New treatment of share redemption income
Amendments to the Corporate Income Tax Act and the Personal Income Act in Poland went into force on 1 January 2011, including changes in the tax treatment of share redemption transactions.
Until the end of 2010, income obtained from transfer of shares to the company, for consideration, with the purpose of redeeming the shares—in other words, a transfer intended to result in voluntary redemption of the shares—was taxed as income from participation in the profit of a legal person (e.g. a dividend), which meant that when certain conditions were met, shareholders who were legal persons could take advantage of an exemption from income tax on the consideration received or a preferential tax rate under tax treaties.
From 1 January 2011, however, such income will now be treated like the proceeds received from other sales of shares.
As a result, in the case of shareholders who are legal persons, income from transfer of shares for purposes of redemption will now be taxed under general rules (at the rate of 19%), without the opportunity to apply an exemption available for dividend income. This change will be particularly significant for shareholders with their tax residence in Poland.
In the case of natural persons, income from transfer of shares for purposes of redemption will now be taxed like income from other transfers of shares, i.e. at the rate for sale of securities (a 19% tax, declared individually by the taxpayer).
Income received by a taxpayer from involuntary or conditional (automatic) redemption, i.e. redemption conducted pursuant to a resolution of the shareholders or the management board, will continue to be taxed like income from participation in the profit of a legal person.