Will newly listed companies on the Warsaw Stock Exchange benefit from new tax regulations?
The Polish Deal introduces several solutions for Polish capital market participants, including corporate income tax changes for companies preparing to debut on the stock exchange. This amendment came into force on 1 January 2022.
The purpose of the new rules is to promote the Warsaw Stock Exchange as an attractive vehicle for investment and to revive the Polish stock market and attract investors to invest in it. The tax relief is addressed to private companies which lawmakers want to encourage to carry out an initial public offering and go public as a form for raising capital for growth.
As part of the Polish Deal tax reform package (specifically the Act of 29 October 2021 Amending the Personal Income Tax Act, the Corporate Income Tax Act and Certain Other Acts), an article has been added to the CIT Act introducing tax relief for companies applying for admission of their shares to trading on a regulated market or in an alternative trading system. Therefore, the relief will cover companies that decide to enter either the WSE main market or NewConnect, but only with respect to initial public offerings.
Under the new regulations, such companies will be allowed to reduce their tax base by:
- 150% of expenses for preparation of the prospectus, notary, court and stock exchange fees, stamp duty, and preparation and publication of announcements required by law
- 50% of expenses, excluding VAT, on legal services, including tax advice and financial advice, within a limit of PLN 50,000.
This change is in line with the global trend of popularising stock market investments. But how momentous will the new regulations prove to be in practice?
Certainly, the lawmakers’ intent is to promote stock exchange listing as an opportunity for companies to raise capital. But the costs of an IPO are not likely to be a major factor in determining whether a company goes public. The decision to conduct an IPO is based on a number of much more significant factors, such as the general economic climate and the likelihood of raising funds from the market, the chances of generating investors’ interest, the company’s growth plans, and the stability and predictability of the regulatory environment.
First, a company considering an IPO analyses its prospects on the stock market, and if these prove attractive, it is unlikely to abandon the debut solely based on the supporting costs. Generally, the funds a company must dedicate to preparing an IPO do not represent such a significant portion of the potential gains that they will affect the decision to go public. At the same time, it is difficult to expect companies not planning to enter the WSE, due to the factors mentioned above or for internal reasons, to change their attitude thanks to the proposed tax relief.
In its general drift, the new regulation may provide an additional incentive to companies already considering an IPO. But it is hard to expect that the mere possibility of deducting certain IPO costs from the tax base will induce new entities to decide to debut on the stock exchange.
Danuta Pajewska, attorney-at-law, Katarzyna Jaroszyńska, attorney-at-law, Aleksandra Nowacka, M&A and Corporate practice, Wardyński & Partners
