheregulationsconcerningimportsdonotapplyifgoodsaretransportedfromanotherEUMemberState.Suchatransactionisclassifiedasanintra–CommunityacquisitionandissubjecttoVAT.Thecompanyisobligedtoself–assessVATontheacquiredgoodsattherateappropriateforthem(usually23%).Atthesametimeself–assessedtaxmaybetreatedasinputVATanddeductedfromoutputVATinthesamemonthinwhichitwasincurred,providedthattheacquirerisinpossessionofapurchaseinvoiceorwillobtainitwithin3months.
Noexcisetaxisdueontypicalconstructionequipmentandmaterials.
Taxation of a foreign construction company
InsomecasesitisnotnecessaryforaforeignconstructioncompanytodobusinessthroughaPolishcompany.TheconstructionworkcanbeperformedinPolanddirectlybytheforeignentity.InthiscasethequestionarisesastowhethertheforeigncompanyissubjecttoPolishincometaxontherevenuesgeneratedfromtheconstructionwork.Polandisindeedallowedtotaxthisincomeatarateof19%iftheactivities
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oftheforeigncompanyconstituteapermanentestablishmentinPoland.
WhetherornotthegivenforeignconstructioncompanyhasapermanentestablishmentisdeterminedbytherelevanttaxtreatywhichPolandhasconcludedwiththecountryinwhichtheforeigncompanyisbased.Ingeneral,aconstructionsitebecomesapermanentestablishmentoncethedurationoftheconstructionworksexceedsacertainperiodoftime.Usuallythisperiodis12months.Iftheworkisfinishedwithin12months,thennopermanentestablishmenthasbeencreated.Iftheconstructionperiodtakeslonger,thena
permanentestablishmentisrecognizedandtheincomederivedfromtheworkissubjecttoPolishincometax.ItshouldberememberedthatinsuchcasesthepermanentestablishmentisdeemedtoexistfromthestartoftheconstructionactivitiesinPoland.Standardratesandtaxrulesareapplicabletodeterminethetaxdue.
PleasenotethatiftheactivitiesofaforeigncompanyinPolandextendsignificantlybeyondasinglecontract,thecompanymayberequiredtosetupabranch.SettingupabranchwillmostlikelyleadtothecreationofapermanentestablishmentinPoland.
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2.6.Operationandexploitation
2.6.1.Legalaspects
2.6.1.1.Introduction
AccordingtotheCivilCode,partiesofthecontractmaybenefitfromtheprincipleoffreedomofcontracts,whichgivesthemanopportunitytomodifythestatutorytypesandprovisionsofthecivilcontract.However,therearesomemandatoryprovisionsandlimitations,whichhavetobeconsideredbytheparties.Amongalltypesofpropertyexploitationagreements,thebelowarethemostcommonforthePolishrealestatesector:
• Lease (najem)–regulatedinarticles659to692oftheCivilCode,
• Tenancy(dzierżawa)-regulatedinarticles693to709oftheCivilCode,
• Leasingofrealestate(leasingnieruchomości)-regulatedinarticles709(1)to709(18)oftheCivilCode,
• Propertymanagement(zarządzanie nieruchomościami)-regulatedintheActonPropertyManagement.
2.6.1.2.Leaseagreement(najem)
Undertheleaseagreementthelessorgrantstothelesseetherighttooccupypremises(office,residentialetc.)inexchangeforthepaymentofrent.Ingeneral,everythingthatcanbesubjecttotheownershipright,maybealsosubjecttothisagreement,neverthelessincaseofrealestate,themorestrictprovisionsmayapply.
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Duration
Thedurationofaleaseagreementmaybedefiniteorindefinite.Theleaseagreementmaybeconcludedinanyform,however,incaseofaleaseofarealpropertyforaperiodlongerthanoneyear,theagreementshallbeconcludedinwriting.Incaseofalackofawrittenform,theleaseagreementshallbedeemedtohavebeenconcludedforanindefiniteperiodoftime.
Thedurationofaleaseagreementmaybefreelyfixedbytheparties,however,therearecertainrestrictions.Theleaseagreementconcludedforaperiodlongerthantenyears,is,afterthisperiod,deemedtohavebeenconcludedforanindefiniteperiodoftime.Theruleaboveisdifferentfortheleaseagreementsconcludedbetweenentrepreneurs.Inthiscasetheleaseagreementconcludedforaperiodlongerthanthirtyyearsisdeemedtohavebeenconcludedforanindefiniteperiodoftimeafterthethirtyyears’periodhaspassed.
Rent
Payingrentistheprincipalobligationofthe lessee. The lessee is obliged to pay rentwithintheagreedtime.Iftheduedateisnotfixedintheagreement,therentshouldbepaidinadvance:iftheleaseisnotlongerthanonemonth-forthewholeleaseperiod,andiftheleaseislongerthanonemonthorifthecontractisconcludedforanindefiniteperiodoftime-monthly,nolaterthanonthetenthdayofthemonth.Inpractice,the
leaseagreementsregulateindetailsthepaymentoftherent.
Maintenance and expenditures settlement
Thelessorshouldhandoverthepropertytothelesseeinaconditionfitfortheagreeduse.Itshouldbemaintainedbythelessorinthisconditionthroughouttheleaseterm.Minorrepairsconnectedwiththenormaluseofthepropertyshouldbefixedbythelessee,unlesstheleaseagreementprovidesforotherwise.Ifthesubjectofleaseisdestroyedduetocircumstancesforwhichthelessorisnotresponsible,heisnotobligedtorestoreit.If,duringtheleaseperiod,thepropertyrequiresrepairswhichencumberthelessor,thelesseemaysetthelessoranappropriatetimeforrepair.Afterthisperiodthelesseemaycarryouttherepairsneededatthelessor’scost.
Ifthelesseeimprovesthesubjectoflease,thelessormay–aftertheexpiryoftheleaseterm,atitsdiscretion,eitherdemandthatthepreviousconditionberestoredorpaythelesseeasumcorrespondingtotheimprovementvalueatthetimeofreturn.Inpractice,theseissuesareusuallycoveredbytheprovisionsoftheleaseagreements.
Subletting and disposal of the leased property
Thegeneralruleisthatthelesseemayhandoverthepropertyorpartofittoathirdpartyforfreeofchargeuseor
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subletit,iftheleaseagreementdoesnotforbidit.However,whenthesubjectofleaseconstitutespremisesorretailareas,handoverthepropertyorpartofittoathirdpartyforfreeofchargeuseorsubletitrequiresthelessor’sconsent.Iftheleasedpropertyishandedovertoathirdparty,boththelesseeandthethirdpartyareliabletowardsthelessorforusingthepropertyinaccordancewiththeprovisionsoftheleaseagreement.Therelationshiparisingfromacontractforfreeofchargeuseorsublettingconcludedbythelesseeisterminated,atthelatest,whenthemainleaseagreementisterminated.Inpractice,theleaseagreementsforbidsublettingthepropertytoathirdpartyorrequirethepriorwrittenconsentofthelessor.
Theleasedpropertycanbedisposedofduringtheleaseperiod.Inthiscasetheacquirerbecomesapartytotheleaseagreementasalessorinplaceoftheseller.Theapprovalofthelesseeisnotrequired.Thenewownermayterminatetheleaseagreementretainingstatutorynoticeperiods.However,thenewownerdoesnothavearighttoterminatetheleaseagreementifitisconcludedforadefiniteperiodoftime,inwrittenformwithanauthenticateddate(datapewna)andthesubjectofleasehasbeendeliveredtothelessee.If,asaresultoftheleaseagreementbeingterminatedbytheacquireroftheleasedproperty,thelesseeisforcedtoreturntheleasedpropertyearlierthanhewouldhavebeenobligedtoundertheleaseagreement,hemaydemandcompensationfromtheseller.
Security
Lessorsoftenusethespecialclausesintheleaseagreementstosecuretheirpotentialclaimstolesseessuchasmoneydeposit,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.
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• Surety–inthecontractofsurety,theguarantorundertakestoperformcertainobligationofthelesseetowardsthelessorifthelesseedoesnotperformthem,mostlythisreferstothepaymentofdueamounts.Theliabilityoftheguarantorisequivalent,notsubsidiary.Thismeansthatthelessormayrequestapaymentfromboththelesseeandtheguarantor.
• Bankguarantee–itisaunilateralobligationoftheguarantor’sbank,accordingtowhichthebankwillprovidefundstothebeneficiaryoftheguarantee-thelessor,ifthelesseedoesnotfulfillitsobligation.Thepartiesoftheleaseagreementtypicallydetermineaperiodthathastoelapsefromthepaymentduedateandafterwhichthelessorhastherighttoexecuteabankguarantee.
Termination
Aleaseagreementconcludedforanindefiniteperiodoftimemaybeterminatedbyanypartywithapriornoticeoftermination(itslengthisinpracticedefinedintheleaseagreement).Thestatutoryperiodofnoticeofterminationfortheleaseagreementconcludedforanindefiniteperiodoftimeisasfollows:
• iftherentisdueforaperiodlongerthanamonth–thecontractcanbeterminatedbygivingathree-monthnotice,effectiveattheendofthecalendarquarter;
• iftherentisdueeverymonth–thecontractcanbeterminatedwithaone-
monthnotice,effectiveattheendofthecalendarmonth(three-monthnoticeincaseofleaseofpremisesorretailareas,effectiveattheendofthecalendarmonth);
• iftherentisdueforaperiodshorterthanamonth–thecontractcanbeterminatedwithathree-daynotice;
• iftherentisdueforoneday–thecontractcanbeterminatedonedayinadvance.
Theleaseagreementconcludedforadefiniteperiodoftimemaybeterminatedonlyincasesspecifiedinthecontract.
However,theCivilCodestipulatesthatthepartiescanterminatetheleaseagreementimmediatelyifcertainconditionsdefinedbytheabovecodeoccur.Thisappliestocontractsconcludedforbothdefiniteandindefiniteperiodoftime:
• if,atthetimeofhandingitovertothelessee,thesubjectofleasehasdefectsthatmakeitimpossibletouseitinthewaydefinedintheleaseagreement,orifthedefectsoccurlaterandthelessordoesnot,despitereceivinganotice,removetheminanappropriatetime,orifthedefectscannotberemoved–thelesseemayterminatetheleaseagreementwithoutnotice;
• ifthelesseedefaultsinpayingrentforlongerthantwofullpaymentperiods–thelessormayterminatetheleaseagreementwithoutnotice(incaseofleaseofpremisesorretailareas,beforetermination,thelessorisobligedtowarnthelesseeinwritingbygivinghimanadditionalone-monthperiodtopaytheoverduerent);
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• ifthelesseeusesthesubjectofleasecontrarytothetermsoftheagreementorthepurposeofthisand,despiteawarning,doesnotceasetouseitinthisway,orifalesseeneglectsittosuchanextentthatthesubjectofleaseisatriskofbeinglostordamaged–thelessormayterminatetheleasecontractwithoutnotice.
Lease of premises for residential purposes
Residentialleaseagreements,duetotheirpurposearesubjecttospecialprotectionwhicharisesfromtheprovisionsoftheLessee’sProtectionAct.Thisprotectionappliesmainlytothelimitedpossibilityofterminationofthelease.Thereisalsoaspecificregulationregardingtherentincrease.
2.6.1.3. Tenancyagreement(dzierżawa)
Byatenancyagreement,thelessorcommitstohandoverasubjectoftenancytothelessee’suseandcollectionofprofitsforafixedoranon-fixedterm.Inexchange,thelesseecommitstopaytheagreedrent.Thetenancyagreementgivesnotonlytherighttousethepropertybutalsotocollectbenefitsfromit,whichiswhythetenancyagreementusuallyconcernsland.
Thedurationofatenancyagreementmaybedefiniteorindefinite.However,thetenancyagreementforaperiodlongerthanoneyearshouldbeconcludedinwriting,otherwiseitisconsideredtobe
concludedforanindefiniteterm.Alsoatenancyagreementexecutedforalongerperiodthanthirtyyearsisdeemedtobeconcludedforanon-fixedterm,afterthisperiodpasses.
UndertheCivilCode,iftherentpaymentperiodisnotspecifiedinthecontract,rentispayableinarrearsonthedatecustomarilyaccepted,andintheabsenceofsuchcustom,semiannuallyinarrears.Ifthelesseedefaultsinpaymentofrentforatleasttwofullpaymentperiodsand,inthecaseofrentpaidannually,hedefaultsinpaymentforoverthreemonths,thelessormayterminatethetenancywithoutnotice.However,thelessorshouldwarnthelesseebygivingthelesseeanadditionalthree-monthperiodtopaytheoverduerent.
Thelesseeisresponsibleforthecostsofallrepairstotheextentnecessarytokeepthesubjectoftenancyinthesamecondition.However,thepartiesareabletomodifythisruleinthetenancyagreement.Therearealsosomedifferencesbetweenaleaseagreementandatenancyagreementinthefieldofsublettingaproperty.Thelesseecannotsubletthepropertywithoutthelessor’sconsent.Iftheaboveobligationisviolated,thelessormayterminatethetenancyagreementwithoutnotice.
2.6.1.4.Leasingagreement(leasing nieruchomości)
Byaleasingagreement,thefinancingpartyundertakes,withinthescopeofoperationsofitsenterprise,toacquireapropertyfromaspecifiedtransferor
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andtohanditovertotheusertouseforadefinedperiod.Inexchange,theusercommitstopaytheinstallmentsagreedinthecontract.Thelessorretainsownershipoftheproperty,however,whenthecontractexpires,thelesseehasarighttotakeovertheownershipoftheproperty.Inpractice,therearetwomaintypesoftheleasingagreement:
• operatingleasing–inthistypeofleasingthesubjectofleaseagreementremainstheassetofthelessorwhomakestherelevantdepreciationwrite-offs.Aftertheendoftheleasingtermthelesseemaypurchasethesubjectoftheagreementforremuneration.Anoperatingleaseiscommonlyusedtoacquireequipmentonarelativelyshort-termbasis;
• financialleasing–inthistypeofleasingthelessorremainsthelegalowneroftheasset,however,itisthelesseewhomakesthedepreciationwrite-offs.Thetransferofanownershipofasubjectofaleasingagreementafteritsterminationmaybestipulateddirectlyinthatagreement.
Thedurationofthefinancialleasingcontractisusuallylongerthantheoperatingleasingandsimilartotheeconomicutilityofthesubjectofleasing.
Thereisalsoanotherformoftheleasingagreementwhichisoftenusedintherealestatemarketcalledsaleandlease-back.Theessenceinthiscaseisthesaleofpropertybytheownertoaleasingcompany.Afterwards,theleasingagreementissignedbetweenthesamepartiesallowingthepreviousownertouse
thepropertyasthelessee.Thisoperationallowsthereleaseoffundsandgivestheopportunitytoinvesttheminotheractivities.Moredetailedlegalandtaxcommentsarepresentedinsection2.8.
2.6.1.5.Propertymanagementagreement(zarządzenie nieruchomościami)
Propertymanagementisaprofessionalactivitycarriedoutbypropertymanagers.ItisregulatedintheActonPropertyManagement,underwhichmanagementofaparticularpropertyisbasedonthepropertymanagementagreementbetweentheowneroftherealestateandthepropertymanager.Theagreementforpropertymanagementshouldbeconcludedinwriting,otherwisenull and void.
Thepropertymanagerisrequiredtohaveacompulsoryinsuranceofcivilliabilityfordamagecausedinthecourseofactivities.
2.6.2. Taximplications
Income subject to tax
Taxableincomecomprisestheentireincomegeneratedfrombusinessactivities(tradeorservices).TaxableincomeiscalculatedonthebasisoffinancialstatementspreparedinaccordancewithPolishaccountingstandardsaftersignificantadjustmentsrelatingtothetaxbase.Taxableincomeisasarulerecognizedfortaxpurposesonanaccrualbasis.Theapplicabletaxrateis19%.
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Calculation of taxable income
Taxablerevenuesminustaxdeductiblecostsconstitutethetaxassessmentbase.Thecostsaredeductibleiftheywereincurredforthepurposeofrevenueearningormaintaining/securingthesourceofrevenue.Fortheexploitationofrealestate,themostimportantcosts,suchasinterestpayments,thecostsofexploitationandmaintenanceanddepreciationwrite–offs,areconsideredtaxdeductible.Polishtaxrulesspecificallyexcludecertainexpensesfromtaxdeductiblecosts.Forexample,doubtfulreceivablescanonlybedeductedunderverystrictconditions.Alsobusinessentertainmentexpenses(e.g.thecostsofrepresentation)arenon–deductible.
Loss carry forward rules
Polishlegislationprovidesforcarryingforwardtaxlossesoverfiveconsecutivetaxyearsfollowingtheyearwhenthelosswasincurred.Theamountwhichcanbeutilizedinanyofthesefiveyearscannotexceed50%ofthetotalloss,however.
Example:
Year 0 1 2 3 4 5 6
(Loss)/profit
(100) 60 10 10 20 5 20
Carryforward
- 50 10 10 20 5 -
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 estate
Thestandarddepreciationrateformostnewbuildingsfortaxpurposesis2.5%peryear.Hence,thecostsofrealestateinvestmentaregenerallydeductedoveraperiodof40years.Newlyacquiredbuildings,usedpreviouslybyaformerowner,canbedepreciatedfortaxpurposesduringtheperiodequaltothedifferencebetween40yearsandthenumberofyearsthathavepassedsincethebuildingwasputintouseforthefirsttime(thatperiodcannotbeshorterthan10years).Landisnotsubjecttotaxdepreciation.
Ifresidentialbuildingsconstitutefixedassetsusedforbusinesspurposes(e.g.iftheyareleased)theyaredepreciatedatarateof1.5%peryear.
Undercertaincircumstancesitmaybeworthcarryingoutacostsplitanalysisofinvestmentexpenditurespriortoputtingabuildingintouse.Thisisbecausesomemachinerymay–underspecificregulations–beexcludedfromthevalueofthebuildingandbetreatedasseparatefixedassetsdepreciatedathigherrates(4.5%–20%peryear).Thiscouldleadtosignificanttaxsavingsasthecostsincurredcouldbedeductedoverashorterperiodoftime.Acostsplitanalysisshouldbealsopossibleincaseofthepurchaseofanalreadydevelopedbuilding.
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Calculation of the depreciation base
Thedepreciationbaseconsistsofallcostsincurredinmakingtheinvestment:constructioncosts,buildingmaterials,designs,interestandforeignexchangedifferencesaccruedduringtheconstructionperiod,commissionandpotentiallynon–recoverableinputVATrelatedtothebuildingincurredbeforeitwasputintouse.Asthevalueofthelandisnotsubjecttodepreciation,itisthenimportanttodeterminethevalueofthelandandthevalueofthebuildingseparately.
VAT implications of renting out real estate
Rentalincomeissubjectto23%VAT.ThisVATisaddedtotherentdueandispayablebythelesseetothelessor.IfthelesseeisaregularVATpayer,hecandeducttheVATpaidintherentinvoicefromhisoutputVATliabilityresultingfromtaxableactivities.
IfthelesseeperformsVATexemptbusinessactivities,theinputVATontherentisirrecoverable.Forexample,theactivitiesofbanks,financialinstitutionsandinsurancecompaniesareexemptfromVAT.
Ifthelesseeperformsexemptactivities,aswellastaxableactivities,thentheinputVATontherentcanbededucted
proportionatelyontheproratabasiscomputedforagivenyear.
Rentalofresidentialunitsforhousing(butnottherentalofresidentialunitsforthepurposesotherthanhousing)isVATexempt.
Real estate tax
Realestatetaxischargedtotheowner(orinsomecasestheholder)ofthelandorbuildingsandinfrastructurewhichareusedforbusinessactivities.Thelocalauthoritiessettherealestatetaxratesandcollectthetaxes.However,localauthoritiesareboundbythefollowingmaximumPLNyearlytaxrates:
• forland,PLN0.90perm2ofland;
• forbuildings,PLN23.13,perm2 of the usablesurfaceofabuilding;
• forinfrastructure(e.g.roads,pipelines),2%ofthevalueoftheinfrastructurecalculatedaccordingtospecificregulations(initialvaluedeterminedforthepurposesoftaxdepreciation).
Localauthoritiesmaydifferentiatebetweentaxratesfordifferenttypesofactivitiesorlocationsandgrantexemptionsforcertaintypesofrealestate.
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2.7.Exitingtheinvestment
Theinvestor’schoiceofexitstrategywillbepredominantlytaxdriven,anditisimportantattheoutsetoftheinvestmentprocesstohaveaclearideaofthepossibleexitmechanics.Theduediligencefindingsmadeduringtheacquisitionphasearelikelytobearrelevancetothequestionofwhichexitstrategytochoose,andshouldbegivenproperconsideration,sothattheinvestor’spositiononexitwillbeasstrongaspossible.
Generally,theexitmaybestructuredasanassetorsharedeal.Thelegalandtaxconsequencesofbotharepresentedinsection2.4.
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2.8.Saleandleaseback
Legal aspects
Asaleandleasebacktransactionconsistsoftwostages.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,thedecisiononchoosingsuchasolutionshallbemadeondetailedcalculationofallthecostsrelated,includingtheleasecosts.
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Tax implications
Ifasaleandlease-backtransactionisstructuredasanoperationallease,thebuyer/lessorisinmostcasestheowner,andwillbeabletodepreciatethevalueoftheinvestmentatthestandarddepreciationrateof2.5%.Accelerateddepreciationforusedbuildingscanbeconsideredinsomecases.Othercostsrelatedtothemaintenanceandexploitationofthebuildingaretax-deductibleforthelessor.
If,underasaleandlease-backcontract,therealestateassetwhichisthesubjectofthecontractissoldatahigherpricethanitsnetbookvalue,ataxablecapitalgainwillresult.UnderPolishlegislation,itisnotpossibletodeferthetaxationofsuchacapitalgaininordertouseitforreinvestment.
Asaleandlease-backarrangementhasanadvantagefortheseller/lesseethattheleasepaymentsarefullytaxdeductibleascostsincurredforthepurposeofearningrevenue.Bycontrast,fortheborrowerpartytoanormaldirectfinancingarrangement,onlytheinterestpaymentsmadeontheloanaretax-deductible.Therepaymentofcapitalisnotatax-triggeringevent.Underadirectfinancingarrangementsecuredbyamortgage,thedebtorwouldstillbetheowneroftherealestate.Assuch,thedebtorwouldbeunabletodepreciatethevalueoftheland.Underaleasecontract,theleasepaymentsarepartlyacompensationfortheuseoftheland.Therefore,paymentsfortheuseofthelandaretax-deductibleforthebenefitofthelessee.
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2.9.Duediligenceaspartoftheacquisitionprocess
Themainpurposeoftheduediligenceprocessistoprovideinvestorswithacomplexoverviewofthesituationoftherealestatebeingthesubjectoftheacquisitionfromthelegal,financialandtaxperspective.Takingintoaccountthespecificstatusandfeaturesofagivenrealestate,abroaderduediligencereview,conductedbytechnicalandenvironmentalexperts,mayberecommended.
2.9.1.Legalduediligence
Theduediligenceprocessisallaboutmitigatinginvestmentrisks.Inpractice,thelegalduediligencereviewconsistsingatheringinformationandshouldprovidethepotentialinvestorwithacomprehensiveviewofthelegalissuesregardingtherealpropertyheconsidersacquiring.
Bytheendoftheduediligenceprocess,theinvestorshouldhaveafairideaofwhethertherealestateisworthinvestingtimeandmoney.Inthisregard,aduediligenceshouldbeascomprehensiveaspossible.
Thescopeofthelegalduediligencewilldependonthestructureofthedeal.Inasharedeal,thescopeoftheduediligencewillgenerallybewiderthanthatrequiredforanassetdeal,asitneedstocoveralltheaspectsrelatedtotheactivityofthecompany.Incaseofanassetdealmostlythelegalstatusoftherealestateshouldbetakenintoconsiderationandexaminedcarefully.
Withinthelegalduediligence,thereviewbasesmainlyondataandinformationprovidedbythesellerandonenquiriesanddiscussionswiththesellerand/orthemanagementofthetarget.Additionally,publicly
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availablesources(suchasdataincourtregisters)areexplored.Inpractice,theduediligenceregardingtherealestateusuallycoversreviewofthefollowingmatters:
• legaldocumentsrelatedtotheseller’stitletotherealestateinuse(e.g.realestateacquisitionagreements,extractsfromthelandandmortgageregister,extractsfromthelandandbuildingsregister,etc.);
• documentsrelatedtotheencumbrancesovertheseller`srealestate;
• leaseagreementsfortherealestateconcludedbytheseller;
• developmentandconstructiondocumentation;
• planningandzoningissues;
• utilitiessupplydocumentation;
• environmentalissues(permits,licensesetc.).
Reviewofotheraspectsisusuallyagreedwiththesellerandstrictlydependsonthetypeoftransaction(shareorassetdeal).
Theaimofthelegalduediligencereviewoftherealestateistoidentifyareasofinvestmentrisksbutalsootherspecificlegalaspectsregardingperformingofbusinessactivityontherealestateanditssale.Belowwepresentcertainissuesthatneedtobeanalyzedduringtheduediligenceprocessandwhichmayinfluencethestructureofthetransaction,orevenadecisiononenteringintothetransaction.
Zoning Master Plan
Thezoningmasterplansareissuedbythelocalauthorities(municipalities)for
agivenarea.Generally,zoningmasterplansarelocalactsanddefineconditionsforlanduseanddestinationandthescopeofbusinessthatcanbeconductedwithinagivenarea.Municipalitiesissuezoningmasterplanswithaviewtolocaldevelopmentandpublicinterest.Developmentofaninvestmentontherealestateispossibleprovidedthatbuildings,plantsandotherindustrialfacilitiescomplywiththerelevantzoningmasterplanforagivenarea.Therefore,itisessentialtoestablishduringtheduediligenceprocesswhetherthereisalocalzoningmasterplancoveringtheareawherethetargetedrealestateislocatedandifso,whataretheconditionsofthiszoningmasterplaninordertoconfirmwhetheritwillbepossibletoperformtheplannedinvestment.Pleaserefertothesection2.5.1.formoredetailedinformationregardingthezoningmasterplan.
Withinthereviewofthezoningmasterplan,inparticular,theissuesoftheconservationandhistoricpreservationzonesandagriculturallandshouldbeverified.
Conservations and historic preservation zone
Thezoningmasterplanmayprovidethattheareawheretherealestatesubjecttothepotentialinvestor’sinterestislocatedfallswithinaconservationandhistoricpreservationzonewheresomespecificrulesapplyinordertoprotectthehistoricalmonumentslocatedinthezone.Dependingonthetypeoftherealestateanditshistoricalstatustheremaybe
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additionalrequirementsandlimitationsestablishedbytheprovisionsoflaw.
Agricultural land
Thezoningmasterplanmayprovidethattherealestateisassignedforagriculturalactivity.Asarule,thedevelopmentofrealestatedesignatedforagriculturaluserequiresaspecialprocedureinvolvingthemodificationofthezoningmasterplan.Suchaproceduremaybetime-consumingandisconnectedwiththeriskofthirdpartieschallengingtheproposedchangestotheplan.Additionally,realestateclassifiedasagriculturallandintheLandandBuildingRegister,butnotcoveredbythemasterplan,shouldbealsoexcludedfromagriculturalproductionbyobtaininganadministrativedecisionfromtherelevantauthority.
Itshouldbenotedthataftertheexclusionoftheareafromagriculturalactivityanannualfeehastobepaidfortenyears(seecommentsbelow).
Certainregulationsarealsoinforceasregardstheacquisitionofagriculturalrealestateandtheyprovideformanyspecificlegalrestrictionsandlimitations.Inparticular,priortotheacquisitionoftheagriculturallandbyforeigners(includingcitizensandcorporateentitiesfromtheEuropeanEconomicArea),apermitfromtheMinistryofInternalAffairsmustbeobtained.Theserulesdonotchangeincaseitisthesharesinthecompanyowningtheagriculturallandthataresubjectofthetransaction.Additionallimitationthathastobetakenintoconsiderationisthepre-emptive
righttowardsarablelandofanareaofatleast50,000m2whichisgrantedtotheAgriculturalPropertyAgency.
Inconsequence,aninvestorconsideringacquisitionofagriculturalrealestateshouldbepreparedforadditionalactionstobetakenandcoststobeincurredinordertoexecutehisplansregardingtheacquisitionanddevelopmentoftheland.
Restitutions claims
UnderthenationalizationlawspassedinPolandaftertheSecondWorldWar,manyrealpropertiesandfunctioningenterprises(includingtheirrealestateassets)were“nationalized”(or“communalized”).However,currently,therearenospecificreprivatisationlawsinforceinPolandtodealwiththerestitutionmattersandclaims.Asaresult,thelegalstatusofnationalizedpropertiesisquiteoftensubjecttouncertainty.Underspecificconditions,formerownersortheirsuccessorsmayapplytocivilcourtsandinitiateproceedingsaimedattherestitutionofsuchrealestate.Asthecurrentownerbenefitsfromthelandandmortgageregister’spubliccredibilitywarranty,theoutcomeofsuchclaimwillprimarilydependontheapparentgoodfaithofthecurrentandpreviousowneratthetimetheyacquiredtheproperty.Nevertheless,thisissueneedstobesubjecttoanalysisduringtheduediligence.
InWarsaw,onthebasisofthespecial“Warsawdecree“onlandownershipof1945,theCityofWarsawgainedownershiprightstothemajorpartof
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realestateinthecity.However,subjecttospecificconditions,formerownersoftherealestateweregrantedtherighttoapplyforobtainingusufructrightstorealestateorcompensation.Currently,suchapplicationswhichwerenotresolvedorwereresolvedincontraventionofthelawmaybethebaseforsuccessfulclaimsforreestablishingtherightsofthepreviousownersortheirsuccessors.Inconsequence,itisessentialduringtheduediligencetoinvestigatewhetheranysuchproceedingsarependingwithrespecttothetargetpropertylocatedinWarsaw.
Fees – holding the real estate
Zoning fee
Zoningfee(“OpłataAdiacencka”)isachargewhichmayoccurwithregardtotheincreaseofthevalueoftherealpropertyresultingfrom:
• divisionoftheproperty;
• mergingandsubsequentlydividingtheproperty;
• theconstructionofinfrastructurewiththeuseofpublicfunds(placingwaterpipes,sewagepipes,heatingsystems,electricitygasandtelecommunicationsfacilities).
Theamountofthefeedependsontheamountoftheincreaseintheproperty’svalue and is usually established based onanopinionofanindependentexpertdetermininghowmuchthevalueofpropertyhasincreasedby.
Theamountoffeeshallnotbehigherthan50%(withrespecttothedivision
followingamergerandtheconstructionofinfrastructurewiththeuseofpublicfunds)andnothigherthan30%(withrespecttoadivision)oftheincreaseinvalueoftheproperty.
Additionally,adoptionofthezoningmasterplanmayalsoleadtoanincreaseinrealestatemarketvalue,e.g.whenaforestrylandoranagriculturallandisreclassifiedinthezoningmasterplanintopublicroads,itsvalueusuallyincreases.Insuchcasesthezoningfee(“RentaPlanistyczna”)maybeestablishedasapercentage(nothigherthan30%)oftheincreaseinvalueofthelandcalculatedasatthedateofthetransferofthegivenrealestate.
Thepercentageforcalculationofthezoningfeeshouldbeprovidedforinthemasterplan.Thezoningfeeispayablebythevendorinthecaseofatransferofthepropertywithin5yearsfromthedaywhenthezoningplancameintoforce.
Exclusion from agricultural production fee
Entrepreneursareofteninterestedinchangingthepurposeofuseoftheagriculturalandforestlandinordertodevelopthelandandrealizeaninvestment.Exclusionfromagriculturalproductionissubjecttoaninitialfeeandsubsequentannualpayments.Thevalueofsuchpaymentsdependsonthe:
• areaofthelandsubjecttoexclusion;
• qualityoftheland(classofsoil);
• marketvalueofthelandsubjecttoexclusion.
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It should be noted that if the land excludedfromagriculturalproductionissold, the obligation to pay the annual fees passestothepurchaser.
Environmental issues
Introduction
Polishenvironmentallawaffectstheconductofeconomicactivityformostbusinessentities.Oneofthemostimportantrequirementsimposedbytheenvironmentallawistherequirementtoobtainpermitsrelatedtotherulesofhavinganimpactupontheenvironment.Itisusuallyexaminedduringtheduediligencewhethertheseller(orthetargetcompany)fulfillstheenvironmentallawrequirements.
Permit requirements
Environmentalpermitscanbebasicallydividedintotwogroups.Thefirstoneincludespermissionobtainedinthecourseoftheinvestmentprocessandthesecondgroupincludespermissionrelatedtotheuseoftheproperty.
IncertaincircumstancesPolishenvironmentallawimposesanobligationtoobtainanintegratedpermit,whichincludesanumberofpermitsgoverningtheuseoftheenvironment.Theobligationtoobtainintegratedpermitrelatesto,interalia,thefollowingbranchesofindustry:metallurgyandsteelindustry,themineralindustryandthechemicalindustry.
Besides,itisimportanttotakeintoaccountthepermissiblelevelofnoise.Permissionisrequiredonlyifthenoise
levelexceedsthenoiselimits,whichshouldbeevaluatedtakingintoaccounttheprovisionsofthelocalplan.
Liability for contaminated land
PursuanttothePolishenvironmentallaw,aholderoftheland(i.e.anownerofthepropertyorotherentityindicatedinthelandregistryasaholder)isresponsibleforthelandcontamination,notwithstandingwhenthecontaminationoccurred.Thus,theholderofthelandwillbeliablefortheclean-upevenifthecontaminationhasbeencausedbyhispredecessors.
Partiestotheagreementcannotcontractuallyexcludetheliabilityofthepurchaserforclean-upofcontaminatedlandsowhenapotentialinvestorintendstobuyaproperty(especiallyonethatwasusedforindustrialpurposes)adetailedstudyonpollutionofthelandisrequired.
Tosecurepurchaser’sinterest,thesellerofcontaminatedlandmayagreetoindemnifythepurchaseragainsttheliabilityfortheclean-up.However,inpracticeitmaybedifficulttoachieve.
Environmental impact assessment
Accordingtothesection2.5.1wheretheenvironmentaldecisionandenvironmentalimpactassessmentwheredescribed,insomecases–especiallyforlargeinvestmentsanenvironmentalimpactassessmentproceedingmayberequired.
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2.9.2.Financialduediligence
Notmanyinvestorsperformduediligencewhencompletingarealestatetransaction.Oftentheinvestor’sowninternalproceduresrequireduediligencetodeterminewhetherornotthetransactionisinthebestinterestoftheinvestor.
Althoughfortransactionsofasmallerscalethismaynotbeagoodwaytoevaluateadeal,mostinvestorsunderstandthevalueofexpertoutsourcedfinancialduediligenceservices.Thisringsespeciallytruewhentakingintoaccountlargertime-sensitivetransactions(auctionprocessesforexample).
Althoughsomeinvestorschoosetoforegoduediligencewhenacquiringnewassets,theyshouldunderstandthatfinancialduediligencecanindicatehowtheacquiredassetswillaffectmetricssuchasrevenueandnetoperatingincome.Inaddition,duediligenceisabletodiscoverunforeseenproblemssuchasdiscrepanciesbetweentheamountpaidforrentasdescribedinleaseagreementsvs.theactualamountbeingpaidpertheaccountingbooks.
Abuyerusuallymakesuseoffinancialduediligencetoassistinidentifyingmajorissuesconcerningatransaction:
• thevalueoftheproperty’sNOItakingintoaccounttheexistingleaseportfolio
• anyprovisionsintheleasethataffecttheNOIadversely(forexample,discountsonrentforanygivenperiodoftimeorforimprovementsmadebylessee)?
• bookkeepinginusebeingadequateforthebusiness,andhowdoesitlooks
nexttotheinvestor’sbookkeepingprocedures
• lesseeeverbeinglatewiththerent,orittakinglongertocollectrent;
• chargesmadebythelesseebeingenoughtocoverthecostsofmaintainingthebuilding;andanyservicechargesnotsettledforanyreason
Analyzing financial issues
Theitemslistedbelowshouldbeconsideredwhenseekingtoresolvethepreviouslymentionedissuesconcerningfinancialduediligence:
• thefinancialfiguresbeingviable:canthefiguresbetracedbacktoitsoriginreliably;
• criticalbookkeepingproceduresbeingappliedconsistentlyandappropriately;
• theinfluenceofthebookkeepingproceduresonthefinancialfigures;
• assuringthatthecreationandlevelofmanagementinformationisaccurateandadequateforthebusinessbeingconsidered;
• evaluatingthecontractualobligationsthebusinesshasandtheirinfluenceonprofitabilityandcashflow;
• evaluatingcriticalproblemsinfluencingearningsposition;
• recognitionoftheneedforcostrechargesincurredandfocusonareasforimprovement;
• recognizingthe“normal”workingcapitalandcashflowtidesofthebusinessandprobablefundingneedsdowntheline;
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• makingsureconstructionscostsareproperlyreflectedinthebookkeepingrecords;
• recognizingthenetassetbaseforacquisition;addressingpossiblebalancesheetvaluationdiscrepancies;makingsureeverythinghasbeenadequatelyaddressedinevaluatingtheunderlyingearnings;
• comparingtherentrollagainsttherentalagreementsandbookkeepingrecords;
• comparingtheservicechargesincurredagainstthebookkeepingrecords;and
• goingoverrentalagreementstoidentifybalancesheetliabilities.
2.9.3.Taxduediligence
Taxduediligence,ingeneral,focusesonassessingmaterialtaxriskspertainingtoassetsorsharesbyreviewingthetaxpositionofthetargetcompany.Byidentifyingtaxrisksduringduediligenceconductedbeforethetransaction,theinvestormayseekprotectionorindemnificationfromtheseller.
Fromataxperspective,itisalsoimportanttoensurethattheappropriatetaxstructureisused,whichusuallyinvolvesapre–transactionstudyandthepreparationofthetransactionstructureinaccordancewiththePolishandinternationaltaxregulations.Inaddition,itcanalsoincludeanassessmentofthetaximplicationsofafutureexitscenario.
Acquisition of assets
Inthecaseofanassetdealdeemedtobetheacquisitionofbusinessasagoingconcernoraviablepartofthatbusiness,theacquirermaybeheldliablefortheoutstandingtaxliabilitiesoftheseller.Thisliabilityisexcludediftheacquirercouldnothavebecomeawareoftheseller’staxarrearsdespiteactingwithduediligenceinattemptingtoidentifysuchtaxarrears.Performingataxduediligencereviewisthusawaytolimitorexcludesuchliability.
Thisliabilityisinpracticeofa’subordinated’nature,asevenifaformaldecisiondeclaringthattheacquirerisliablefortheseller’staxarrearsisissued,theclaimagainsttheacquirermaycrystallizeonlyiftheenforcementprocedureagainstthesellerisineffective(andtaxclaimsagainstthesellerarenotsatisfied).
Accordingtothetaxregulationstheacquirer(withtheseller’sconsent)orthesellermaysubmittothetaxauthoritiesaformalrequestforacertificatewhichlistsallthetaxliabilitieswhicharetransferabletotheacquirer.Theacquireristhenliableonlyuptothevalueofthetaxliabilitiespresentedinthecertificate.
Inthecaseofasaleofsingleassets(notconstitutingtheviablepartofabusiness),itisstillpossible(becausetherelevanttaxregulationsareunclear)thattheacquirermaybecomeliablefortheoutstandingtaxarrearsoftheseller,butonlyforperiodsbefore2009.However,asarule,taxliabilitiesregardingtheperiodbefore2009shouldalreadybesubjecttostatuteoflimitation.
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Acquisition of shares
Inthecaseofasharedeal,allthepotentialoutstandingliabilitiesremainwiththeacquiredcompany.Asaconsequence,theacquirerfacesthepossibilityofincurringaneconomiclossonthetransactionifundisclosedtaxliabilitiesbecomeapparentafterwards.Taxduediligenceisthereforeconductedtoallowtheacquirertoassessandminimizethisrisk.
Generally,theperiodoflimitationfortaxliabilitiesis5taxyearsfollowingtheyearinwhichthetaxispayable.Inpracticethismeansthatfromtheperspectiveof2015thereisstillataxriskinrelationspecificallytoatarget’scorporateincometaxpaymentsfor2009–2015,andtoothertaxliabilities,ingeneral,for2010–2015.
Tax issues analyzed
Thescopeofataxduediligencereviewdependsonthestructureoftheplannedtransaction.
Inthecaseofanassetdeal,thescopeofduediligencedependsonthesubjectofthetransactionandtheextenttowhichtheacquirermaybeliablefortheseller’staxliabilities.
Inthecaseofasharedeal,astheacquirerfacesthefullimpactofanytaxliabilitiesassumed,fullduediligenceisusuallyconducted.
Thetaxduediligenceincaseofasharedealusuallycoversthefollowingareas:
• reviewoftaxreturnsforperiodspreviouslyfiledandreviewoftax
calculationsforperiodsthatarenotyetfiledwiththetaxauthorities;
• reviewoftheresultsofpasttaxauditstodetecttaxrisksforperiodsthatarestillopenfortaxauditsbythetaxauthorities;
• reviewofanyobtainedtaxrulings;
• reviewofanylossescarriedforward,taxcreditsandspecialtaxprivilegestoidentifyrelatedtaxrisksforunauditedperiodsandtoassesswhethersuchtaxbenefitswillbeavailableposttransaction;
• reviewofwithholdingtaxproceduresandexemptionsavailable;
• reviewofsignificanthistoricalreorganizationsandone-offtransactionsandtheirimpactonthetaxaccounts;
• reviewofintercompanytransactionsandpresenttransferpricingpolicyinthecompany;
aswellasanexaminationofareastypicalforarealestatecompany,suchas:
• theexistingdebtfinancingstructure(e.g.debtpushdownschemes),thincapitalizationandotherpendingrestrictionsonthetaxdeductibilityofinterestpaymentsonthedebt;
• anylargedifferencesbetweenbookandtaxbasisofassets,analysisofthedeferredtaxcalculations,inparticularidentificationofanydeferredtaxliability,e.g.fromaccruedforeignexchangegains;
• rulesforcapitalexpenditurerecognitionandtheimpactofforeignexchangedifferencesontheinitialvalueoffixed
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assetsfortaxdepreciationpurposes;
• policiesforthetaxdepreciationofassets,includingareviewofcostsegregationschemes;
• cashincentivesofferedtolesseessuchasarentfreeperiodorstep-uprentandtheirimpactonthetaxaccounts;
• treatmentoftheinvestmentcostsincurredbylessees(leaseholdimprovements)whentheleaseexpires;
• taxrecognitionofmanagementchargespayablebyspecialpurposevehiclestoservicingcompanieswithinthegroup;
• anystep-upinthevalueoftherealestateperformed;
• reviewofinputVATrefundsintheinvestmentphase;and
• policiesforrealestatetax.
Areviewofthesaleandpurchaseagreement(SPA)fortheacquisitionofarealestatetargetusuallycoversthefollowingtaxpoints:
• reviewofthetaxdefinitionsintheSPA,andofthetaxrepresentationsandwarranties;
• reviewofthetaxindemnityclausesintheSPA;and
• analysisoftheSPAfromtheperspectiveofotherprotectionavailableagainsttaxexposures.
2.9.4.Theuseofduediligenceresultswhennegotiating
Afterthewholeprocessofduediligence,theinvestorgetsageneralfinancialandtax
riskoverview,whichmakesuptheoriginoftheinformationfornegotiationswiththesellerandassistsinadjustingthefinancialmodelforvaluation.
ThiscanbeusedtogetadecreaseinpriceinordertoalleviatepossibletaxliabilitiesandcanbeusedwhenwritingwarrantiesanddamagesintheSPA.
Theresultsmaydirectlyaffectthecompositionofthetransaction,forexample,transformingasharedealtoanassetdeal;theymayalsobeusedforpost-acquisitiontaxplanning.
Alongwiththetaxandfinancialduediligenceresults,thelegalduediligencereviewshouldassistthebuyerindeterminingwhetherornottocompletethetransaction,andifso,inwhatform.Duediligenceinvestigationsletthebuyer’slegalteamconstructtheconditionsofthedealsothatthebuyerisaffordedwithanadequateamountofcomfortandprotection.Thelegalteamwillthenbeinapositiontoaddressspecificproblemsbyaskingforfurtherexplanationsand/orpromisesorwarrantiesfromtheseller.ThelegalteamcanalsoevaluatewhetherornotsuchpromisesorwarrantiesneedtobecoveredbyanindemnityclauseorotherlegallanguageallowedunderthePolishlaw.
Whentakentogether,thefinancial,taxandlegalduediligenceresultsareaverystrongtoolwhichcanveryeasilyhaveaninfluenceonthefinalresultofnegotiations,and,inparticular,howmuchthebuyerwillultimatelypay.
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Accounting aspects of investing in the Real Estate market
3
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3.1.Polishaccountingregulations
3.1.1.IntroductiontotheaccountingframeworkinPoland
PolishaccountingisregulatedbytheAccountingActof29September1994withsubsequentamendments(theAct).TheMinisterofFinancehasalsoissuedseveralregulationscoveringspecificaccountingareassuchasfinancialinstruments,consolidation,accountingforbanks,insurancecompanies,investmentfundsandpensionfunds.Since2002theAccountingActhasbeenundergoingsignificantchangestobringthePolishaccountingprinciplesclosertotheInternationalFinancialReportingStandards(IFRS).However,duetothemanychangesinIFRS,somedifferencescontinuetoexistbetweentheActandIFRSasnotedbelow.
In2002theAccountingStandardsCommitteewasestablishedinPoland.SincethattimeithasissuedthefollowingNational
AccountingStandards(‘KSR’)toimplementtheAct:.
• KSR1“Cashflowstatement”
• KSR2“Incometaxes”
• KSR3“Constructioncontracts”
• KSR4“Impairmentofassets”
• KSR5“Leasing”
• KRS6“Provisions,accruals,contingentliabilities“
• KSR7“Changesinaccountingpolicies,estimates,correctionoferrors,postbalancesheetevents–accountingandpresentation”
• KSR8“Developeractivity”
• KSR9“Managementreport”
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TheCommitteealsoissuedseveralstandpoints(notastandard)ontopicsrelatedtobookkeeping,accountingforemissionrights,inventoryvaluationandgreencertificates.InanymattersnotregulatedbytheActorDecreesissuedbyMinistryofFinanceanentitymayapplytheNationalAccountingStandards.Intheabsenceofrelevantlocalregulations,the
entitymayapplyInternationalFinancialReportingStandards.
TheamendmentstotheAct,whichcameintoforceon1January2005,permitsomePolishentitiestoapplyIFRSasadoptedbytheEUastheirprimarybasisofaccounting.Theapplicationcriteriaaresummarizedinthefollowingtable:
Standalone financial
statements
Consolidated financial
statements 1.Entitieslistedonaregulatedmarketin
PolandorotherEuropeanEconomicArea(EEA)country.
Choice Required
2. Banks(otherthanthoseincludedin1,3and4). Notpermitted Required
3.EntitiesthatappliedforpermissiontolistonaregulatedmarketinPolandorotherEEAcountry*.
Choice Choice
4.EntitiesthatarepartofagroupwheretheparentpreparesconsolidatedfinancialstatementsinaccordancewithIFRSasadopted by EU.
Choice Choice
5.Branchesofaforeignentrepreneurs Choice Notapplicable
6.Otherentities. Notpermitted Notpermitted
* The Companies which filed prospectus to the Financial Supervision Committee in Poland or other EEA country.
Asof18March2008,furtheramendmentstotheAccountingActwerepublished.Themajorityoftheamendmentsbecameeffectiveasof1January2009andhavebeenapplicabletofinancialstatementsfortheannualperiodsbeginningonorafter1January2009.Itrequiredthefollowingadditionaldisclosuresinthenotestothefinancialstatements:agreementsnotrecognized
inthebalancesheet,significantrelatedpartytransactionsnotonanarms’lengthbasisandremunerationoftheauditorortheauditfirm.Amendmentstobeappliedinthefinancialstatementsforthefinancialyearbeginningin2009includedamongstothers:
• recognitionofchangesinthefairvalueofinvestmentpropertiesandintangibleassetsclassifiedasinvestments;
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• possibilitytoceaseapplicationofIFRSastheprimarybasisofaccounting;
• changeofthecapitalgroupdefinition;
• changestoapplicationofthepoolingofinterestmethodforbusinesscombinations.
3.1.2.ApplicationofthePrinciplesoftheAccountingAct
TheprovisionsoftheActshallapply,subjecttotheprovisionsofParagraph3oftheAct,tothefollowingentitieswhoseregisteredofficesorplaceofexecutivemanagementarelocatedontheterritoryoftheRepublicofPoland:
• commercialcompanies(partnershipsandcompanies,includingthoseintheprocessofsettingup)andcivilpartnerships,aswellasotherlegalpersons,exceptfortheStateTreasuryandtheNationalBankofPoland;
• naturalpersons,civillawpartnershipsestablishedbynaturalpersons,generalpartnershipsestablishedbynaturalpersonsandprofessionalpartnerships,iftheirnetrevenuefromthesalesofgoodsforresale,finishedgoodsandfinancialtransactionsforthepriorfinancialyearamountedtoatleastthePolishzlotyequivalentofEUR1,200,000;
• organizationalentitiesoperatingonthebasisoftheBankingLaw,regulationsontradinginsecurities,investmentfundregulations,insurance
regulations,cooperativesavingsbanksorregulationsontheorganizationandoperationofpensionfunds,regardlessoftheirlevelofrevenue;
• communes,provinces,voivodshipsandtheirassociations,aswellas:
• state,communal,districtandprovincialbudgetentities;
• communal,districtandprovincialbudgetinstitutions;
• statespecialpurposefunds.
• organizationalunitswithoutthelegalpersonality,exceptforpartnerships;
• foreignlegalpersons,foreignunitswithoutthelegalpersonalityandforeignnaturalpersonsconductingactivitiesintheRepublicofPolandpersonally,throughanauthorizedperson,withtheaidofemployees-inrespectofbusinessactivitiesconductedintheRepublicofPoland;
• entitiesnotmentionedabove,iftheyreceivesubsidiesorsubventionsfromtheStatebudget,budgetsoflocalauthoritiesorspecialpurposefundsforcarryingoutrelevantassignments-fromthebeginningofthefinancialyearinwhichthosesubsidiesorsubventionsweregranted.
• naturalpersons,civilpartnershipsestablishedbynaturalpersons,registeredpartnershipofnaturalpersonsandprofessionalpartnershipsmayapplytheaccountingprinciplesspecifiedintheActfromthebeginningofthesubsequentfinancialyear,iftheirnetrevenuefromthesalesofgoods,andproductsandfinancialtransactions
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fortheprecedingfinancialyeararelessthanthePolishzlotyequivalentofEUR1,200,000.Inthatcase,suchpersonsorpartnersarerequiredtonotify,beforethebeginningofthefinancialyear,thetaxofficerelevanttoincometaxmatters.
Entitiesshouldhavedocumentationwhichdescribes,inPolish,itsadoptedaccountingpolicies,inparticularthoserelatedto:
• thedeterminationofthefinancialyearandreportingperiodscoveredbyit;
• themethodsofmeasuringassets,liabilitiesandequity,anddeterminingthefinancialresult;
• themannerofkeepingthebooksofaccounts,includingatleastacorporatechartofaccountswithadoptedprinciplesofeventsclassification,principlesofkeepingsubsidiaryledgeraccountsandtheirlinkageswithgeneralledgeraccounts;
• alistofthebooksofaccountsand,inthecaseofcomputerizedbooksofaccounts,alistofdatafilescomposingthebooksofaccountsonelectronicdatamedia,withthespecificationoftheirstructure,mutuallinkages;
• adescriptionofthedataprocessingsystemand,inthecaseofcomputerizedbooksofaccounts,adescriptionofthecomputersystem,includingalistofprograms,proceduresorfunctions;
• asystemprotectingdataanditsfiles.
AccountingrecordsshouldbekeptandfinancialstatementsdrawnupinthePolishlanguageandexpressedinthePolishcurrency.
3.1.3.Valuationofselectedbalancesheetitemsapplicableforreal-estatesectorentities
Investment property
Thedefinitionofinvestmentpropertyincludesproperties,whicharenotusedbytheentityforitsownpurposes,butwhichareheldforthepurposeofgeneratingprofitsthroughcapitalappreciationand/orproceedsfromrental.Investmentpropertyisvaluedatapurchasepricedecreasedbydepreciationandimpairmentwrite-offs(costmodel)oratitsfairvalue(fairvaluemodel).Eachentityhasapolicychoiceforthevaluationmodelused.
Fair value model
Ifthefairvaluemodelisselected,thechangesinthefairvalueofinvestmentpropertyarerecognizedintheincomestatementasotheroperatingcostsorotheroperatingincome(beforetheamendmentstotheActwhichcameintoforceon1January2009changesintheinvestmentpropertyfairvaluewererecognizedthroughequity).
Cost model
Ifthecostmodelisapplied,investmentpropertyisrecognizedandsubsequentlymeasuredatacquisitionorconstructioncost,lessaccumulateddepreciationandaccumulatedimpairmentwrite-offs.Landisvaluedatitsacquisition
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costreducedbyimpairmentwrite-offs.Investmentproperties,exceptforland,aredepreciatedonastraight-lineorothersystematicbasisovertheinvestments’estimatedusefullives.
Borrowingcostswhichrelatetotheconstruction,adaptation,assemblyorimprovementofaninvestmentpropertyarecapitalizedaspartofthecostoftheasset,wherethoseborrowingshavebeendrawdownforthatspecificpurposethroughtothedateofthecompletionoftheconstructionorimprovement.
Financial instruments
Financialinstrumentsareinitiallyrecognizedattheiracquisitioncost(price),beingthefairvalueoftheconsiderationgiven.Thecostsofthetransactionareincludedintheirinitialvalue.
Afterinitialrecognition,financialassets(includingderivativesandembeddedderivatives)areclassifiedintooneofthefollowingfourcategoriesandreportedasfollows:
• heldtomaturity–measuredatamortizedcost,calculatedusingtheeffectiveinterestrate;
• loansandreceivables–measuredatamortizedcost,calculatedusingtheeffectiveinterestrate,shorttermreceivablesforwhichnointerestratehasbeensetaremeasuredattheamountdue;
• heldfortrading–measuredatfairvaluewithunrealizedgains/lossesrecordedintheprofitandlossaccount;
• availableforsale–measuredatfairvalue,withanunrealizedgains/lossesrecognizedintheprofitandlossaccountorintherevaluationreservecomponentofequityuntiltheinvestmentissoldorimpairedatwhichtimethecumulativegain/lossisincludedintheprofitandlossaccount–thepolicychoiceshouldbemadebythemanagementoftheentity.
Loansandborrowingsareinitiallyrecognizedatcost,beingthevalueofthefundsreceivedandincludingtransactioncostsassociatedwiththeborrowing/loan.Afterinitialrecognition,allinterest-bearingloansandborrowings,otherthanliabilitiesheldfortrading,aremeasuredatamortizedcost,usingtheeffectiveinterestratemethod.
Financialliabilities,exceptforhedgeditems,arevaluedatamortizedcostnotlaterthanattheendofthereportingperiod.Liabilitieswhichareheldfortradingaresubsequentlymeasuredatfairvalue.Anygain/lossfromre-measurementtofairvalueisincludedinthenetprofit/lossfortheperiod.
Thecompaniesthatdonotmeetstatutoryauditrequirementsmayelectnottoapplytheabovevaluationmethodsifitdoesnotaffectthetrueandfairpresentation.Inthiscase,investmentsmaybeaccountedforasfollows:
• short-terminvestments–atthelowerofcostormarketvalue,atfairvalueoratamortizedcost(ifamaturitydateisknown)withgains/lossesrecognizedintheprofitandlossaccount;
• long-terminvestments–atcostlessimpairmentoratfairvaluewithgains/lossesrecognizedintherevaluation
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reserveinequity(surplusoverthecostofinvestment)orintheprofitandlossaccount(whenthefairvalueislowerthancostoftheinvestment).Ifamaturitydateisknown,long-terminvestmentsmaybestatedatamortizedcost.
Investments in subsidiaries, associates and jointly controlled entities and other long-term investments
Investmentsinsubsidiaries,associatesorjointventurescanbecarriedathistoricalcost,equityaccountedoratfairvalue.Ifcarriedatfairvalue,anincreaseinthefairvalueisrecordedintherevaluationreserve.Adecreaseinthefairvalueofapreviouslyre-valuedinvestment,whichdoesnotexceedtheamountofthepreviousrevaluation,reducestherevaluationreserveifthesurplusonrevaluationhasnotbeenamortizedbythedateofthemeasurement.Inallothercases,theeffectsofadecreaseinthevalueofaninvestmentarerecognizedasfinancialcosts.Anincreaseinthevalueofaninvestment,whichisdirectlyrelatedtoadecreasethathasbeenpreviouslyrecognizedasfinancecosts,isrecognizedasfinancialrevenueuptotheamountofsuchexpense.
Thefairvalueoffinancialinstrumentstradedonanactivemarketisestablishedwithrespecttothepriceslistedonsuchamarketasatthebalancesheetdate.Ifthereisnosuchalistedmarketprice,thefairvalueisestimatedbasedonthelistedmarketpriceofasimilarinstrumentorbasedontheexpectedcashflows.
Inventories
Theinventoryshouldbestatedatthelowerofcostornetrealizablevalue.
Capitalizationoffinancialcostsintheinventoryispermittediftheproductionprocessrequiresanecessarylongperiodofmanufacturing.Nospecificprovisionsrelatedtorealestateinventoryexist.
Construction contracts and provisions of National Accounting Standard 3 (KSR 3) ”Construction contracts”
AccordingtotheAct,revenuesfromconstructioncontractsshallbedeterminedatthebalancesheetdateinreferencetothestageofcompletionprovidingthat:
• theperformanceperiodoftheserviceislongerthan6months;
• thesubstantialpartoftheservicehasbeencarriedoutbeforethebalancesheetdate;
• thestageofcompletion,aswellastheanticipatedtotalcost,maybeestimatedreliably.
Thestageofcompletionshallbeestimatedusingthemethodapprovedbytheentityandbasedon:
• theshareofcostsincurredfromthecontractcommencementdateintotalestimatedserviceperformancecosts;
• thenumberofworkinghoursattributabledirectlytotheserviceperformance;
• themeasurementofworkcarriedout;
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• anothermethod–providedthatitreflectsthestageofcompletionreliably.
Regardlessoftherevenuecalculationmethodused,whenitisprobablethattotalcontractcostswillexceedtotalcontractrevenue,theexpectedlossshallberecognizedasanexpenseimmediately.
InNovember2006theNationalAccountingStandard3”Constructioncontracts”wasissued.Thestandardcovers,amongother,thefollowingtopics:determinationofthestageofcompletion,determinationofrevenuesandcostsofuncompletedconstructioncontract,presentationanddisclosureofinformationinthefinancialstatements,deferredtaxresultingfromconstructioncontracts.TheprovisionsofKSR3areingeneralinconformitywiththeIAS11ConstructionContracts,althoughcertaindifferencesbetweenthesetworegulationsdoexist.
Foreign currency transactions
TransactionsdenominatedinaforeigncurrencyaretranslatedintoPolishcurrencyattheactualexchangerateappliedonthedateofthetransaction,or,iftheactualrateisnotknown,attheratepublishedbytheNationalBankofPoland.
Atthebalancesheetdate,assetsandliabilitiesdenominatedinforeigncurrencies(otherthansharesinsubsidiariesandassociatesvaluedusingequitymethod)aretranslatedusingtheNationalBankofPolandrates.
Foreignexchangedifferencesarisingonrevaluationaregenerallyrecordedasfinancialincomeorfinancialexpense.Forcertaintypesoflong-terminvestments
denominatedinforeigncurrenciesgainsarerecognizedintherevaluationreserve.Foreignexchangedifferencesrelatingtoliabilitieswhichareusedtofinancetheassetsunderconstructionarecapitalizedtothecostoftheconstructedassets.
Deferred tax
Deferredtaxiscalculated,usingtheliabilitymethod,onalltemporarydifferencesatthebalancesheetdatebetweenthetaxbaseofassetsandliabilitiesandtheircarryingamounts.Deferredtaxliabilitiesarerecognizedforalltaxabletemporarydifferences.Deferredtaxassetsarerecognizedforalldeductibletemporarydifferencesandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailable,againstwhichthedeductibletemporarydifferencesandunusedtaxlossescanbeutilized.
Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthatareexpectedtoapply(asenactedatthebalancesheetdate)intheperiodwhentheassetisrealizedortheliabilityissettled.TheNationalAccountingStandardIncomeTaxes(KSR2)alsorequiresthatadditionaltaxcreditsgiventocompaniesoperatinginSpecialEconomicZonesarerecognizedasgovernmentgrantse.g.givingrisetoadeferredincome.Suchadeferredincomeistobeamortizedovertheusefullifeoftheasset.
Thosecompaniesthatdonotmeetthecriteriaforstatutoryaudit(seesection3.1.6.below)mayelectnottorecognizedeferredtaxes.
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Leases
Aleaseisclassifiedasafinanceleaseifatleastoneofthefollowingsevenconditionsismet:
• thelegaltitleistransferreduponleaseexpiry;
• theassetmaybepurchasedbythelesseeatapricelowerthanthemarketvalueuponleaseexpiry;
• theleasetermislongerthan75%oftheeconomicusefullifeoftheleasedasset;
• thesumofthediscountedminimumleasepaymentsishigherthan90%ofthemarketvalueoftheleasedassetasattheleaseinception;
• theleasecanbeextendedonmorefavorableterms;
• ifcancelled,thelesseebearsallcancellationcosts;
• theassetisadaptedtothespecificneeds of the lessee.
Thosecompaniesthatdonotmeetcriteriaforstatutoryauditrequirements(seesection3.1.6.below)mayadoptsimplifiedaccountingforleases,i.e.toaccountfortheleasesinaccordancewiththetaxtreatment.
Business combinations
Businesscombinationsthatarenotundercommoncontrolareaccountedforusingthepurchasemethod.Thepoolingofinterestmethodmaybeusedforbusinesscombinationsthatareundercommoncontrol.
3.1.4. Financialstatements
AllentitiesrequiredtoapplytheprovisionsoftheActareobligedtopreparetheirfinancialstatementsandconsolidatedfinancialstatements(ifapplicable)foreachfinancialyear.Thefinancialyearneednotbethecalendaryear.
FinancialstatementsmustbepreparedinthePolishlanguageandexpressedinthePolishcurrency.AsrequiredbytheActthefinancialstatementsconsistof:
• introduction;
• balancesheet;
• incomestatement;
• statementofcashflows;
• statementofchangesinequity;
• additionalnotesandexplanations.
Joint-stockcompanies,limitedliabilitiescompanies,insurancecompaniesandstate-ownedcompaniesarerequiredtoprepare,inadditiontothefinancialstatements,theDirector’sreport–detailedcontentrequirementsarespecifiedinArticle49oftheAct.
Theformatofthebalancesheet,incomestatement,statementofcashflows,statementofchangesinequityandthecontentsofnotestothefinancialstatementsaredeterminedbytheAccountingAct.CompanieslistedontheWarsawStockExchangewhenpreparingthefinancialstatementsinaccordancewiththeActareguidedbyspecificregulationsforpublicentities.
Thefinancialstatementsofissuersofsecuritiesadmittedto,issuersof
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securitiesintendingtofileforadmissionto,orissuersofsecuritiespendingadmissiontotradingononeoftheregulatedmarketsoftheEuropeanEconomicArea,maybepreparedinaccordancewithIFRS.ConsolidatedfinancialstatementsofissuersofsecuritiesadmittedtopublictradingonaregulatedmarketoftheEuropeanEconomicAreashallbepreparedinaccordancewithIFRS.Inaddition,thefinancialstatementsofentitiesbeingmembersofacapitalgroup,inwhichaparentcompanypreparesconsolidatedfinancialstatementsunderIFRS,maybepreparedinaccordancewithIFRS.ThedecisioninrespectofthepreparationoffinancialstatementsinaccordancewithIFRS,shallbetakenbyanapprovingbody.
EntitieswhichpreparetheirfinancialstatementsinaccordancewithInternationalFinancialReportingStandardsshallapplytheprovisionsoftheActinmattersnotregulatedbyIFRSincluding:
• theprinciplesofmaintainingaccountingbooks(itwillnot,however,includetheformatoffinancialstatements)(Chapter2)
• stocktaking(Chapter3)
• auditingandpublishingfinancialstatements(Chapter7)
• directors’report(Article49)
• protectionofdata(Chapter8)
• penalliability(Chapter9)
• specificandinterimprovisions(Chapter10)
Theentity’smanagementshallensurethattheannualfinancialstatementsarepreparedwithinthreemonthsfromthebalancesheetdate.Theannualfinancialstatementsshallbeapprovedbytheapprovingbodywithin6monthsfromthebalancesheetdate.Priortotheapproval,ifrequired,theannualfinancialstatementsaresubjecttoanaudit.Iftheannualfinancialstatementsofanentityarerequiredtobeaudited,theyshallbefiledwitharelevantcourtregistertogetherwithastatutoryauditor’sopinion,acopyoftheresolutionordecisionoftheapprovingbodyconcerningtheapprovaloftheannualfinancialstatementsandtheresolutiononprofitdistributionorlosscoverage,aswellaswithdirector’sreport,within15daysfromthedateoftheapprovaloftheannualfinancialstatements.
Thesameregulationsapplytotheparententitiesthatpreparetheannualconsolidatedfinancialstatementsofthecapitalgroupwiththeexceptionthataparentcompany,whichisasubsidiaryofanotherentityhavingitsregisteredofficeortheplaceofexecutivemanagementlocatedwithintheEuropeanEconomicArea(higher-levelparentcompany),isnotrequiredtoprepareconsolidatedfinancialstatements,if:
• ahigher-levelparentcompanyholdsatleast90%ofitsshares,andallothershareholdersoftheparentcompanyhaveagreedonexemptionapplication,and
• ahigher-levelparentcompanywillbeconsolidatingboththeparent
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companybeingitssubsidiaryandallothersubsidiariesoftheparentcompanywhichwasexemptedfrompreparingtheconsolidatedfinancialstatements.
Insuchasituationtheconsolidatedfinancialstatementsandtheconsolidatedannualreportofahigher-levelparentcompanytogetherwiththestatutoryauditor’sopinion,translatedintoPolishbyaworntranslator,shallbefiledwitharelevantcourtregisterwithin30daysfromtheirapprovaldate.
3.1.5.Financialreportingoflistedcompanies
Regulatory environment
ThebasicprinciplesofthePolishcapitalmarketaresetoutbythefollowingregulations:
• theActonTradinginFinancialInstruments;
• theActonPublicOfferingandonTermsonwhichFinancialInstrumentsareIntroducedtoanOrganizedSystemofTradingaswellasonListedCompanies;and
• theActonSupervisionovertheCapitalMarket.
TheseprovisionsimplementtheEuropeanParliamentandCouncilDirectivesregardingthecapitalmarkets,adjustingthePolishprovisionstotheEuropeanCommunitystandards.ThemannerinwhichprospectusesarepreparedisinlinewiththeEU
ProspectusRegulation,andsecuritiesadmittedbyotherEUregulatorscanunderPolishprovisionsalsobeadmittedtotradinginPoland.PolishregulationswereadjustedtotheprovisionsoftheTransparencyDirective,makingthemarketmorefavourableforforeigninvestorsandforeignpubliccompanies.Increasingattentionisalsoappliedtomarketcommunication,protectionofminorityinvestors,counteractingfraudandinsidertrading.
Theregulationsregardinginvestmentfunds,containedintheLawonInvestmentFundsdated27May2004,asamended,reflecttheappropriateprovisionsoftheEUlawconcerningundertakingsforcollectiveinvestmentsintransferablesecurities.
Inparticular,theofferingofforeigninvestmentfundsinPolandisnowregulatedindetail.
ThePolishcapitalmarketissupervisedbytheFinancialSupervisionAuthority(KomisjaNadzoruFinansowego–FSA).TheFSAisasingleregulatoryauthoritysupervisinginsurance,pensionfunds,banksandfinancialmarketsinstitutions.TheFSA’smainfunctionisistoprotecttheinterestsofinvestors.
TheroleoftheFSAalsoincludessupervisionofbrokeragehouses,collectiveinvestmentinstitutionsandpubliccompaniesactingorofferedinPoland.ThecompetencesoftheFSAincludebothinitialcontrol,aswellassubsequentsupervisionoftheactivitybytheaforementionedentities,aswellasoverbrokersandinvestmentadvisors.
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TheFSAmayimposefinesandotheradministrativemeasuresuponmarketparticipantswhofailtocomplywithPolishregulations.IncaseofentitieswhicharealsosubjecttosupervisionwithinotherEUjurisdictions,theFSAcooperateswithlocalmarketregulatorsinexercisingsupervision.
TheWarsawStockExchange(Giełda Papierów Wartościowych w Warszawie–WSE)istheprincipalmarketinPolandwherestocks,bonds,derivativesandotherfinancialinstrumentsaretraded.SecuritiesaretradedontwodifferentmarketswithintheWSE:the“mainfloor”(primarymarket)andthe“parallelmarket”.Inaddition,theWSEalsoownsastakeinanOTCmarketcalledBondSpot(previously:MTS-CeTo),andoperatesNewConnect,amultilateraltradingsystem.In2009thebondmarketCatalystwasopened.Tradedderivatives
includefuturecontractsonindicesandselectedstocks,optionsonindices,andotherinstruments.
Financial Reporting Requirements
FinancialreportingoftheentitiesadmittedtopublictradingbytheFSAisregulatedbytheDecreeissuedbyMinisterofFinancedated19February2009on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-EU member states.
Thefinancialreportingrequirementsforparticularperiodicreports(bothstandaloneandconsolidated)aresummarizedinthetablebelow.
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Type of the report Content includes Filling deadline ***
Quarterly
• CondensedFinancialStatementsforthequarterendedandforallquarterstodatetogetherwithcomparabledata
• Thereisnorequirementtofilethereportforthesecondquarterasthesemiannualreportisfiled(doesnotapplytofunds)
• Thereisnorequirementtofilethereportforthefourthquarteriftheannualreportisfilledwithinthequarterlyreportfillingdeadline
• Nolaterthan45daysafterthequarterend
• Forthefourthquarternolaterthan60daysafterthefourthquarterend
Semiannual
• CondensedFinancialStatementsforthesixmonthperiod
• IndependentAuditor’sReviewReportontheCondensedFinancialStatementsforthesixmonthsperiod
• Nolaterthan2monthsafterthehalf-yearend
Annual• AnnualFinancialStatements
• IndependentAuditor’sOpinion
• Nolaterthan4monthsaftertheyearend
• Nolaterthan80daysaftertheyearendiftheentitydecidesnottofillreportforthefourthquarter
*** A listed company is obliged to publish the filling dates for all periodic reports within the first month of a given year in the form of a current report. The filling dates of all periodic reports need to be in line with the dates announced in this current report.
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3.1.6.Auditrequirements
Auditshallberequiredinrespectofannualconsolidatedfinancialstatementsincludingannualfinancialstatementsofcapitalgroups,aswellastheannualfinancialstatementsofthefollowingentitieswhichcontinueasagoingconcern:
• banksandinsurers;
• entitieswhichoperateunderregulationsontradinginsecuritiesandregulationsoninvestmentfunds;
• entitieswhichoperateonthebasisofregulationsontheorganizationandoperationsofpensionfunds;
• jointstockcompanies,exceptforcompanieswhichareinthesetting-upprocessasatthebalancesheetdate;
• otherentitieswhich,inthepriorfinancialyearforwhichthefinancialstatementswereprepared,metatleasttwoofthefollowingconditions:
• theannualaveragenumberofemployeesinfull-timeequivalentsamountedtoatleast50people;
• the total assets as at the end of thefinancialyearwereatleastthePolishzlotyequivalentofEUR2,500,000;
• thenetrevenuefromthesalesofgoodsforresaleandfinishedgoodsandthefinancialtransactionsforthefinancialyear,wasatleastthePolishzlotyequivalentofEUR5,000,000.
Additionally,thefinancialstatementsofacquirersandnewly-formedcompaniesasaresultofabusinessacquisition,preparedforthefinancialyearinwhichthebusinesscombinationtookplace,andtheannualfinancialstatementsofentitieswhicharepreparedinaccordancewithIFRS,arerequiredtobeaudited.Furthermore,combinedannualfinancialstatementsofinvestmentfunds,whichhaveseparatesub-fundsandannualfinancialstatementsofthesub-funds,arerequiredtobeauditedandpublished.
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3.2. SelectedAspectsofAccountingforRealEstateunderInternationalFinancialReportingStandards(applicableforannualperiodsbeginningon1January2013)
3.2.1.Introduction
Nowadays,anumberofrealestateentitiesapplyIFRSfortheiraccountingandreportingpurposes.CompaniesreportingunderInternationalFinancialReportingStandards(IFRS)continuetofaceasteadyflowofnewstandardsandinterpretations.ThevolumeofchangestoIFRSissignificantandislikelytocontinueintheforeseeablefuture.Thenatureofthechangesrangesfromsignificantamendmentsoffundamentalprinciplestosomeminorchangesincludedintheannualimprovementsprocess.Theywillaffectmanydifferentareasofaccountingofrealestateentitiessuchasthepresentationoffinancialstatements,financialinstruments,leases.Someofthechangeshaveimplicationsthatgobeyondmattersofaccounting,astheymayimpactbusinessdecisions,suchasthedesignofjointarrangementsorthestructuringoftransactions.Thechallengeforpreparerswillbetogainanunderstandingofwhatlies ahead.
BelowweconcentrateontheimplicationsofthenewlyissuedIFRS10,11,12and13fortherealestateandconstructionindustries.
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3.2.2. InteractionbetweenIFRS10,IFRS11andIFRS12
3.2.2.1 Introduction
InMay2011,theInternationalAccountingStandardsBoard(IASB)issuedthreenewstandardsthatamendedconsolidationrulesofentities:
• IFRS10ConsolidatedFinancialStatements,
• IFRS11JointArrangementsand
• IFRS12DisclosureofInterestsinOtherEntities.
Thesenewstandardsareeffectiveforannualperiodsbeginningonorafter1January2013,andmustbeappliedretrospectively(withsomemodifications).InPolandandinthewholeEuropeanUnionstandardscomewithaneffectivedateof1January2014,soforthemajorityofcompanies2014wasthefirstyearnewruleswereapplied.
Themajorchangesintroducedareasfollows:
• IFRS10establishesasinglecontrolmodelthatappliestoallentities.ThechangesintroducedbyIFRS10requiremanagementtoexercisemorejudgementtodeterminewhichentitiesarecontrolled,comparedwiththepreviousrequirementsthatwereinIAS27.IFRS10doesnotchangeconsolidationprocedures(i.e.,howtoconsolidateanentity)fromtherequirementsthatpreviouslyexisted
inIAS27.ThoserequirementshavesimplybeenmovedtoIFRS10.Rather,IFRS10changeswhetheranentityisconsolidated,byrevisingthedefinitionofcontrolandaddingrequirementstoconsiderwhenmakingcontroldecisions.
• IFRS11dealswithjointlycontrolledentities(JCEs)andaddressesonlytwoformsofsuchjointarrangements(jointoperationsandjointventures).OneoftheprimaryreasonsfortheissuanceofIFRS11wastoincreasecomparabilitywithinIFRSbyremovingthechoiceavailableforJCEstouseproportionateconsolidation.Instead,JCEsthatmeetthedefinitionofajointventure(asnewlydefined)mustbeaccountedforusingtheequitymethod.ThisalsoconvergeswithUSGAAP,whichgenerallyrequirestheequitymethodforjointventures.Forjointoperations(includingformerjointlycontrolledoperations,jointlycontrolledassetsand,potentially,someformerJCEs),anentityrecognisesitsassets,liabilities,revenuesandexpenses,and/oritsrelativeshareofthoseitems,ifany.IFRS11isintendedtobroadenthefocusforclassifyingajointarrangement,sothatthestructureofthejointarrangementisnottheonlyfactorconsidered.WhereaspreviousregulationsofIAS31focusedexclusivelyonthelegalformoftheentity,IFRS11focusesmorebroadlyontherightsandobligationsarisingfromthearrangement.
• IFRS12summarizesallthedisclosurerequirementsrelatedtoanentity’sinterestsinsubsidiaries,
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jointarrangements,associatesandstructuredentities,includinganumberofnewdisclosures.OneofthemostsignificantchangesintroducedbyIFRS12isthatanentityisrequiredtodisclosejudgementsthatweremadeindeterminingwhetheritcontrolsorhasjointcontroloveranotherentity.Evenifmanagementconcludesthatitdoesnotcontrolanentity,theinformationusedtomakethatjudgementwill
betransparenttousersoffinancialstatements.Thenewdisclosureswillalsoassistusersoffinancialstatementstomaketheirownassessmentoftheimpactonthefinancialresultsofthegroupincasereachingadifferentconclusionregardingentitiestobeconsolidated–byprovidingmoreinformationaboutcertainunconsolidatedentities.
Diagram 1 - Interaction between IFRS 10, IFRS 11, IFRS 12 and IAS 28
YES
NO
NO
YESJoint
operationJoint
venture
Does the investor have joint control
over an agreement?
Consolidation in accordancewith IFRS 10
Does the investor have significantinfluence over
an entity?
Classify jointarrangement in
accordance with IFRS 11
Account for assets,liabilities, revenue
and expenses
Account forinterest under
the equity method
Financialinstruments Other IFRS
Disclosures inaccordance with
IFRS 12
YES NO
Does the investor control an entity
by itself?
Disclosures inaccordancewith
IFRS 12 and otherrelevant IFRS
Disclosures inaccordance with
IFRS 12
Disclosures inaccordance with
IFRS 12 and otherrelevant IFRS
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3.2.2.2.IFRS10-ConsolidatedFinancialStatements
ConsistentwithpreviousrequirementsIFRS10requiresthataparent(unlessexempt)presentconsolidatedfinancialstatements.Thatis,IFRS10requiresfinancialstatementsofthegroup,inwhichtheassets,liabilities,equity,income,expensesandcashflowsoftheparentanditssubsidiaries,arepresentedasthoseofasingleeconomicentity.IFRS10appliestoalltypesofentities,includingcorporations,partnerships,limitedliabilitycorporations,trusts,andothertypesofentities.Agroupconsistsofaparentanditssubsidiaries(i.e.,entitiesthattheparentcontrols).Whenanentityisaparentitneedstoassesswhetherit(theinvestor)controlstheotherentity(theinvestee).IFRS10providesanewdefinitionofacontroltogetherwithachangedguidanceonassessingwhethertheentityhascontrolof an investee.
Inmanycases,whendecision-makingiscontrolledbyvotingrightsthatalsogivetheholderexposuretovariablereturns,itisclearthatwhicheverinvestorholdsamajorityofthosevotingrightscontrolstheinvestee.However,inothercases(suchaswhentherearepotential
votingrights,oraninvestorholdslessthanamajorityofthevotingrights),itmaynotbesoclear.Inthoseinstances,furtheranalysisisneededbasedonthefactsandcircumstances(consideringtheApplicationGuidanceinIFRS10),todeterminewhichinvestor,ifany,controlsaninvestee.Diagrambelowillustratesthisassessment.
Excerpts from IFRS 10:
6 Aninvestorcontrolsaninvesteewhenitisexposed,orhasrights,tovariablereturnsfromitsinvolvementwiththeinvesteeandhastheabilitytoaffectthosereturnsthroughitspowerovertheinvestee.
7 Thus,aninvestorcontrolsaninvesteeifandonlyiftheinvestorhasallthefollowing:
(a)powerovertheinvestee;
(b)exposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee;and
(c) theabilitytouseitspowerovertheinvesteetoaffecttheamountoftheinvestor’sreturns.
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Diagram 2 - Definition of control
PowerDetermine which party, if any, has power, that is, the current ability to direct the relevant activities. Power arises from the rights, which may include:• Voting rights• Potential voting rights (e.g.
options or convertible instruments)
• Rights to appoint key personnel• Decision making rights within a
management contract• Removal or „kick-out” rightsHowever, power does not arise from protective rights.
ReturnsAssess whether the investor is exposed, or has rights to variable returns from its involvement with the investee. Returns can be positive, negative or both.Examples of returns include:• Dividents• Remuneration• Economies of scale, cost
savings, scarce products, proprietary knowledge, synergies or other returns that are not available to other interest holders
LinkageEvaluate whether the investor has the ability to use its power to affect the investor’s returns from its involvement with the investee. If applicable, determine whether the investor is a principal or an agent, considering:• Scope of its authority• Rights held by other parties• Remuneration• Exposure to variability from
other interests
Iden
tify
pow
er
Ass
ess
retu
rns
Eval
uate
link
age
Understand purpose and design of investee
The first criterion tohavecontrolrelatesto power.Aninvestorhaspowerwhenithasexistingrightsthatgiveitthecurrentabilitytodirecttherelevantactivities.Therefore,whenassessingwhetheraninvestorhaspower,therearetwocriticalconcepts:
• Relevant activities
• Existing rights
Relevantactivitiesaretheactivitiesoftheinvesteethatsignificantlyaffecttheinvestee’sreturns.Examplesofrelevantactivitiesinclude:
• Determiningandchangingoperatingandfinancialpolicies(whichmightincludetheitemsbelow)
• Sellingandpurchasinggoodsandservices
• Managingfinancialassetsduringtheirlife
• Selecting,acquiringordisposingofassets
• Researchinganddevelopingnewproductsorprocesses
• Makingcapitalorfundingdecisions
• Appointing,remuneratingorterminatingtheemploymentofaninvestee’sserviceprovidersorkeymanagementpersonnel
• Establishingoperatingandcapitaldecisionsoftheinvestee,includingbudgets.
Inmanycases,morethanoneactivitywillsignificantlyaffectaninvestee’sreturns.Thus,inordertodecidewhichparty,ifany,haspower,itisimportanttoidentifytheactivitiesthatmostsignificantlyaffectreturns.Thisdiffersfromjointcontrol,definedasthecontractuallyagreedsharingofcontrolofanarrangement,whichexistsonlywhendecisionsabouttherelevantactivitiesrequiretheunanimousconsentofthepartiessharingcontrol.Jointcontrolisdiscussedinmoredetailslater.
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Oncetherelevantactivitiesareidentified,thenextstepistodeterminewhichinvestor,ifany,carriesexisting rights, i.e.hasthecurrentabilitytodirectthoseactivities,whichgiveshimthepoweroverinvestee.
Inordertogivethepowertherightsneedstobesubstantive.Forexample,thefollowingshouldbeconsideredwhenevaluatingwhetheraninvestor’srightsaresubstantive:
• Whyweretherightsgranted?
• Whatcompensationwasgiven(orreceived)fortheright?Doesthatcompensationreflectfairvalue?
• Didotherinvestorsalsoreceivethisright?Ifnot,why?
InadditionIFRS10introducesanewtermofprotectiverights,definedas:rights that are designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.Controldoesnotarisefromprotectiverights.Examplesofprotectiverightsincludetherightto:
• Restrictaninvesteefromundertakingactivitiesthatcouldsignificantlychangethecreditriskoftheinvesteetodetrimentoftheinvestor
• Approveaninvestee’scapitalexpenditures(greaterthantheamountspentintheordinarycourseofbusiness)
• Approveaninvestee’sissuanceofequityordebtinstruments
• Vetotransactionsbetweentheinvesteeandarelatedparty
Insomecases,arightmightbedeemedprotective,suchastheabilitytosell
assets of the investee if an investee defaultsonaloan,whendefaultisconsideredanexceptionalcircumstance.However,iftheinvesteedefaultsonaloan,theinvestorholdingthatrightwouldneedtore-assesswhetherthatrighthasbecomeasubstantiveright(ratherthanaprotectiveright),basedonthechangeinfactsandcircumstances.
Example — Veto right over annual budget — protective or not?
An investor determined that approving the annual operating budget of an investee is the relevant activity. For example, this might be the case if the operating budget is detailed and management has little latitude to deviate from the budget. An investor has the right to veto this annual operating budget. If that investor does veto the budget, management of the investee must re-draft and re-propose the budget, and re-submit the budget to the investor holding the veto right.
In this fact pattern, because approving the annual operating budget is the activity that most significantly affects the investee’s returns, then a veto right over the annual operating budget would be substantive, and is not a protective right. Evaluating whether approving an annual operating budget is the most relevant activity will depend on facts and circumstances, and requires judgement.
The second criterion forassessingwhetheraninvestorhascontrolofaninvesteeisdeterminingwhethertheinvestorhas an exposure, or has rights, to variable returns from its involvement
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withtheinvestee.Returnscanbepositive,negativeorboth.Examplesofexposurestovariablereturnsinclude:
• Dividends,fixedinterestsondebtsecuritiesthatexposetheinvestortothecreditriskoftheissuer,variableinterestondebtsecurities,otherdistributionsofeconomicbenefitsandchangesinthevalueofaninvestmentinan investee
• Remunerationforservicinganinvestee’sassetsorliabilities,feesandexposuretolossfromprovidingcreditorliquiditysupport,residualinterestsintheinvestee’sassetsandliabilitiesonliquidationofthatinvestee,taxbenefitsandaccesstoliquiditythataninvestorhasfromitsinvolvementwiththeinvestee
• Economiesofscale,costsavings,scarceproducts,proprietaryknowledge,synergies,orotherexposurestovariablereturnsthatarenotavailabletootherinvestors
Simplyhavinganexposuretovariablereturnsfromitsinvolvementwithaninvesteedoesnotmeanthattheinvestorhascontrol.Tocontroltheinvestee,theinvestorwouldalsoneedtohavepowerovertheinvestee,andtheabilitytouseitspowerovertheinvesteetoaffecttheamountoftheinvestor’sreturns.Forexample,itiscommonforalendertohaveanexposuretovariablereturnsfromaborrowerthroughvariableinterestpaymentsthatitreceivesfromtheborrower.However,thelenderwouldnotcontroltheborrowerifitdoesnot
havetheabilitytoaffectthosevariableinterestpayments(whichisfrequentlythecase).Itshouldbeemphasisedthatwithrespecttothiscriteria,thefocusisontheexistenceofanexposuretovariablereturns,nottheamountoftheexposuretovariablereturns.
The third criterionforhavingcontrolisthattheinvestormusthave the ability to use its power over the investee to affect the amount of the investor’s returns.Thelinkbetweenpoweroveraninvesteeandexposuretovariablereturnsfrominvolvementwiththeinvesteeisessentialforhavingcontrol.Aninvestorthathaspowerovertheinvesteebutcannotbenefitfromthatpower,doesnotcontrolthatinvestee.Aninvestorthathasanexposuretoavariablereturnfromaninvestee,butcannotuseitspowertodirectstheactivitiestomostsignificantlyaffectstheinvestee’sreturns,doesnotcontrolthatinvestee.
Whendecision-makingrightshavebeendelegatedorarebeingheldforthebenefitofothers,itisnecessarytoassesswhetherthedecision-makerisaprincipaloranagenttodeterminewhetherithascontrol.Thisisbecauseifthedecision-makerhasbeendelegatedrightsthatgiveitpower,thedecision-makermustassesswhetherthoserightsgivepowerforitsownbenefit,ormerelypowerforthebenefitofothers.Asanagentcannotcontrolovertheinvestee,itdoesnotconsolidatetheinvestee.Aprincipalmayhavecontrolovertheinvestee,andifso,wouldconsolidatetheinvestee.
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3.2.2.3 IFRS11-JointArrangements
Therearemanyreasonswhyonemightuseajointarrangementtoconductbusiness,suchasto:
• Acceleratethedevelopmentofnewtechnologies
• Turnexistingtechnologiesintomarketableproducts
• Enternewmarketsorindustries
• Expandgeographically
• Protectsupplychainandproductioncapacity
• Leverageintellectualpropertyheldbyothers(includingcompetitors)
• Distributerisk
• Actasanalternativetoraisingbankorequityfinancing
• Bringinadditionalexpertise
• Complywiththerequirementofagovernmentstakeholder
• Facilitatedistributionofproduct
• Takethefirststepinacquiringa business
Asdiscussedinmoredetailbelow,IFRS11coversallarrangementsinwhichthereisjointcontrol.Inpractice,someagreementsthatarereferredtoas‘jointarrangements’or‘jointventures’actuallyincludearrangementswherebyonlyonepartyhascontrol,ornopartieshavejointcontrol.Otherarrangementsmay
notusetheterm‘jointarrangement’or‘jointcontrol’,butcouldstillbejointarrangements,asdefinedbyIFRS11.Somearrangementssplitownershipequally(50/50)betweentwoparties—whileothersmaygiveagreaterfinancialinteresttooneofthetwoparties.Nomatterwhatterminologyisusedtodescribethearrangement,oritspurpose,managementwillneedtocarefullyevaluatethetermsofthearrangement,andtherelevantfactsandcircumstances,todetermineifitqualifiesasajointarrangement.
Excerpts from IFRS 11:
4 Ajointarrangementisanarrangementofwhichtwoormorepartieshavejointcontrol.
5 Ajointarrangementhasthefollowingcharacteristics:
(a)Thepartiesareboundbyacontractualarrangement.
(b)Thecontractualarrangementgivestwoormoreofthosepartiesjointcontrolofthearrangement.
6 Ajointarrangementiseitherajointoperationorajointventure.
7 Jointcontrolisthecontractuallyagreedsharingofcontrolofanarrangement,whichexistsonlywhendecisionsabouttherelevantactivitiesrequiretheunanimousconsentofthepartiessharingcontrol.
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Diagram 3 - is it a joint arrangement?
Do the decisions about the relevant activities requirethe unanimous consent of all of the parties that collectively
control the arrangement?
Joint arrangement
Does the contractual arrangement give all of the parties(or a group of the parties) control of the arrangement collectively?
Outside the scopeof IFRS 11(not a joint
arrangement)
NO
NO
YES
YES
IFRS11statesthatdecisionsabouttherelevantactivitiesrequiretheunanimousconsentofalltheparties,oragroupoftheparties,thatcollectivelycontrolthearrangement.Accordingly,itisnotnecessaryforeverypartytothearrangementtoagreetohaveunanimousconsent.Tohaveunanimousconsent,onlythosepartiesthatcollectivelycontrolthearrangementmustagree.Therequirementtohaveunanimousconsentensuresthatnosinglepartycontrolsthearrangement.Whiletherequirementforunanimousconsentisnotnew,IFRS
11clarifieswhenunanimousconsentexists.Forexample,insomecases,acontractualarrangementmayrequireaminimumproportionofthevotingrightstomakedecisions.Whenthatminimumcanbeachievedbymorethanonecombinationofthepartiesagreeing,thearrangementisnotajointarrangementunlessitspecifieswhichparties(orcombinationofparties)arerequiredtoagreeunanimouslytodecisionsabouttherelevantactivitiesofthearrangement.TwoscenariospresentedbelowinDiagram4clarifyonthis.
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Diagram 4 - Joint control?
Scenario 1 Scenario 2
Requirement 75%votetodirectrelevantactivities
75%votetodirectrelevantactivities
Party A 50% 50%
Party B 30% 25%
Party C 20% 25%
Conclusion
Jointcontrol—AandBcollectivelycontrolthearrangement(sincetheirvotesandonlytheirvotes,togethermeettherequirement).Becausetheyaretheonlycombinationofpartiesthatcollectivelycontrolthearrangement,itisclearthatAandBmustunanimouslyagree.
Nojointcontrol—multiplecombinationsofpartiescouldcollectivelycontrolthearrangement(i.e.,AandBorAandCcouldvotetogethertomeettherequirement).Sincetherearemultiplecombinations,andthecontractualagreementdoesnotspecifywhichpartiesmustagree,thereisnounanimousconsent.
IFRS11statesthattherearetwotypesofjointarrangements:eitherajointoperationorajointventure.
Diagram 5 - Joint operation vs Joint venture
Type of Arrangement Joint operation Joint venture
Definition
Thepartieswithjointcontrolhaverightstotheassetsandobligationsfortheliabilitiesofthearrangement.
Thepartieswithjointcontrolhaverightstothenetassetsofthearrangement.
Parties with joint control
Jointoperator—apartywithjointcontrolinajointoperation
Jointventurer—apartywithjointcontrolinajointventure
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Type of Arrangement Joint operation Joint venture
Accounting overview
AjointoperatoraccountsforthefollowinginaccordancewiththeapplicableIFRS:• Itsassets,includingitsshareof
anyassetsheldjointly
• Itsliabilities,includingitsshareofanyliabilitiesincurredjointly
• Itsrevenuefromthesaleofitsshareoftheoutputarisingfromthejointoperation
• Itsshareofrevenuefromthesaleoftheoutputbythejointoperation
• Itsexpenses,includingitsshareofanyexpensesincurredjointly
Ajointventureraccountsforitsinvestmentinthejointventureusingtheequitymethod—proportionateconsolidationisnotachoiceanymore.
Althoughtheterm‘jointventure’isbroadlyusedinpractice,thistermisnarrowlydefinedinIFRS11.UnderpreviousregulationsofIAS31,jointventuresincludedJCEs,jointlycontrolledassetsandjointlycontrolledoperations,whereasunderIFRS11,ajointventureisonlyonetypeofjointarrangement.
Diagram 6 — Similar concepts, different terms
Joint operationsThe parties that have joint control have rights to the assets and obligations for the liabilities
relating to the arrangement.
Accounting: recognise its assets, liabilities, revenue and expenses, and/or its shares of assets, liabilities,
revenues and expenses incurred jointly
Jointly controlled operations
Accounting: recognise its assets, liabilities, expenses and its
shares of income
Jointly controlled assetsAccounting: recognise its share of assets, its share of liabilities, its income, its expenses and its
share of expenses
Jointly controlled entities
Accounting: equity method or proportionate consolidation
Joint venturesThe parties that have joint
control have rights to the net assets of the arrangement.
Accounting: equity method
IAS
31IF
RS
11
Join
t ve
ntur
esJo
int
arra
ngem
ents
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Whenclassifyingajointarrangementaseitherajointoperationorajointventure,thefirststepistoassesswhetherthereisaseparatevehicle.Ifnot,thejointarrangementisautomaticallyajointoperation.However,ifthereisaseparate
vehicle,thefollowingfactorsneedtobeconsidered:
• Legalformoftheseparatevehicle
• Contractualtermsandconditions
• Otherfactsandcircumstances
Diagram 7 — Classifying a joint arrangement
Joint operation
Joint venture
Does the legal form of the separate vehicle give the parties rights to the assets and obligations for the liabilities relating
to the arrangement?
Is the joint arrangement structured through a separate vehicle?
Do the terms of the contractual arrangement give the parties rights to the assets and obligations for the liabilities relating
to the arrangement?
Do other facts and circumstances give the parties rights to the assets and obligations for the liabilities relating
to the arrangement?
YES
YES
YES
NO
YES
NO
NO
NO
Whenclassifyingajointarrangementaseitherajointoperationorajointventure,itiscriticaltounderstandthepurposeanddesignofthejointarrangement.Itiscriticaltounderstandwhetherthejointarrangement:
• Primarilyaimstoprovidethepartieswithanoutput(i.e.,thepartieshaverightstosubstantiallyalloftheeconomicbenefitsoftheassets)
• Dependsonthepartiesonacontinuousbasisforsettlingitsliabilities
Ifbothoftheabovearecharacteristicsofthejointarrangement,thenthatindicatesthatitisajointoperation.Insomecases,significantjudgementwillbeinvolvedtodecide.
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Fact pattern — A separate vehicle is established, over which two parties have joint control. Neither the legal form nor the contractual terms of the joint arrangement give the parties rights to the assets or obligations for the liabilities of the arrangement. Other facts and circumstances are as follows:
• The purpose of the joint arrangement is to construct a residential complex for selling residential units to the public
• Contributed equity by the parties is sufficient to purchase land and raise debt finance from third parties to fund construction
• Sales proceeds will be used as follows (in this priority):
• Repayment of external debt
• Remaining profit distributed to parties
Analysis — Since there is a separate vehicle, and because neither the legal form nor the contractual terms of the joint arrangement give the parties rights to the assets or obligations for the liabilities of the vehicle, the preliminary analysis indicates that this is a joint
venture. The fact that the parties are the only source of cash flows at inception does not mean that the joint arrangement is a joint operation. Accordingly, there is nothing in the facts and circumstances that suggests the parties have rights to the assets, or obligations for the liabilities, since they only expect to receive any net profits after the external debt is repaid. Therefore, this would be a joint venture.
Variation — The contributed equity is not sufficient to purchase the land and raise debt financing. There is an expectation, or requirement, that the parties will have to contribute cash to the joint arrangement through a series of cash calls. Determining whether the series of cash calls implies that the parties are substantially the only source of cash flows contributing to the arrangement, and therefore, whether the parties have an obligation for the liabilities of the arrangement, (i.e., whether the arrangement is a joint operation) is a matter of judgement. If the joint arrangement gives the parties rights to the net assets, it would be a joint venture.
Example — Construction and real estate sales
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TosumupitseemsthatthemainimpactofIFRS11willbefeltwhereproportionateconsolidationwasusedtoaccountforJCEsunderIAS31,andsuchentitiesareclassifiedasjointventuresunderIFRS11.ThisisbecausethetransitiontoIFRS11willresultinsubstantialchangestothefinancialstatementsofthejointventurer.JointventuresmustbeaccountedforusingonlytheequitymethodunderIFRS11.Thiswillresultinrecognisingonlyasinglelineiteminvestmentinajointventureinthestatementoffinancialposition,andasinglelineitemfortheproportionateshareofnetincomeandchangesinequityinthestatementofcomprehensiveincome.Thiscouldpotentiallybeasignificantchangeinthepresentationoftheseareasofthefinancialstatementsofaffectedentities.
3.2.2.4.IFRS12-DisclosureofInterestsinOtherEntities
IFRS12combinesthedisclosurerequirementsforanentity’sinterestsinsubsidiaries,jointarrangements,associatesandstructuredentitiesintoonecomprehensivedisclosurestandard.
Incomparisontopreviousregulationstheadditionaldisclosuresappearsmostlyinrelationtosubsidiariesthatarenotwhollyowned.OneofthenewrequirementsofIFRS12isthatanentitydisclosesthesignificantjudgementsandassumptionsithasmade(andchangesthereto)indeterminingwhetherornotithascontroloveraninvestee.TherequirementinIFRS12ismoreexpansivethantherequirementinIAS27,whichonlyrequiredentitiestodisclose
circumstanceswhen:(1)asubsidiarywasconsolidatedandtheparentownedlessthanamajorityofvotingrights;and(2)aninvesteewasnotconsolidated,andtheinvestorownedmorethanamajorityofvotingrights.Thischangeinthedisclosurereflectsthedegreeofjudgementthatisrequiredtodeterminewhetheranentityiscontrolled,andconsequently,consolidated.Forexample,
Excerpts from IFRS 12:
1 TheobjectiveofthisIFRSistorequireanentitytodiscloseinformationthatenablesusersofitsfinancialstatementstoevaluate:
(a) thenatureof,andrisksassociatedwith,itsinterestsinotherentities;and
(b) theeffectsofthoseinterestsonitsfinancialposition,financialperformanceandcashflows.
3 IfthedisclosuresrequiredbythisIFRS,togetherwithdisclosuresrequiredbyotherIFRSs,donotmeettheobjectiveinparagraph1,anentityshalldisclosewhateveradditionalinformationisnecessarytomeetthatobjective.
4 AnentityshallconsiderthelevelofdetailnecessarytosatisfythedisclosureobjectiveandhowmuchemphasistoplaceoneachoftherequirementsinthisIFRS.Itshallaggregateordisaggregatedisclosuressothatusefulinformationisnotobscuredbyeithertheinclusionofalargeamountofinsignificantdetailortheaggregationofitemsthathavedifferentcharacteristics.
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anentityisrequiredtodisclosehowitevaluatedpotentialvotingrights(e.g.,options)andwhetheritisaprincipaloran agent.
Similarlyadditionaldisclosurerequirementsarisesinrelationtosignificantjudgementsandassumptionsmadewhendeterminingwhetherornotthejointcontroloveranarrangementexists.TherequirementsinIFRS12reflectsthedegreeofjudgementthatisrequiredtodeterminewhetheranentityhasjointcontrol.Thefollowingareexamplesofsignificantjudgementsforwhichdisclosuremayberequired:
• Whetherarightismerelyaprotectiveright(whichdoesnotgivejointcontrol)orasubstantiverightthatgivesanentityjointcontrol
• Whetheramanagerofanarrangementisactingasprincipalorasagent,whichwouldlikelyaffecttheconclusionwhetherthemanagerhascontrolorjointcontrol
• Whetherajointarrangementisajointoperationorajointventure,sinceitsclassificationisnotmerelybasedonlegalformunderIFRS11(asitwasunderIAS31)
3.2.3. IFRS13Fairvaluemeasurements–implicationsfortherealestatesector
IFRS13wasissuedbytheInternationalAccountingstandardsBoardinMay2011andstartedtobeeffectiveforannualperiodsbeginningonorafter1January
2013.IFRS13describeshowtomeasurefairvalueunderIFRSwhenitisrequiredorpermittedbyIFRS.Thestandarddoesnotchangewhenanentityisrequiredtousefairvalue,butprovidesaframeworkforsituationswhereanotherstandardrequiresorpermitsfairvaluemeasurements.
IFRS13definesfairvalueasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdateundercurrentmarketconditions(i.e.anexitprice)regardlessofwhetherthatpriceisdirectlyobservableorestimatedusinganothervaluationtechnique.
Thefairvaluemeasurementassumesthatmarketparticipantshavesufficientknowledgeandawarenessoftheassetoraliabilitythatwouldbeusualandcustomaryinsuchamarkettransaction.Thedefinitionemphasizesthatthefairvalueshouldbebasedonmarketmeasurements,maximizingtheuseofobservablemarketinputs,suchasquotedprices.Iftheobservablemarketinputsarenotavailable,othervaluationtechniquesshould be applied.
IFRS13doesnotprescribewhichvaluationtechniquemustbeusedinaparticularcircumstance.Thevaluationtechniqueusedtomeasurefairvalueshouldbeappropriateforthecircumstances,andoneforwhichsufficientdataisavailable.Valuationtechniquesthataretypicallyusedincludethemarketapproach,theincomeapproachandthecostapproach.Themarketapproachusespricesandotherrelevantinformationgeneratedby
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markettransactionsinvolvingidenticalorcomparableassets.Inincomeapproach,thevaluationisbasedonestimatedfutureincomeandprofitorcashflows.Thecostapproachreflectstheamountthatcurrentlywouldberequiredtoreplacetheservicecapacityofanasset(oftenreferredtoascurrentreplacementcost).
RealestateentitiesmaybeaffectedbyIFRS13invariousaspectsoftheirbusinesswhen:
• Measuringpropertyinterestsatfairvalue
• Testingpropertyinterestsforimpairment
• Determiningthefairvalueofidentifiableassetsandliabilitiesaspartofthepurchasepriceallocationappliedinabusinesscombination
• Measuringaninterestinarealestatejointventureorassociateatfairvalue
• Compilinganddisclosinginformationonthefairvaluesofpropertyinterests,includingbutnotlimitedtosignificantassumptions,adjustmentstounobservableinputsandqualitativeandquantitativesensitivityanalysis.
Regardlessofwhethervaluationsareperformedexternallyorinternally,managementmustunderstandthemethodologiesandassumptionsusedinthevaluationsanddeterminewhethertheassumptionsarereasonableandconsistentwiththerequirementsofIFRS13.
IFRS13requiresanentitytomaximizetheuseofrelevantobservableinputsandminimizetheuseofunobservable
inputs.IFRS13alsoincludesafairvaluehierarchybasedontheinputsusedtodeterminefairvalueasfollows:
• Level1–quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
• Level2–inputsotherthanquotedmarketpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectlyorindirectly.
• Level3–unobservableinputs(valuationtechniquesthatdonotmakeuseofobservableinputs).
ManyoftheIFRS13disclosuresarerequiredforeachclassofassets(andliabilities).IFRS13requirestheseclassesofassets(andliabilities)bedeterminedbasedon:
(a)thenature,characteristicsandrisksoftheassetorliability;and
(b)thelevelofthefairvaluehierarchywithinwhichthefairvaluemeasurementiscategorised.
Thedeterminationoftheappropriateclassofassetswillrequiresignificantjudgement.Atoneendofthespectrum,thepropertiesinanoperatingsegment(asdefinedbyIFRS8OperatingSegments)maybeaclassofassetsforthepurposeofthedisclosuresrequiredbyIFRS13.Thismaybethecaseevenifthereisalargenumberofpropertiesinthesegment,ifthepropertieshavethesameriskprofile(e.g.,thesegmentcomprisesresidentialpropertiesincountrieswithpropertymarketsofsimilarcharacteristics).Attheotherendofthespectrum,IFRS13disclosuresmaybe
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requiredforindividualpropertiesorsmallgroupsofpropertiesiftheindividualpropertiesorgroupsofpropertieshavedifferentriskprofiles(e.g.,arealestateentitywithtwoproperties–anofficebuildinginadevelopedcountryandashoppingcentreinadevelopingcountry).
ThepreviousrequirementsinIAS40forhowfairvalueisdeterminedhavebeenreplacedbytherequirementsinIFRS13.However,certaindisclosure
requirementsunderIAS40willremaineffective.Thenewdisclosuresaretobeappliedprospectivelyforannualperiodscommencingon1January2013.Thenewdisclosureswillnotrequirecomparativedata.
Illustrativesetofdisclosuresforarealestateentitythathasinvestmentpropertiesmeasuredatfairvalueonitsstatementoffinancialposition,initsfirstsetoffinancialstatementsfollowingtheadoptionofIFRS13ispresentedbelow.
Disclosures
Investment property at fair value (measured at
fair value on the recurring basis)
Investment property at cost
(for which fair value is disclosed)
IFRS 13 New
requirements
IAS 40 Old
requirements
IFRS 13 New
requirements
IAS 40 Old
requirements
Fairvalueattheendofthereportingperiod Required Required Required Required
Levelofthefairvaluehierarchywithinwhichthefairvaluemeasurementinitsentiretyiscategorised
Required Notrequired Required Notrequired
ForLevel2andLevel3measurements,valuationtechniqueandtheinputsused,andchangesinthevaluationtechnique,ifapplicable,andthereasonsforthosechanges
Required Notrequired Required Notrequired
ForLevel3measurements,quantitativeinformationregardingthesignificantunobservableinputs
Required NotrequiredNot
requiredNotrequired
AmountoftransfersbetweenLevel1andLevel2,thereasonsandrelatedaccountingpolicies
Required NotrequiredNot
requiredNotrequired
ForLevel3measurements,reconciliationfromtheopeningbalancestotheclosingbalances(includinggainsandlosses,purchases,sales,issues,settlements,transfersinandoutofLevel3andreasonsandpoliciesfortransferandwhereallsuchamountsarerecognised)
Required RequiredNot
requiredNotrequired
ForLevel3measurements,thetotalgainsorlossesincludedinprofitorlossthatareattributabletothechangeinunrealisedgainsorlossesrelatingtothoseassetsandliabilitiesheldatthereportingdate,andadescriptionofwheresuchamountsarerecognised
Required RequiredNot
requiredNotrequired
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Disclosures
Investment property at fair value (measured at
fair value on the recurring basis)
Investment property at cost
(for which fair value is disclosed)
IFRS 13 New
requirements
IAS 40 Old
requirements
IFRS 13 New
requirements
IAS 40 Old
requirementsForLevel3measurements,adescriptionofthevaluationprocessesusedbytheentity
Required NotrequiredNot
requiredNotrequired
ForLevel3measurements,anarrativedescriptionofthesensitivityofthefairvaluemeasurementtochangesinunobservableinputsifachangeinthoseinputsmightresultinasignificantlydifferentamountand,ifapplicable,adescriptionofinterrelationshipsbetweenthoseinputsandotherunobservableinputsandofhowtheymightmagnifyormitigatetheeffectofchangesintheunobservableinputs
Required NotrequiredNot
requiredNotrequired
Ifthehighestandbestuseofanon-financialassetdiffersfromitscurrentuse,disclosethatfactandthereasonforit
Required Notrequired Required Notrequired
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3.3.SelectedIFRSissuesandtheirimplicationsforrealestateentities
3.3.1. Bankcovenants
WithsignificantnumberofrealestateloansmaturinginEuropeinthenextyears,thefinancingandrefinancingofpropertyactivitiesisstilloneofthekeychallengesfortherealestatesectorandshould,inevitably,beoneofthekeyattentionitemsinfinancialreporting.Takingtheaboveintoconsideration,theappropriatecovenantsdisclosuresinthefinancialstatementsarekeytoprovidetotherecipientsofthefinancialssignificantinformationaboutliquidityofthecompany.InternationalFinancialReportingStandardsdescribewhichdisclosuresarerequired,howeverthecompaniesshouldconsideranyotherinformationthatmaybevaluableforthereadersandareperceivedonthemarketasagoodpractice.
IFRS 7:
“18Forloanspayablerecognizedattheendofthereportingperiod,anentityshalldisclose:(a) detailsofanydefaultsduringtheperiodof
principal,interest,sinkingfund,orredemptiontermsofthoseloanspayable;
(b) thecarryingamountoftheloanspayableindefaultattheendofthereportingperiod;and
(c) whetherthedefaultwasremedied,orthetermsoftheloanspayablewererenegotiated,beforethefinancialstatementswereauthorizedforissue.
19If,duringtheperiod,therewerebreachesofloanagreementtermsotherthanthosedescribedinparagraph18,anentityshalldisclosethesameinformationasrequiredbyparagraph18ifthosebreachespermittedthelendertodemandacceleratedrepayment(unlessthebreacheswereremedied,orthetermsoftheloanwererenegotiated,onorbeforetheendofthereportingperiod).”
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Belowwepresentsomeoftheleadingpracticesindisclosingthefinancialdebtcovenantsinthefinancialstatements.
Company Adisclosedatablewithabreakdownofallloans,includingallapplicablecovenants
Loan type Transaction
Carrying amount
31.12.2012 (€/000)
No. of properties
used as security
Market value 31.12.2012 of properties
used as security [€]
Final due date
ReimbursementFinancial covenants
Mortgageloan
Monteneroshoppingmall,Bisaccia
17,352 1 31,910 02-Apr-13
annualrepaymentof€1.4millionwithfinalballoonof€17.4million
N/A
Mortgageloan
FIATportfolio 45,604 3 121,090 30-Jun-15
annualrepaymentof€2.4millionwithfinalballoonof€40.3million
LTV‹=70% DSA›=10%
Mortgageloan
ComitPensionFundPortfolio
162,438 10 281,570 19-Dec-15 Bullet LTV‹=80%
Mortgagecurrentaccount
RGD-IGD(50%BS)-Darsena
16,529 1 18,875 30-Nov-12 BulletDebt/Equity‹= 5
Mortgagecurrentaccount
PropertyinBeinasco
6,176 1 9,770 21-Dec-15 Bullet N/A
Mortgagecurrentaccount
PropertyinBeinasco
21,714 1 37,630 21-Dec-15 Bullet N/A
Mortgageloan
FondoImmobiliPubbliciportfolio
88,826 13 126,469 24-Apr-13 Bullet
LTV‹=70%Consolidated LTV‹=65% ICR›=1.1
Mortgageloan
PropertyinCorsoMatteotti,4-6–Milan
61,342 1 107,330 2-Aug-15
annualrepaymentof€2.0millionwithfinalballoonof€58.0million
LTV‹=60% ICRUntil2/08/13›=120%then150%
Bonds
TelecompropertiesoftheImser60securitisation(*)
521,547 177 1,796,103 20-Sep-21repaymentplanasdescribedbelow(***)
LTV‹=80%, ICR›=159%(**) LTV‹=80% ICR›=1.59(**)
Mortgageloan
VariouspropertiesinmajorItalianCities(ProjectOffice)
65,897 5 126,450 28-Jul-14
annualrepaymentof€2.5millionwithfinalballoonof€62.5million
LTV‹=60% ICR›1.300
Mortgageloan
PropertyinviaMessina, 38–Milan
14,594 1 22,700 19-Nov-14 BulletLTV‹=65% ICR›=1.7
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Loan type Transaction
Carrying amount
31.12.2012 (€/000)
No. of properties
used as security
Market value 31.12.2012 of properties
used as security [€]
Final due date
ReimbursementFinancial covenants
Mortgageloan
PropertyinNerviano
27,946 1 55,920 31-Dec-16
annualrepaymentof€1.9millionwithfinalballoonof€21million
N/A
Mortgageloan
PropertyinGalleriadelCorso,4–Milan
44,553 1 84,230 4-Aug-15 Bullet
PropertyLTV‹=65% LTVBS‹=75% ICRIMMOBILEfrom›=1.15to›=1.20from30/06/13 ICRBS›=1.30
Mortgageloan
Propertiesin Rozzano -MilanofioriandviaPergolesi–Milan
56,758 2 88,630 29-Dec-15 Bullet
ICR›=170%-LTV‹=(70%Y1-Y3-65%Y4-60Y5)-ConsolidatedLTV‹=65%
Mortgageloan
PropertyinCorsoMarconi,10Turin
14,634 1 34,540 24-Feb-15
annualrepaymentof€0.3million,€0.75millionfromMarch2013andfinalballoonof€13.2million
N/A
Mortgageloan
PropertyinviaVolta,5–Varese
12,456 1 20,800 31-Dec-16 Bullet N/A
Mortgageloan
PropertyinPiazzaSigmundFreud,Milan
141,130 1 252,360 27-Jul-16 Bullet
LTV‹=65%Consolidated LTV‹=60% ICR›=110%ConsolidatedICR›=140%
2012 Annual financial report of Beni Stabili S.p.A. SIIQ
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Company Bdisclosedatableshowingtheloancovenantsandthelevelofcomplianceasat31December2012:
Financing Ratios/covenants Limit(1) 12/31/2012 12/31/2011
Syndicatedloans and bilateralloans KlepierreSA
Netdebt/Valueofholdings(Loan-to-Value) ≤60% 43.6% 45.8%
EBITDA/Netinterestexpenses ≥2.0 2.6 2.5
Secureddebt/Valueofholdings ≤20% 15.7% 14.5%
Valueofholdings,groupshare ≥€6Bn €13.1Bn €13.2Bn
Ratiooffinancingsofsubsidiaries(excludingSteen&Strom)overtotalgrossfinancialdebt
≤30% 3.6% 7.9%
BondissuesKlepierreSA
Secureddebt/RevaluedNetAssetValue(excludingSteen&Strom)(2) ≤50% 9.0% 9.2%
(1) Most constraining contract limit.
(2) NAV including transfer duties after deferred tax.
Kleppiere 2012 Annual Report
AdditionaldisclosurethatisnotrequiredbyIFRS7(aspresenedabove)butisconsideredtobegoodpracticeissensitivityanalyseswithrespecttotheapplicablecovenants.Itisrecommendedtoincludeinformationaboutimpactofarationalchangeintheoperatingratios(e.g.fairvalueofproperties)onthefinancialcovenantsaswellasaterminalvaluesoftheserations,thatwouldleadtobreachofcovenants.
Belowwepresentthesampledisclosurethatgivetheinformationaboutheadroombetweentheentity’soperatingratiosanditsminimumfinancialcovenants:
„TheGrouptesteditscompliancewithitsfinancialcovenantsregularlyandoperatedcomfortablywithintheselimitsthroughout201X.Propertyvaluescoulddeclineby50%atthebalancesheet
datebeforetherewouldbeabreachoffinancialcovenants.
Incaseofbreachingoneormorecovenantstheentity’smanagementwouldberequiredtodiscloseadditionalinformationasdescribedinpoint18(b)and19ofIFRS7.Ifbreachesinmeetingthefinancialcovenantspermitthebanktoimmediatelycallloansandborrowings,thecompanyisobligedtopresentthatpartofaloanasacurrentliabilityinitsstatementoffinancialpositionasatyearend.Thecurrentornon-currentclassificationofloansmaydirectlyimpacttheperceivedandrealliquidityoftheentity,especiallywhereloancovenantsarebreached.Thatiswhythemanagementshoulddeterminethatappropriatewaiversareobtainedpriortoyear-endtosupportanycurrent
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classificationoftheliabilityaswellasassesstheimpactofwaiversobtainedpriortotheyear-end,andwhethertheyeffectivelyprovideaperiodofgraceendingatleast12monthsafterthereportingperiod.”
3.3.2 IFRS10ConsolidatedFinancialStatements–implicationsforfundmanagers
RecentlyissuedIFRS10ConsolidatedFinancialStatementshasasignificantimpactontheconsolidationprocessoftherealestateinvestmentfundsandfundmanagersaccountingfortheirfunds.Determiningwhetherornotafundmanagershavetoconsolidatetheirmanagedfundshaslongbeenanissue.Thenewstandardhavechangedhowfundmanagersshallassessthefundstheymanageforconsolidation.Itislikelytochangethenumberoffundsthatareconsolidatedasfundmanagersmayreachdifferingconsolidationconclusionsoverfundstheymanagecomparedwiththeirpreviouspractice.
ThenewdefinitionofcontrolincludedinIFRS10(furtherdiscussedinChapter3.2.2.2)mayleadtoconsolidationofentitiesthatwerenotpreviouslyincludedinthegroup,potentiallyresultinginmoreassetsandliabilitiesonthebooks.Asaresultassetorfundmanagersmaybeobligedincertaincircumstancestoconsolidatetheassetorfundsintotheirownfinancialstatementsinasituationwhentheyhave:
• powerovertheinvestee,
• exposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee,
• abilitytouseitspowerovertheinvesteetoaffecttheamountofthereturnstotheassetmanager.
Inmostcases,itisclearwhenallthreecriteriahavebeenmet.However,carefulconsiderationwillberequiredtoassesswhetheranassetmanageractsasaprincipal(and,therefore,mayneedtoconsolidatethefund)orasanagent(inwhichcase,itrecognizesonlyitsdirectinterestanditsmanagementfee).
Thefactorstobeconsideredinclude,butarenotlimitedto:
• Scopeoftheassetmanager’sdecisionmakingauthority(Anassetmanagerdoesnotusuallyhavediscretiontomakechangeseithertotheactivitiesthatitispermittedtodirect,ortothedecisionsthatitispermittedtomakewithoutthepriorapprovaloftheotherinvestorsinthefund.Thiswouldgenerallyindicatethatitisanagentactinginafiduciarycapacity.However,considerationmustalsobegiventothelevelofinvolvementtheassetmanagerhasindeterminingthescopeofitsauthority:thatinvolvementmayindicatethattheassetmanagerhastheopportunityandincentivetoobtaintheabilitytodirecttherelevantactivities,whichcouldindicatethattheassetmanagerisaprincipal.)
• Rightsheldbyothers(Ifoneparty(investor)holdsaremovalright(thatis,asingleinvestorcandecidetokickouttheassetmanager),andthatrightissubstantive,thentheassetmanageris
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consideredanagent.However,iftheirexerciserequiresagreementbymorethanoneparty,thenitisnotconclusiveastowhethertheassetmanagerisaprincipaloranagent.Themoreinvestorsthatwouldhavetoagreetoremovetheassetmanager,thelessimportantthatremovalrightis,whendeterminingiftheassetmanagerisaprincipal);
• Exposuretovariabilityinreturnsthroughtheremunerationoftheassetmanager(Ifthefeereceivediscommensuratewiththeservicesprovided,andthearrangementincludes‘market’terms,theassetmanagerislikelytobeconsideredanagent.However,thegreaterthefee,andexposuretovariability,relativetotheexpectedreturnsfromtheinvestee(thefund),themorelikelyitisthattheassetmanagerisaprincipal,andwouldconsolidatetheunderlyinginvestments).
• Variablereturnsheldthroughotherinterests(Whenanassetmanagerholdsotherinterestsinaninvestee,whichisnotuncommonintherealestate
industry,thismayindicatethatitisnotanagent.Byvirtueofholdingotherinterests,decisionsmadebytheassetmanagermaydifferfromthoseitwouldhavemadeifitdidnotholdthoseotherinterests.Forinstance,thismaybethecasewhenanassetmanagerprovidescreditenhancementtothefund,orholdsalargedirectinterest.)
IFRS10includesthefollowingexamplesthathighlightallfourfactorsdiscussedabove,but,inparticular,theyillustratehowthirdpartyrightsandvariabilityoftotalreturnsshouldbequalitativelyconsideredintheassessmentofaprincipal/agentrelationship.Ingeneral,theexamplesdemonstratethatthemoreeasilythefundmanagercanberemoved,thehigheralevelofexposuretovariabilityofreturnswillberequiredbeforetheentitywouldconcludeitisactingasaprincipal.Althoughtheseexamplesprovideguidanceonassessingaprincipal/agentrelationship,theyarenotintendedtocreate‘brightlines’but,rather,areforillustrativepurposesonly.
Example (IFRS 10 reference)
Scope of decision
making rights
3rd party rights to remove fund
managerRemuneration Other
interestsPrincipal/
Agent
13 Narrowlydefinedremit None 1%ofnetasset
value10%directinterest Agent
14A Widerangingdiscretion
Removalforcause
1%ofnetassetvalueand20%ofprofitsafterahurdleisreached
2%directinterest Agent
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3.3.3 Accountingforinvestmentpropertyunderconstruction
2009wasthefirstyearthatcompanieshadtoapplytheamendmenttoIAS40thatincludesinvestmentpropertiesunderconstruction.Asaresultofthisamendment,companiesthatmeasuretheirinvestmentpropertiesatfairvaluealsoneedtomeasuretheirinvestmentpropertiesunderconstructionatfairvalueunlessthefairvalueisnotreliablydeterminable.IAS40paragraph53statesthefollowing:“Ifanentitydeterminesthatthefairvalueofaninvestmentpropertyunderconstructionisnotreliablydeterminablebutexpects
thefairvalueofthepropertytobereliablydeterminablewhenconstructioniscomplete,itshallmeasurethatinvestmentpropertyunderconstructionatcostuntileitheritsfairvaluebecomesreliablydeterminableorconstructioniscompleted(whicheverisearlier).”
UndertherevisedIAS40aquestionmayariseregardingthemainvaluationprinciplestobeappliedinrelationtotheinvestmentpropertyunderconstructionunderfairvaluemodel.Alackoftransactionpricesofsimilarpropertiesunderconstructionusuallyrequirestheuseofestimationmodels.IAS40doesnotcontainanyspecificguidanceastothevaluationofIPUCandreferenceisoftenmadetoInternationalValuationStandards(IVS).ThevaluationofIPUCis
Example (IFRS 10 reference)
Scope of decision
making rights
3rd party rights to remove fund
managerRemuneration Other
interestsPrincipal/
Agent
14B Widerangingdiscretion
Removalforcause
1%ofnetassetvalueand20%ofprofitsafterahurdleisreached
20%directinterest Principal*
14C Widerangingdiscretion
Removalwithoutcauseby independent board
1%ofnetassetvalueand20%ofprofitsafterahurdleisreached
20%directinterest Agent
15 Widerangingdiscretion
Removalwithoutcausebywidelydispersedinvestors
1%ofnetassetvalueand10%ofprofitsafterahurdleisreached
35%directinterest Principal
*Example 14B of IFRS 10 states “having considered its remuneration and the other factors, the fund manager might consider a 20% investment to be sufficient to conclude that it controls the fund.”
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complexandjudgmentalarea,thereforethereisaneedformoredetailedguidance.Commonmethodsfoundinclude:(i)thehypotheticaldeveloper’smethodotherwiseknownasthe“residualmethod”valuation,and(ii)thediscountedcashflow(DCF)method.
Thehypotheticaldeveloper’smethoddeductscostsofconstruction,financeandanticipatedprofit(apercentagecost)fromanexitvalue,i.e.thegrossdevelopmentvalueofthecompletedproject.TheDCFapproachuses(project)riskadjusteddiscountfactors.
BoththeEuropeanPublicRealEstateAssociation(EPRA)andtheInternationalValuationStandardsBoard(IVSB)havereleasedmoredetailedguidancetoassist(andimproveconsistencyamongst)preparersoffinancialstatements,valuers,advisersandinvestors.TheIVSBprinciplesaresubstantiallyconsistentwithEPRA,withtheexceptionthatIVSBdoesnotspecificallycautionagainsttherecognitionofadevelopmentgainuntiltheprojectrisksaresubstantiallyeliminated.
Asaresultoftheaboveaquestionmayarisewhenthefairvalueforinvestmentpropertyunderconstructioncanbereliablydetermined.
Theanswertothisquestionisnotstraightforwardasitinvolvesjudgmentand,inprinciple,itismanagementthatneedstoassessthereliability.AsmentionedaboveEPRAadvisescautionagainstrecognizingadevelopmentgainuntilasubstantialpartoftheprojectriskshasbeenreducedoreliminated.
However,EPRAdoesnotprovideguidelinesastowhichcriteriashouldbeapplied.Indicatorsthatmaybeusedassesswhetherthesubstantialrisksareeliminatedmayinclude:
• Allrequiredbuildingandlettingpermitshavebeenobtained;
• Developmentcostscanbereliablyestimated.Thismaybethecasewhenafixedpriceconstructioncontractwiththemaincontractorisagreed;and
• Thevalueofthecompletedpropertycanbereliablyestimated.Thismaybethecasewhenasubstantialproportionoftherentableareahasbeenleasedtotenants.
AccordingtotheIVSB,itisimportantthatallprojectriskshavebeenidentified,evaluatedandquantified.Basedontheseidentifiedrisksandtheassessmentofsufficientcomparablemarketdata,thevaluernormallydeterminestheadjustmentneededtoreflectprojectrisks.Inanyevent,anyinvestmentpropertyunderconstructioncarriedatcostisstillsubjecttoimpairmentprovisionsofIAS36ImpairmentofAssets.IAS36requiresarecoverableamounttobedeterminedasthehigherof:(i)valueinuse;or(ii)fairvaluelesscosttosell.Eveniffairvalueisconsideredunreliable,avalue-in-usecalculationmustbeperformed,whichisadiscountedfuturecashflowanalysis.IfsuchadiscountedfuturecashflowmustbepreparedforIAS36purposes,itmaynotbethatdifficulttochangeentityspecificassumptionsintomarketspecificassumptions.
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Contact4
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REAL ESTATE GROUP
AnnaKicińska
+48225577542
AnnaKicińskaisaPartnerandLeaderforCSERegionoftheEYRealEstateAdvisoryGroupresponsibleforrealestateTransactionSupport,StrategicAdvisoryandRealEstateM&A.Shehasovernineteenyearsofrealestateexperienceinvaluation,transactionsupport,marketanalysis,andcorporaterealestatemanagement.SheisacertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS).
AnnaAndrzejewska
+48225577543
AnnaAndrzejewskaisaManagerintheRealEstateAdvisoryGroup.Shespecializesinstrategicadvisoryconsultancyintherealestatesector,especiallyinthepreparationandimplementationofthestrategyofcorporateportfoliodevelopmentandmanagementaswellasininvestmentprocessmanagement.ShegraduatedfromtheUniversityofŁódźwithMaster’sdegreeinFinanceandBankingandspecializationinInvestmentsandRealEstate.Shecompletedapost-graduateSchoolofRealEstateValuationatWarsawSchoolofTechnology.Sheisacertifiedpropertymanager.
AnnaBorkowska
+48225576486
AnnaBorkowskaisaManagerintheRealEstateAdvisoryGroup.Shehaseightyearsofrealestateexperienceinconductingvaluationsforaccounting,investmentandloansecuritypurposesaswellasprovidingbothdevelopersandinvestorswithmarketandfeasibilitystudiesforcommercialproperties.AnnagraduatedfromFacultyofEconomicsatWarsawUniversityofLifeScienceswithspecializationineconomicsandorganizationofenterprises.Shecompletedapost-graduateSchoolofRealEstateValuationatWarsawSchoolofTechnology.AnnaisamemberoftheRoyalInstitutionofCharteredSureyors(MRICS).
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RafałKędzierski
+48225577939
RafalKedzierskiisaManageroftheRealEstateAdvisoryGroup.Hespecializesinmerger&acquisitionconsultancyintherealestatesectorandfundraisingforrealestateprojects.RafalhasamasterdegreeinFinanceatKozminskiUniversity.HealsostudiedBusinessAnalysisandValuationattheLondonSchoolofEconomicsandPoliticalScience.
PawełNowakowski
+48225576616
PawełNowakowskiisaManagerintheRealEstateAdvisoryGroup.GraduateoftheWarsawSchoolofEconomics,PawełobtainedaMasterdegreeineconomics(specialization:enterprisemanagementandRealEstate).Pawełgainedmarketexperienceworkingforseveralglobalrealestatecompaniesandstrategicconsultancyfirm.Hehasconductednumerousvaluationsforinternal,investmentandloansecuritypurposes,embracingbothsingleassetaswellasportfolioofoffice,retailwarehouseandhotelproperties.HeiscertifiedPolishappraiserandamemberofTheRoyalInstitutionofCharteredSurveyors(MRICS).
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ASSURANCE SERVICES
KatarzynaTwarowska
+48225578505
KatarzynaisExecutiveDirectorinAssurance,EYWarsaw,MemberoftheRealEstateGroup,EYLeaderinAssuranceServicesforRealEstateforCentralandSouthEasternEuropeCertifiedCoachandCEOofBusinessWomenLeadersFoundation(Fundacja Liderek Biznesu).SheGraduatedfromWarsawUniversityofTechnology.KatarzynaisexperiencedinworkingwithmultinationalandbiggestPolishcompanies,includingWarsawStockExchangeregistrants.SheisPolishCharteredAuditor.
MonikaBiniek
+48225578391
MonikaisaManagerinAssurance,EYWarsaw.Monikahasmorethan7yearsofexperienceinaudit.ShegraduatedfromUniversityofWarsaw.Shehasabroadexperienceinauditofstandaloneandconsolidatedfinancialstatements,preparedinaccordancewithPolishAccountingStandardsaswellasInternationalFinancialReportingStandards.MonikaisexperiencedinauditingpubliccompanieslistedonWarsawStockExchange.
MateuszFlis
+48225578421
MateuszisaManagerinAssurance,EYWarsaw,MemberofEYRealEstateGroup.HegraduatedfromWarsawSchoolofEconomics.Mateuszhasover7yearsofcomprehensiveauditexperienceofseparateandconsolidatedfinancialstatementspreparedinaccordancewithIFRS,USGAAPandPolishAccountingAct.HehasabroadexperienceinthecooperationwithlargestPolishandforeignclients,includingcompanieslistedontheWarsawStockExchange.HeisPolishCharteredAuditor.
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TAX SERVICES
MichałThedy
+48225577547
MichałThedyisheadoftheTaxRealEstateGroupatEY’sWarsawoffice.Hehassixteenyears’taxadvisoryexperiencecoveringinvestmentsonthePolishrealestatemarket,taxandbusinessaspectsofmergers,acquisitionsandothertypesofrestructuringaswellastaxeffectiveplanningmethods.Michałistheco-authorofthebook“TaxationoftheRealEstateMarket”andnumerouspublicationsintherealestateindustrypress.Heisacertifiedtaxadvisor.
SebastianIckiewicz
+48225577524
SebastianisaSeniorManagerinTransactionTaxGroupandTaxRealEstateGroupatEY’sWarsawoffice.Heisacharteredtaxadvisorandhas13yearsofexperienceintaxadvisoryinEYandotherrecognizedtaxadvisoryfirms.Sebastian’sexperienceincludesparticipationinnumeroustaxbuy-sideorvendorduediligenceprojects,taxreviewassignments,taxstructuringprojectsandpost-closingreorganisationsandoptimisations(mergers,de-mergers,disposalsofassets,etc.).HewasinvolvedinthebiggesttransactionalprojectsonthePolishmarketforcorporateclientsandinvestmentfunds,especiallyintherealestateandtelecommunicationssector.SebastianalsoattendedspecifictrainingcoursesontaxduediligenceandtaxstructuringwithinEYinPolandandabroad.
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AnnaPleskowicz
+48225577904
AnnaPleskowiczisSeniorManagerinTaxRealEstateGroupatEY’sWarsawoffice.ShehasbeenwithEYsince2004.Sheisacertifiedtaxadvisor.Herskillsincludeadvisingonglobalrestructurings,internationaltaxplanning(corporateissues,financingetc.),providingtaxadvisoryservicesondomestictaxlaw.Shewasinvolvedinprojectsconcerningtaxissuesinrelationtotheprocessofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios,adviseontaxeffectiveplanningmethods,includinginternationaltaxstructuringprojects.In2008AnnaworkedatthePolishTaxDeskinNewYork.Annaisaco-authorofthebook“TaxationoftheRealEstateMarket”andco-authorofthebook„Internationaltaxplanning”,anauthorofvariousarticlesrelatingtotaxissues.
MichałSawicki
+48225577026
MichalSawickiisManagerinTaxRealEstateGroupatEY’sWarsawoffice.HehasbeenwithEYsince2007.Heisacertifiedtaxadvisor.Hisskillsincludeadvisingonglobalrestructurings,internationaltaxplanning,taxaccounting.Hewasinvolvedinprojectsconcerningtaxissuesinrelationtotheprocessofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios,adviseontaxeffectiveplanningmethods,includinginternationaltaxstructuring.Michalisanauthorofvariousarticlesrelatingtotaxaspectsofinvestingontherealestatemarketandco-authorofthebook“TaxationoftheRealEstateMarket”.
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ŁukaszKupryjańczyk
+48225577972
ŁukaszisaTransactionTaxSeniorManagerandmemberofTaxRealestateGroupatEY’sWarsawoffice.Heisacharteredtaxadvisorwitha67-yearexperienceintaxadvisoryandiscurrentlyintheprocessofobtainingACCAqualifications.Hisprofessionalexperienceincludes:numerousstructuring-andtaxduediligenceprojects,day-to-daytaxadvisory,taxreviewsandassistanceintaxoptimizations.Heparticipatedinarangeofvendor/buysidesupportandrestructuringsofbusinesses(suchasmergers,spin-offs,etc.).Heassistedinmanyinvestment/dis-investmentprojectsforrealestateclientsandinvestmentfunds.
Łukaszisanauthorandco-authorofnumerouspublicationsinpress.
MichałKoper
+12127737012
MichałKoperisManagerinPolishTaxDeskatEY’sGlobalTaxDeskNetworkinNewYorkoffice.HehasbeenwithEYsince2006.HeisacertifiedPolishtaxadvisor.HisprofessionalskillsincludeadvisingontaxplanningforinternationalinvestmentsinPoland,taxeffectiveownershipstructuresandfinancingschemes,globalrestructurings,providingtaxadvisoryservicesondomestictaxlaw.Hewasinvolvedinprojectsconcerningtaxaspectsofsettingup,operatingandrestructuringofcompanies,taxassistanceinestablishingtaxeffectiveexitscenarios.Michałisaco-authorofthebook“TaxationoftheRealEstateMarket”andauthorofvariousarticlesrelatingtotaxissues.
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LEGAL SERVICES
ZuzannaZakrzewska
+48225577816
Zuzannaisanadvocatewithfifteenyearsofexperienceinlegaladvisoryfordomesticandinternationalentitiesfromdifferentsectors.Shehasextensiveexperienceinprovidinglegalsupportanddaytodaylegaladvisestocompaniesparticularlyfromtherealestate,financialservicesandenergysector.ZuzannaspecializesinprovidinglegalassistancerelatedtothecorporatelawincludingrestructuringprocessesandM&Atransactions.Shehasadvisedinanumeroustransactionsinvolvingtheacquisitionofcompaniesandassetsrelatedtorealestatebothonthebuyersandsellersside.Zuzannaalsoadvisedclientsduringprocessesofexaminationoflegalstatusoftherealestateaswellasduringnegotiatingoftheleaseagreements.
BarbaraChochołowska
+48225577592
BarbaraChochołowskaisalegalcounselwithelevenyearsofexperienceinworkingfordomesticandinternationalentitiesfromdifferentsectors.DuringyearsofpracticeBarbarahasworkedonavarietyofcomplexcorporateandrealestate-relateddealsinvolvingmulti-jurisdictionalandinternationalmatters.
TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Shehasstrongexperienceinprovidinglegalsupportrelatedtotherealestatemattersincludingtherealestateduediligenceandthetransactionsoftherealestateacquisitions(i.e.boththeassetandthesharedealtransactions).Shealsosupportsclientsindraftingandnegotiatingtheleaseagreementsandthemanagementcontractsofcommercialandindustrialspaces.
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KatarzynaKłaczyńska
+48225577961
KatarzynaKłaczyńska,LL.M.,isanattorneyspecializinginenergyandenvironmentalmatters.Shehasadvisedonanumberofhigh-profileregulatoryprojects,includingactingasaleadingcounselforpowersectorcompaniesandthePolishgovernmentregardingclimatechangeregulationsanddevelopingadvocacystrategyconcerningrevisionofthecurrentEnvironmentalImpactAssessmentmodelonbehalfoftheBusinessAssociationofPolishPowerPlants.Shehasworkedonanumberofenvironmentalandregulatoryduediligenceprojectsforthevarietyofsectors.Sheisalsoexperiencedinenvironmentalaspectsofshalegasinvestments.
KatarzynaisamemberoftheNewYorkBar.ShegraduatedfromJagiellonianUniversityinPoland,andHarvardLawSchool,whereshewasgrantedGammonFellowshipforAcademicExcellence.
MagdalenaKasiarz-Lewandowska
+48225576207
MagdalenaKasiarz-LewandowskaisanadvocateandaSeniorAssociateinEYLawwithtenyearsofexperienceinadvisingonthesale,reorganizationandliquidationofcompanieswithinternationalcapital(conductingM&Atransactionsandlegalaudits),advisingontherestructuringofcapitalgroups,includingmergers,divisionsandtransformationsofcompanies,aswellascross-bordermergers.Sheadvisedinnumeroustransactionsonsharesandassetsrelatedtorealestatebothonthebuyersandsellersside.Shealsospecializesinprovidingtheongoinglegalassistanceinthescopeofcivillawandcompanylaw,includingpreparationandnegotiationofleaseandserviceagreements.
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JoannaToruniewska
+48124243264
JoannaToruniewskaisalegalcounselwithmorethanfiveyearsofexperienceinadvisingfordomesticandinternationalentitiesfromdifferentsectors.TherangeofherexpertisecoversconductinglegalduediligenceandprovidinglegaladviceinconnectionwithM&Atransactionsandrestructuringprojects.Sheassistedtheentrepreneursintherealestatetransactions,includingduediligencebeforetherealestateacquisitions,preparingandnegotiatingdifferenttypesofrealestateagreements(i.e.saleandpurchaseagreements,leaseagreements)aswellasadvisingoninvestmentfinancing.Shealsorepresentedtheclientsbeforethecourtsduringthecasesregardingtherealestate issues.
PiotrWoźniak
+48713751022
PiotrWoźniakisalegalcounselwithsixyearsofexperienceinrealestateandpropertydevelopmentlegalaspects.AgraduateoftheFacultyofLawattheUniversityofWrocław.PiotralsocompletedpostgraduatestudiesoncommercialcompanieslegalregulationsatUniversityofWrocławandpostgraduatestudiesonlegalaspectsofconstructionprocessattheWarsawSchoolofEconomics.BeforejoiningEYPiotrwasworkinginrealestatedepartmentsintwohighqualitylawfirmsinWarsaw.Piotrspecializesinrealestatetradinglaw,spatialplanningandlanddevelopmentlawandconstructionlaw.Piotradvisesclientsonmatterrelatingtopropertypurchase,locationofdevelopmentsandcontractingwitharchitectsandconstructioncompanies.Heisresponsibleforcomprehensiveadviceonpreparationstageofdevelopmentprojectsanddaytodayproblemsconnectedwithdevelopmentprocess.Hehasstrongexperienceinprovidinglegalsupportrelatedtocommercializationofshoppingcentersandofficespacelease.Piotrhasalsoadvisedininfrastructureprojectsi.e.windfarms,shellgasplatformsandgastransmissionnetworks.
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Appendix
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Withholding tax rates under Poland’s double tax treaties (payments from Poland)1
Dividends (%) Interest (%) Royalties (%)
Albania 5/10(d) 10 5
Algeria(gg) 5/15(d) 0/10(k) 10
Armenia 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
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
Estonia 5/15(d) 0/10(k) 10
Finland 5/15(y) 0/5(k) 5
France 5/15(a) 0 0/10(p)
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
1Generallyeffective1January2014.
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Dividends (%) Interest (%) Royalties (%)
Ireland 0/15(kk) 0/10(k) 0/10(v)
Israel 5/10(b) 5 5/10(h)
Italy 10 0/10(k) 10
Japan 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) 10
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) 10
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 0/10(r) 0/10(k) 10
SlovakRepublic 5/10(c) 0/10(k) 5
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Dividends (%) Interest (%) Royalties (%)
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)
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.
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(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:
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• 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.
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176|Poland.Therealstateofrealestate
• 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,ortherighttouse,anypatentorforinformationconcerningindustrial,commercialorscientificexperience(withsomeexceptions).
(rr) TheagreementwiththeSocialistFederalRepublicofYugoslaviashouldapplytoBosnia-Herzegovina.
(ss) The5%rateappliesiftherecipientisacompany(otherthanapartnership)thatholdsdirectlyatleast25%ofthecapitalofthecompanypayingthedividends.
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