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Enterprise restructuring – what is going on with the Special Economic Zone permit. Whenever a transformation triggers a change of an entity's status and, consequently, the entity can no longer be regarded as a small or medium-sized enterprise, the tax exemption is reduced to at least 50%, i.e. to the maximum amount of aid available to large enterprises.

Pursuant to § 5(5) of the Regulation of the Council of Ministers of 10 December 2008on state aid for enterprises operating under a permit to conduct a business activity in special economic zones (consolidated text in Journal of Laws no. 232, item 1548), the enterprise loses its eligibility for tax exemption whenever it transfers, in any form, the assets on which capital expenditures were made in a certain time. It may seem that, as a result of selling shares in an entity or combining businesses, the entity enjoying the SEZ tax exemption will lose its entitlements. But this is not the case because a merger by acquisition, a change in the entity's status, ownership restructuring and demerger lead to universal succession of rights and obligations meaning that all the rights and obligations pass from one entity to another. Therefore, succession involves assuming all rights and obligations, including rights and entitlements vested in thezone permit holder. 

Universal succession
of rights and obligations in the context of a Special Economic Zone in Poland permit

Change of status of an enterprise has the effect of passing the rights and obligations of an existing company (the company being transformed) to a newly formed company (the target company), as clearly set out in Article 551(1) of the Polish Code of Commercial Companies (the "CCC"). This means the universal succession of rights and obligations of the company being transformed, which brings continuity of ownership and possession of the company's assets. Also in terms of taxes, so important for enterprises operating in SEZs, the target company becomes a successor of the rights and obligations of the company being transformed, as clearly follows from Article 93 of the Polish Tax Act.

Whether the company being transformed is a partnership or a company and whether it transforms into another partnership or company, both the zone permit granted to that entity and the state aid granted on the basis of the permit will remain in force.

Universal succession
of rights and obligations in the context of a Special Economic Zone in Poland permit – Example

X and Y are individuals and, at the same time, partners in a general partnership operating in a Special Economic Zone (SEZ) under a zone permit. They are going to transform their general partnership into a limited partnership. The zone permit vested in the general partnership run by X and Y will apply as well to the target limited partnership. As individuals, X and Y are subject to personal income tax which will be reduced because X 
and Y hold a zone permit.

Ownership restructuring – impact on the state aid intensity in the SEZs in Poland

Ownership restructuring does not affect the state aid entitlement or the state aid intensity. Bringing in a new partner/shareholder is of no significance for the state aid, the enterprise itself and the state aid intensity. No matter whether the new partner/shareholder is an individual or a legal person. If one of the partners/shareholders is a legal person and the other are individuals, the latter will be subject to the personal income tax and the former – to the corporate income tax, as provided for in the tax regulations.

How does the ownership restructuring affect the Special Economic Zone in Poland permits – Example

X and Y are individuals and, at the same time, partners in a general partnership operating in the Special Economic Zone (SEZ) under a zone permit. X and Y are going to transform a general partnership into a limited partnership and designate a limited liability company (in which they are the only shareholders) as a limited partner. The target limited partnership will continue to benefit from the zone permit granted to the general partnership. The income of X and Y will be subject to the personal income tax, while the income of the limited liability company as a limited partner – to the corporate income tax. The target limited partnership will benefitfrom the zone permit to the same extent as the general partnership being transformed.

Merger by acquisition in Poland in the context of the SEZ permit

Also in the case of a merger by acquisition, the acquiring company is the successor of all the rights and obligations of the target company, as provided for inArticle 492(1) CCC. Therefore, acquisition of a zone enterprise by an enterprise not holding a zone permit does not forfeit the permit zone. The acquiring company may benefit from the tax exemption on the same zone permit terms as the target company.

Special Economic Zone permit in the context of merger by acquisition in Poland – Example

A limited liability company (X) acquires another limited liability company (Y) which operates in the Special Economic Zone (SEZ) under a zone permit. After the acquisition, X will be eligible forthe state aid on the basis of the zone permit granted to Y.

Lower tax exemptions for SEZ enterprises if they resize

The tax exemption applicable to small and medium-sized enterprises may be up to 15% higher than that for large enterprises. While the maximum state aid in the form of tax exemptions for large enterprises amounts to 50%, small
and medium-sized enterprise can obtain tax exemption of up to 65%. It cannot be ruled out that after being granted a zone permit the small or medium-sized enterprise changes its status to a large enterprise, for instance
as a result of acquiring another company or joining a corporate group. The large enterprise will then be entitled to the tax exemption of no more than 50%
rather than 65%. This is because such a change in status reduces the available state aid intensity to the limit applicable to a large enterprise.

Note! The limit is reduced only when the status of enterprise changes, and it never triggers an obligation to pay back any excess state aid already granted 
when the enterprise was classified as small or medium-sized.

Lower tax exemptions for SEZ enterprises if they resize – Example

A limited liability company (X) operating as a medium-sized enterprise in the SEZ under a zone permit is going to join a corporate group (Y).
After joining the group Y, the limited liability company's balance sheet total
 exceeds EUR 43 million. This makes X a large enterprise in the meaning of the Commission Regulation (EC) 
No 70/2001 (EU OJ L 10 
of 13 January 2001, p. 33). X,
which until then benefited from the tax exemption of 65% will now be entitled to tax exemption of 50%.

Lower tax exemptions for SEZ enterprises if they resize – Example

A limited liability company (W) acquires a limited liability company (Z) 
which holds a zone permit and is a medium-sized enterprise. Z used to benefit from a tax exemption of 65% until then. After the merger by acquisition, W employs 
250 people. As a consequence, the maximum state aid available for Z is reduced to 50%.

Which of the involved enterprises may benefit from the zone permit depends on the demerger plan

The (Polish) Code of Commercial Companies stipulates that exclusively capital companies may demerge. Demerger does not apply to partnerships. In the case of a demerger by acquisition, formation of a new company by acquisition
 or formation of a new company by separation, the acquiring company or the newly formed company assumes the rights and obligations of the company being demerged in line with the adopted demerger plan. Therefore, it will depend on the demerger plan which of the companies formed as a result of the demerger will be entitled to the SEZ tax exemption. This means that only one of the split-off enterprises separated from a zone enterprise will benefit from the zone permit which, however, will not expire with respect to all the companies.

Which of the involved enterprises may benefit from a zone permit depends on the demerger plan – Example

A limited liability company (X) operates in the Special Economic Zone (SEZ) under a zone permit. The shareholders in X are going to separate an organised part of the enterprise and form a limited liability company (Y). According to the demerger plan, the newly formed company will run a plant in the SEZ. Therefore, the newly-formed Y will be entitled to the SEZ tax exemption.

Enterprise restructuring in Poland in the context of the SEZ permit – CONCLUSIONS

Restructuring of a zone enterprise, that leads to universal succession where all the rights and obligations pass from one entity to another, does not forfeit the zone permit and the tax exemption.
 If the restructuring changes the enterprise status
from a small or medium-sized enterprise into a large enterprise, the tax exemption will be reduced to up to 50% (maximum aid available to enterprises other than small or medium-sized), irrespective of the state aid available under the zone permit.

Furthermore, Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw can offer professional tax advice in Poland and legal advice in Poland on special economic zones and other areas of your specific interest. 

9.08.2016