Foreign controlled entities

A tax obligation on this account may arise in the event that a Polish tax resident exercises control over a foreign entity meeting the conditions referred to in Article 30f(3) of the PIT Act and Article 24a(3) of the CIT Act. This may concern, inter alia, the holding of shares, voting rights in control or management bodies or de facto control over foreign entities based in so-called tax havens, foreign entities generating mainly passive income or foreign entities without significant assets.

Taxation of foreign controlled entities will not occur if the foreign entity is tax resident in the EU or EEA and at the same time carries out substantial real economic activities in that country. Taking into account current practice, it is worth verifying whether the actual size of the business conducted abroad allows the entity to be excluded from CFC regulation.

In addition to the obligation to file an appropriate return and pay tax, taxpayers with a foreign controlled entity must keep appropriate records of these entities and of economic events occurring in the entities.

The occurrence of a potential tax liability on the income of a foreign controlled entity requires careful analysis in each case. This is particularly true in the case of international structures where Polish natural or legal persons hold shares in foreign companies – particularly those based outside the EU and EEA.