From litigation to certainty? Developments in Poland’s foreign investment fund CIT exemption

The Polish corporate income tax exemption for foreign investment funds has long been a source of controversy. Although the exemption has existed for many years, its practical application was often restricted by a highly formalistic approach adopted by the tax authorities, forcing foreign investment funds to defend their position before the administrative courts.

Over the past two years, however, the landscape has evolved considerably. A series of administrative court judgments, legislative initiatives, and tax rulings suggest that a more balanced and economically grounded approach may be emerging. This development is particularly relevant for investment funds whose investment policies include real estate assets.

The exemption available under the Polish Corporate Income Tax Act is subject to several conditions relating to, among others, the legal and regulatory status of a foreign investment fund. In recent years, a new dispute emerged: whether the exemption may apply to funds whose investment strategies permit investments in real estate.

The tax authorities increasingly argued that real estate investments fall outside the scope of activities contemplated by the exemption provisions. As a result, funds investing directly or indirectly in real estate were often denied access to the exemption, even where all other statutory requirements were satisfied.

This approach created significant uncertainty for international investors. Real estate investment opportunities are a common feature of institutional investment strategies across jurisdictions, yet the mere possibility of investing in real estate or shares of companies owning real estate became a focal point of disputes with the Polish tax authorities.

An important turning point came in 2025, when Polish administrative courts rejected the restrictive interpretation adopted by the tax authorities.

The courts confirmed that investments in real estate do not automatically preclude application of the exemption. They emphasised that ownership of real estate constitutes a property right and therefore falls within the scope of activities that may be undertaken by an exempt investment fund. The judgments further confirmed that the exemption may apply regardless of whether the fund invests in real estate directly or through real estate holding entities.

These judgments established an important principle: the presence of real estate assets within a fund’s portfolio should not, in itself, determine whether the exemption applies. The analysis should instead focus on the statutory conditions expressly set out in the legislation.

The judicial trend is also beginning to be reflected in tax ruling practice.

In a recent case successfully handled by the authors at MDDP, the Polish tax authorities confirmed, in a positive individual tax ruling, that an Irish collective asset-management vehicle fund is eligible for the exemption despite being authorised to invest in real estate. Given the historically restrictive approach taken in similar cases, the ruling may be regarded as a noteworthy development for the investment fund industry.

Although individual rulings are formally binding only on the applicant concerned, they often provide valuable insight into the direction of administrative practice. The authority’s willingness to confirm the exemption despite the fund’s ability to invest in real estate may therefore be viewed as an encouraging signal for the broader market.

Taken together, the recent court judgments and developments in tax ruling practice suggest a gradual movement towards a more commercially realistic interpretation of the investment fund exemption.

For foreign investment funds, this may create opportunities not only for future investments but also for reassessing historical tax positions. Funds that previously paid Polish tax because the exemption was denied may wish to review whether grounds exist to challenge earlier settlements or seek recovery of overpaid tax, subject to applicable procedural limitations.

Importantly, these developments coincide with legislative reforms, effective from 2026, that extend the exemption to investment funds established outside the EU and European Economic Area, as well as to self-managed investment funds. Viewed together, these changes reflect a broader trend towards improving the competitiveness and predictability of the Polish investment environment.

While certain areas of uncertainty remain, recent developments suggest that the long-running disputes surrounding the foreign fund exemption from Polish income tax may be entering a new phase.

For many years, investors were required to rely primarily on litigation to secure treatment that was arguably consistent with both the wording and the purpose of the exemption. Today, there are increasing signs that administrative practice is beginning to align with taxpayer-friendly case law.

If this trend continues, foreign investment funds may soon benefit from something that has historically been in short supply in this area of Polish taxation: certainty.