The loan debt (principal amount and interest) to a foreign shareholder outside the EU is converted into the company’s capital. Such a situation of one of our clients became the basis for our today’s publication.
Let’s consider the tax details for both parties.
CIT
Shareholder perspective
a) in-kind contribution
In accordance with Article 12 sec. 1 point 7 of the Polish CIT Act, income is the value of the contribution, in the case of making an in-kind contribution to the company. The tax authorities are of the opinion that in a situation such as the one analysed (i.e. set-off of mutual receivables, without cash flow), there is an in-kind contribution, which is de facto a conversion of the receivables into capital. Administrative courts represent a heterogeneous position here. Some of them accept this view. However, there are contrary rulings, e.g. the judgment of the Supreme Administrative Court of 18 August 2020 (file reference number II FSK 2083/19), in which the court indicated that the provisions of the commercial register that assess whether the contribution is monetary or non-monetary are important here.
In any case, if it is considered that the conversion of debt into shares (shares) in a capital company is actually carried out with the use of an in-kind contribution in the form of receivables, then income arises on the part of the person taking up the shares in the amount of the contribution in principle equal to the value of the contribution.
According to Article 7b sec. 1 point 2 of the Polish CIT Act, this income is considered to be income from capital gains.
In practice, however, no tax obligation will arise, because under the DTT, any income in this respect would be settled in the country of residence of the shareholder.
Thus, the shareholder will generate income, but due to the application of the DTT, any settlement will take place in the country of his residence
b) interest
The situation will be different with accrued interest, which at the time of its conversion becomes payable interest, and thus at the time of its capitalization, will give rise to income on the part of the shareholder.
Interest income, in accordance with the relevant DTT, will in practice be subject to taxation in Poland with the application of a reduced withholding tax rate.
Thus, the shareholder will earn interest income, which will be subject to withholding tax at a preferential rate at the time when the remitter (the Company) holds the shareholder’s residence certificate.
Company perspective
a) income
On the other hand, according to Article 12 sec. 4 point 4 of the Polish CIT Act, income received for the establishment or increase of share capital, a share fund or a founding fund, or a statutory fund in a state-owned bank, or an insurer’s organisational fund is not included in taxable income.
Thus, it follows from the cited provision that the values received for the increase of the share capital, despite being an asset acquisition, were considered by the legislator to be income that dis not constitute taxable income. This means that they are tax-neutral for the recipient of the contribution. Making a non-cash contribution to the share capital and increasing the share capital will not give rise to CIT income on the part receiving the contribution.
Importantly, however, the above statements depend on whether the value of the liability under the receivable is equal to or exceeds the value of the shares (issued in exchange for the contribution in the form of this liability).
Nevertheless, as we understand it, these values are equal, thus the conversion itself is tax-neutral for the Company.
The above is confirmed, for example, by the Individual Ruling of the Director of the National Tax Information of 4 November 2025 (file reference number 0114-KDIP2-2.4010.425.2025.3.AP).
b) costs
We believe that the amount of interest accrued and unpaid will not constitute a tax expense for the Company.
Such a view was expressed in particular by the Supreme Administrative Court in its judgment of 29 April 2025 (file reference number II FSK 1045/22):
“It should be emphasized that although the contractual set-off of mutual receivables is tantamount to payment, the tax consequences are different compared to payment by paying money. Therefore, if the coverage of the cash contribution to the capital company by offsetting the company’s receivables with the mutual receivables of the shareholder leads to the cancellation of mutual receivables and liabilities, it cannot be considered that in the circumstances of the present case there was an actual payment of interest.
Therefore, the Court of First Instance rightly pointed out that in the circumstances of the case under consideration, Article 16 sec. 1 point 11 of the Tax Act, according to which “accrued but unpaid or cancelled interest on liabilities, including loans (credits), shall not be considered to be tax-deductible costs”.“
PCC
According to the PCC Act, only those activities that have been explicitly listed as subject to this tax are subject to PCC taxation.
In this context, it should be noted that Article 1 sec. 1 of the Polish PCC Act stipulates that m.in articles of association are subject to tax.
On the other hand, the provision of Article 1 sec. 3 of the Polish PCC Act stipulates that in the case of a capital company agreement, an increase in the share capital from contributions or from the company’s funds and surcharges is considered to be an amendment to the agreement.
Thus, a situation in which we are dealing with an increase in the share capital, which is understood as an “amendment to the articles of association”.
The tax obligation in the field of PCC arises at the moment of adoption of a resolution on the increase of the capital of a company having legal personality and is incumbent on the company. Bearing in mind the above, the conversion of receivables from the loan into share capital will constitute an activity subject to tax on civil law transactions as an amendment to the articles of association.
This position was confirmed by the Director of the National Tax Information in an individual ruling of 10 September 2020 (file reference number 0111-KDIB2-2.4014.131.2020.3.PB).
The PCC rate for this activity is 0.5%.
Importantly, however, the provision of Article 6 sec. 1 point 8 letter a of the Polish PCC Act stipulates that the tax base for concluding the articles of association is the value of the share capital.
The value of any agio does not affect the tax base for the tax on civil law transactions when concluding the articles of association of a capital company. The value of the supplementary capital does not constitute the basis for taxation with this tax. Therefore, the tax on civil law transactions will be calculated only on the value of the share capital.
The subrogation agreement itself will also not be subject to PCC taxation, which is confirmed, for example, by the individual ruling of the Director of the National Tax Information of 14 July 2025 (file reference number 0111-KDIB2-3.4014.228.2025.2.MD).
VAT
According to Article 2 sec. 6 of the Polish VAT Act, a commodity is a thing and its parts, as well as all forms of energy. Thus, the act of converting receivables into shares in the Company should not be considered in the context of the supply of goods referred to in Article 7 sec. 1 of the Polish VAT Act in conjunction with Article 5 sec. 1.
There is also no provision of a service here, as there is no provision to a natural person, a legal person or an organisational unit without legal personality, which results from Article 8 of the Polish VAT Act.
Therefore, the act of converting a loan receivable into an in-kind contribution, as a result of which the receivable will expire, does not constitute an activity subject to VAT within the meaning of Article 5 sec. 1 point 1 of the Polish VAT Act.
The above is confirmed, for example, in the individual ruling of the Director of the National Tax Information of 23 August 2024 (file reference number 0111-KDIB3-1.4012.387.2024.1.ICZ).
MDR
Pursuant to Article 86a § 1 point 10 of the Tax Ordinance, a tax scheme is understood as an arrangement which:
- meets the criterion of the main benefit and has a general distinguishing hallmark,
- has a special distinguishing hallmark or
- has another special distinguishing hallmark.
Ad. a
From the perspective of point A, first of all, it should be pointed out that the authorities may consider the transfer of a part of the converted receivable to supplementary capital as meeting the condition of a tax advantage. Such a procedure results in a reduction of the PCC tax to be paid.
At the same time, according to our understanding, the criterion of the main benefit will not be met from the perspective of the fact that a given tax advantage was not the main or one of the main benefits.
Nevertheless, for this type of activity, the tax authority issued a general ruling (file reference number) DTS5.8092.3.2025 of the Minister of Finance and Economy of 29 July 2025 on the classification of an act consisting in increasing the share capital of a capital company on the basis of the provisions on tax schemes under the Polish PCC Act, where it is indicated that the acquisition of shares (shares) above their nominal value, As a rule, it will not constitute a reportable tax scheme due to the failure to meet the main benefit criterion. It should be stated that, as a rule, the purpose of making contributions is to recapitalize the company, and not to reduce the PCC taxation.
Ad. B and C
As a rule, such a transaction does not affect the part of deferred income tax or assets or reserves in the amount exceeding PLN 5 million.
At the same time, there will be a non-resident’s income, but it is necessary to assess the exceeding of PLN 25,000,000.00.
