Investment fund – tax status

Investment funds enable their participants to collectively invest money in common interest in securities, money market instruments and other property rights defined by relevant regulations.

In Poland, an investment fund can be established as:

  • open-ended investment fund (FIO),
  • specialized open-ended investment fund (SFIO),
  • closed-end investment fund (FIZ).

Depending on the type, each fund has a different tax status.

Subjective exemption
Under the CIT Act, open-ended investment funds and specialized open-ended investment funds established under the Investment Funds Act are generally exempt from tax. The exemption in question does not apply to specialized open-ended investment funds that apply the investment rules and restrictions set forth for closed-ended investment funds.

The CIT Law indicates that the exemption does not apply to:

  • income / revenue from participation in unincorporated companies or unincorporated organizational entities based in Poland or in another country, if, in accordance with the tax laws of that country, the entities are not treated as legal entities and are not subject to unlimited tax liability in that country;
  • Income / revenue from interest on loans / credits granted to the above-mentioned entities and interest on other obligations of these entities to the fund,
  • Income / income from interest on equity participation in the above entities,
  • donations or other gratuitous or partially gratuitous services made by the above entities,
  • Income / revenue from interest / discount on securities issued by the above entities,
  • income / proceeds from the sale of securities issued by the above entities or shares in these entities;
  • income from real estate, as referred to in Article 24b(1) of the CIT Law (this provision regulates the taxation of income from buildings), including that obtained by the aforementioned entities.

Tax on income from buildings vs. subject exemption
Taxpayers’ doubts are particularly raised by the relationship between the tax on income from buildings and the scope of the exemption from taxation of such income earned by a given investment fund.

In this regard, according to the case law of the Supreme Administrative Court, the condition for the taxation of income from buildings is the qualification of these buildings as a fixed asset of the fund and the provision of all or part of them for use under a lease, rental or similar agreement.

Income from commercial real estate, which is not subject to subjective exemption, is any income from real estate (i.e., both periodic rental income and one-time income from the sale of such real estate).