AIFs in Poland

Alternative investment funds (AIFs) were defined in the Polish legal system in 2016 as a result of the implementation of the EU Directive No 2011/61/EU on Alternative Investment Fund Managers (AIFMD). However, the vehicles that are now classified as AIFs (eg, closed-end investment funds) existed much earlier.

Polish AIFs Market

Concerning the AIFs market environment, Poland is well developed in terms of the legal framework, regulatory oversight, and availability of related services (including, in particular, management company offerings). As a result, Polish AIFs are used by international and domestic investors seeking flexible solutions to meet their specific needs. It is also important to note that Polish regulations allow for the establishment of AIFs dedicated to a limited number of the investors (business partners, members of one family, and entities within the same capital group).

For example, Polish high-net-worth individuals (HNWIs)/family businesses choose AIFs not only as investment vehicles or holding entities, but also for succession planning purposes. Foreign investors use Polish AIFs as holding vehicles for their investments, but also as efficient financing entities for the intra-group purposes.

Polish law, namely the Act of 27 May 2004 on Investment Funds and Management of Alternative Investment Funds (IFA), provides for the following types of AIFs:

• specialised open-end investment funds (SOEIFs);
• closed-end investment funds (CEIFs); and
• alternative investment companies (AICs).

SOEIFs and CEIFs as a Separate Category of Legal Entities

Polish SOEIFs and CEIFs are a separate category of legal entities in Poland. Their establishment, operations, and liquidation are regulated under the IFA. Both of them can be established and managed solely by the Investment Fund Company (IFC), which must hold a licence issued by the Polish Financial Supervisory Authority (PFSA). SOEIFs and CEIFs are subject to registration with the register of investment funds kept by the District Court in Warsaw.

SOEIFs

SOEIFs are a variation of open-end investment funds, but to some extent are similar to the closed-end investment fund, eg, SOEIFs may apply less restrictive rules of diversification of their investments. Participation in SOEIFs may be limited to a selected group of investors, eg, certain institutions. The participation units in SOEIFs are not transferable and are not recognised as securities under the Polish law. SOEIFs are obliged to redeem the participation units at any time at the request of the investor, but it is also possible to stipulate in the statute that the redemption will only take place on a certain date.

CEIFs

In a CEIF, the investor does not acquire participation units, but investment certificates which are transferable securities under Polish law. This means that an investor interested in participating in a CEIF may subscribe to investment certificates at the time of initial or subsequent issue of such certificates or purchase them from the existing CEIF participant. The investment certificates may also be admitted to trading on a regulated market or to an alternative trading system.

It is important to note that in the case of CEIFs, the possibility of exiting the investment by redemption of the investment certificates is only allowed in the cases specified in the CEIF’s statute. In the case of non-public CEIFs, the transferability of the investment certificates may be restricted to a certain extent, but cannot be excluded.

AICs

The AICs can be set up as:

• a commercial company such as a limited liability company, a joint-stock company, or a European company; or
• a partnership (limited partnership, or limited joint-stock partnership).

With the exception of European companies, the rules of operation of the above entities are regulated by the Polish Commercial Code – with certain modifications provided for in the IFA – and are registered with the Polish Commercial Register.

If the AIC is a limited liability company or a joint-stock company, it is a so-called “internally managed” AIC. Funds are placed by investors in an “internally managed” AIC and are then managed by such AIC – there is no separate AIF manager (AIFM).

If the AIC is a partnership company, it is a so-called “externally managed” AIC. Funds are then invested in the partnership, while the partnership is managed by its general partner – which is a separate limited liability company or joint-stock company.

AICs are established directly by their investors (an “internally managed” AIC) or by the investors and an AIFM (an “externally managed” AIC). AICs must be established as AIFs. It is not possible for an already operating legal entity to obtain AIF status at a later date.

Regulatory Approvals Applicable to SOEIFs and CEIFs

In principle, SOEIFs or CEIFs can be established with the approval of the PFSA, which is granted in the form of a decision following the completion of the relevant administrative procedures. In addition, both SOEIFs and CEIFs can only be established by the IFC, which acts as an AIFM. The IFC is a licensed entity whose activities, including those related to the management of the investment funds, are subject to strict supervision by the PFSA.

In the case of non-public CEIFs, the simplified procedure applies and the approval of the PFSA is not required for the establishment of such a CEIF, but the PFSA must be notified of its registration.

Investment Limitations Applicable to SOEIFs and CEIFs

The sole business of SOEIFs and CEIFs is to invest in the categories of the assets specified by the IFA. The IFA also provides for diversification requirements which vary depending on the character of the relevant investment fund.

For example, CEIFs may invest in transferable assets such as:

• securities;
• shares in the limited liability companies;
• currencies;
• money market instruments;
• receivables (other than receivables from natural persons); and
• real properties.

The crucial diversification requirement for CEIFs is that the aggregate value of securities or financial instruments issued by a single entity, receivables from that entity, and shares in that entity may not exceed 20% of the value of the CEIF’s assets. The threshold is higher (25%) for real properties forming the CEIF’s portfolio.

Regulatory Approvals Applicable to AICs

The AIFM of the AIC is required to obtain a licence issued by the PFSA. In the case of “internally managed” AICs – where there is no separate AIFM – the licence must be obtained by the AIC itself.

A licence is not required and simplified procedure of registration with the PFSA applies instead, providing that the total value of the investment portfolios of:

• AICs which are “externally managed” by the same AIFM; and
• “internally managed” AICs,

do not exceed EUR100 million or EUR500 million providing that the AIFM manages only companies/partnerships that do not use AIF leverage and in which participation rights may be repurchased after at least five years from their acquisition. The vast majority of the AICs existing in the market are established and registered in a simplified procedure.

Lack of Investment Limitations Applicable to AICs

There are no statutory diversification requirements for AICs. However, the AIC’s investment policy adopted by AIFM shall specify the rules of diversification of the AIC’s portfolio.

Reporting Obligations

AIFs are subject to a number of reporting requirements, in particular arising from the AIFMD and IFA.

SOEIFs are required to publish prospectuses and annual and semi-annual financial reports on their websites. These funds may also be required to publish periodic information on individual investment components. Non-public CEIFs are required to provide a range of information at the request of a fund participant, including financial reports and, if provided for in their statutes, information on individual investment components.

Offering Documents

When selling participation units of SOEIFs, issuing investment certificates of CEIFs and introducing AICs to trading on the territory of the Republic of Poland, AIFM is obliged to provide the AIF client with offering documents that should include:

• the business name, registered office, and address of the AIF;
• the name, registered office, and address of AIFM;
• a description of the objects of the AIF;
• a description of its procedures;
• a description of the main legal implications of making the investment;
• a description of the methods and principles of asset valuation;
• a description of the liquidity management; and
• description of the acquisition procedures.

Annual Financial Statements of AICs

Annual financial statements of Polish AICs must be filed in the publicly accessible electronic repository of financial documents.

AIFMs

IFCs (ie, AIFM for SOEIFs and CEIFs) are obliged to submit periodic reports to the PFSA regarding, in particular, investment activities carried out on behalf of managed entities, liquidity and risk management of such entities, and the use of financial leverage.

After the end of each financial year, the IFC is required to provide the PFSA and the participants in a given fund (upon request), with the annual report of AIF, prepared separately for each SOEIF and CEIF. A similar obligation applies to licensed AIFM of AICs.

Polish SOEIFs and CEIFs are considerate tax residents in Poland and are subject to tax at 19%, although they may benefit from an objective tax exemption. The exemption in questions does not apply to the following types of income:

• income from participation in tax transparent entities;
• interest income from loans granted to tax transparent entities;
• interest income from participation in tax transparent entities (eg, from profit participation loans);
• donations or other free or partially free of charge benefits made by tax transparent entities;
• interest (discount) income (revenues) from securities issued by tax transparent entities;
• income (revenues) from sale of securities issued by tax transparent entities; and
• income derived from real estate (buildings/part of buildings located in Poland owned or co-owned by a taxpayer, which are subject to lease/tenancy, regardless of its type).

Polish AICs may also benefit from an objective tax exemption, but it covers only capital gains sourced on disposal of shares (5% shareholding held over two years is required).

SOEIFs

SOEIFs are not allowed to lend cash. However, SOEIFs are allowed to lend dematerialised securities under certain conditions, in particular the participation of investment companies/custodian banks is required or the loan must be made within the Settlement Liquidity Security System. The total amount of securities lent may not exceed 30% of the value of the net assets of the SOEIF. The loan must also be properly collateralised.

CEIFs

CEIFs may grant cash loans up to a maximum of 50% of the value of the CEIF’s assets, provided that the amount of any cash loan granted to any single entity shall not exceed 20% of the value of the CEIF’s assets. The CEIF’s statute shall specify further conditions for the granting of loans. The CEIF may also lend securities.

AICs

There are no legal restrictions on the granting of loans by AICs, but such an activity needs to comply with the investment policy adopted by the AIC.

Digital Assets

As a general rule, Polish SOEIFs and CEIFs are not allowed to invest in cryptocurrencies. Indirect investments in shares of companies investing in cryptocurrencies are also questionable, as the PFSA has issued official warnings regarding this type of investment. In the case of AICs, investment in cryptocurrencies is not excluded, but given that AICs are subject to the supervision of the PFSA, the possibility of AICs investing in cryptocurrencies is also questionable.

Cannabis/Cannabis-Related Investments

The recreational use of cannabis is prohibited in Poland. However, the legislation does not explicitly exclude indirect investments by AIFs in companies active in the cannabis industry. Investment decisions taken with that respect should be made taking into consideration indirect risks to the AIF, including reputational risks.

Receivables Portfolios

Receivables investment funds are a special type of CEIF whose activity is mainly focused on investing in receivables portfolios. By issuing investment certificates, a receivables investment fund raises funds to purchase receivables or rights to receivables, and then collects or trades the purchased receivables or rights to receivables in order to make a profit.

AIFs may hold shares and operate through portfolio companies. In the case of non-public CEIFs, which are targeted at a narrow group of investors, it is common practice to have a number of portfolio companies, each of which is controlled by the CEIF and carries out separate business activities.

General Requirements Regarding the Domicile of AIFMs

In general, the IFA requires AIFs to be established and registered in Poland. The IFA also requires that SOEIFs and CEIFs and their AIFM, the IFC, have the same registered office and address. The IFC must be domiciled in Poland, which refers to both the incorporation and the management seat.

In the case of AICs, the AIFM must be a company incorporated in Poland, but there are no further requirements as to the actual management seat.

Activities of EU AIFMs in Poland

EU AIFMs are allowed to operate in Poland on a cross-border basis. Such operations may be carried out directly or through a branch, subject to compliance with the notification procedure to the PFSA. Such EU AIFMs are allowed to take over the management of SOEIFs, CEIFs, or externally managed AICs.

In addition, Polish AIFMs may outsource certain functions, including portfolio management, to local or foreign entities, depending on the scope of the functions to be outsourced, compliance with additional requirements imposed by the PFSA, and the obligation to obtain additional approvals from the PFSA.

There is no requirement for AIFs to employ local staff. SOEIFs and CEIFs are managed by the IFC, which acts as their governing body. In the case of the IFC itself, there is no legal requirement to appoint (or employ) Polish citizens or residents. The same applies to AICs and AIFMs of “externally managed” AICs.

However, in its official recommendations, the PFSA expects that the composition of the governing bodies of supervised entities (including AIFMs) should ensure an appropriate proportion of persons who speak Polish and have appropriate experience and knowledge of the Polish financial market.

The Depositary

Polish AIFs must have a Polish depositary that, in particular, monitors cash flows, holds the AIF’s assets, or maintains the asset register. This role can only be performed by selected regulated entities such as financial institutions, banks, or the National Securities Depository.

Issuance Agents

Investment funds also involve agents who maintain the registers of participants (in the case of the CEIF, co-operation with so-called issuance agents is mandatory). The issuance agent may be an investment company (eg, Polish or foreign entity conducting its business in the territory of the Republic of Poland, authorised under Polish specific regulations to maintain securities accounts) or a custodian bank.

Entity Keeping Shareholder Register

AICs operating in the form of joint-stock or limited joint-stock partnerships are obliged to maintain a shareholder register, which can only be maintained by specialised entities (eg, entities authorised under Polish specific regulations to maintain securities accounts or notaries conducting business in the territory of the Republic of Poland).

Employment of Licensed Investment Advisers

As a general rule, an IFC must employ at least two investment advisers and one stockbroker. A licensed AIC manager should employ at least one investment adviser. In Poland, an investment advisor and stockbroker are the regulated professions on the financial market. The right to practice as an investment advisor or stockbroker in Poland is granted to persons entered on the list of investment advisors and brokers, respectively.

There are no forthcoming material changes in relation to the issues described in 2. Funds.

As there are no specific limitations related to the origin of the investors/sponsors of the AIFs in Poland (in principle other than related to AML/KYC regulations), the investors/sponsors can come from a variety of countries. Our observation is that Polish investors are the most common, but there tend to be some temporary trends in terms of geographical origin of international investors. These trends are to a certain extent related to the changing network of double tax treaties.

SOEIFs and CEIFs

SOEIFs and CEIFs may only be established and managed by the IFC, which is a specialised entity engaged in the management of investment funds and also holds a licence issued by the PFSA. The IFC can only be established as a Polish joint-stock company. The IFC itself is not a participant in the fund.

As a rule, IFCs manage several public and non-public funds with different portfolios aimed at different types of investors. In the case of non-public CEIFs dedicated to a narrow group of investors, Polish IFCs are prepared to offer tailor-made solutions. In particular, with regard to the management of the entrusted assets, the statutes of the CEIF may provide that the approval of the investors is required for investment decisions of a certain type or value. In practice, the rules of co-operation between the IFC and the investors are also set out in the separate agreement.

AICs

AICs are established directly by their investors (an “internally managed” AIC) or by the investors and AIFM of AICs (an “externally managed” AIC).

An “internally managed” AIC operates as a limited liability company, a joint-stock company, or a European company. In such a case, the AIC is also the AIFM – there is no separate entity acting as AIFM and the AIC is managed by its management board which is usually appointed by the investors.

If the AIC in question is an “externally managed” AIC, it operates in the form of a limited partnership or a limited joint-stock partnership. In this case, the investors are the limited partners/shareholders of the AIC and the management of the AIC is carried out by the AIFM which is the separate company acting as the general partner of the AIC. The AIFM of an “externally managed” AIC may operate as a limited liability company, a joint-stock limited company, or a European company.

SOEIFs and CEIFs

AIFM of SOEIFs and CEIFs – ie, the IFC needs to possess the licence issued by the PFSA: numerous legal and financial documents related to the IFC, the IFC’s capital group, and the members of the governing bodies of the IFC need to be presented to the PFSA in the process of obtaining the said licence. The IFC is also obliged to implement internal procedures related to internal control, investment decisions, financial controlling, compliance, risk management, conflicts of interest, and AML.

AICs

The AIFM of an AIC must also obtain a licence from the PFSA to conduct its business. The requirements are similar to those described above for the IFC. In the case of the registered AICs (ie, the AICs that are not required to obtain the licence – see 2.2 Fund Structures) the simplified registration procedure applies and the reporting requirements are also limited.

There are no specific local rules regarding the taxation of AIF managers.

There are no specific local permanent establishment exemptions for AIF managers.

There are no special provisions as to qualification of the Carried Interest income. The available practice is also very limited and treatment may depend on the particularities of the given Carried Interest arrangement. However, in general there are two possible options for classifying such proceeds:

• income from business activity; or
• capital gains.

Outsourcing of Investment Activities

AIFM may entrust an entrepreneur or a foreign entrepreneur (who has its registered office outside the EU) to perform activities related to its investment activity. The regulatory requirements mostly arise on the basis of IFA, Commission Delegated Regulation (EU) No 231/2013, and relevant PFSA/ESMA’s guidelines.

Importantly, the delegation of activities may not lead to the cessation of the actual management of the AIF by the AIFM.

Outsourcing Agreement

Concluding an outsourcing agreement imposes information obligations towards the PFSA. AIFM should immediately inform the PFSA of the intention to conclude an outsourcing agreement, as well as of the intention to change its scope, and then provide PFSA with information about the conclusion, change of the scope, and termination of the agreement with the insourcer.

The outsourcing agreement, the subject of which is the commission to manage the investment portfolio of AIF or its part, or the risk management, may be concluded by AIFM only with an entity subject to the supervision of the competent authority over the capital market and authorised to manage portfolios. It is worth adding that the conclusion by AIFM of an outsourcing agreement, the subject of which is the commissioning of the management of the AIF investment portfolio or its part, or the commissioning of risk management, with an entity other than the aforementioned regulated insourcer, requires the consent of the PFSA.

See 2.9 Requirement for Local Investment Managers and 2.10 Other Local Requirements.

Equity Levels

The minimum level of equity to be maintained by the IFC (which is the AIFM for SOEIFs and CEIFs) is EUR125,000 or EUR730,000 where the IFC manages portfolios of financial instruments. The IFC is also required to maintain separate equity levels set out in the IFA, which vary according to the results and value of the assets under management.

For a licenced AIFM of an “externally managed” AIC, the minimum equity to be maintained is EUR125,000 and for an “internally managed” AIC it is EUR300,000. As in the case of IFCs, the separate equity level requirements set out in the IFA must be met.

In the case of the IFC (which is the AIMF for SOEIFs and CEIFs), the notification procedures apply if the relevant entity intends to acquire a shareholding (or voting rights) of more than 10%, 20%, one-third, or 50% in the IFC. The same applies to the anticipated acquisition of direct or indirect control of the IFC. The PFSA is entitled to object to the intended change in shareholding/dominance over the IFC.

The licensed AIFM of the AIC shall notify the PFSA of significant changes in its shareholder structure. The PFSA may take special measures, such as prohibiting the acquirer of the AIFM’s shares from exercising voting rights, if the change of control could lead to instability in the management of the AIC.

There are no forthcoming anticipated changes in relation to the issues described in 3. Fund Managers.

AIFs include entities with different types of investment strategies, attracting different types of investors. Formally, according to Polish regulations, there are two categories of investors.

• Retail investors – with little or no investment knowledge and experience, who are generally afforded more protection.
• Professional investors – who have the experience and knowledge to make appropriate investment decisions and properly assess the risks associated with those decisions.

In principle, all investors in AIFs should have equal rights. There are also legal requirements regarding the content of constitutional documents, terms of issue, etc, which are additionally subject to review by the PFSA. However, side letters are not excluded.

In the case of CEIFs dedicated to a limited number of investors, separate co-operation agreements are entered into from time to time between all investors and the IFC. In the case of AICs, investor agreements are in place to address issues such as contributions and exit rules.

There is no requirement to report or disclose such agreements to the PFSA, but the PFSA and other competent authorities may request access to such documentation in the course of inspection activities.

To date, AIF can still be marketed to both:

• professional clients, generally understood as a person that has the knowledge and experience to make the right investment decisions and properly assess the risks involved in those decisions; and
• retail clients, generally understood as a non-professional client, but only if the participation rights of that EU AIF are securities offered to the public, with the exception of a public offer that does not require preparation of a prospectus. (That means that it is not possible to distribute and market SOEIFs.)

Local investors as for now can still invest in the AIFs in our jurisdiction, provided they meet the criteria of the retail/professional clients as described above.

Rules that apply to marketing units/shares of EU AIF in the territory of Poland, demand establishing adequate technical and organisational solutions ensuring the following.

• The proper transfer, take-up, and repurchase of the units/shares of the EU AIF in the territory of Poland pursuant to internal regulations of the EU AIF for the investors – access to the information regarding acquisition, take-up, or repurchase of units/shares of the EU AIF in the territory of Poland, making payments of the amounts related to repurchasing the units/shares of the EU AIF, and other general information referred to in IFA.
• The possibility of exercising rights related to the investment in units/shares of the EU AIF, including lodging complaints, together with easy access to procedures and information concerning the exercise of investors’ rights, including the right to complaints, to participants – making accessible the information concerning the obligations of the EU AIF fulfilled through the established technical and organisational solutions – on a durable information carrier – information exchange with the Polish Financial Supervision Authority.

In addition to that, general legal provisions related to unfair market practices or consumer protection will apply.

An investment fund may, by means of a contract concluded in writing, entrust a natural person, a legal person, or an unincorporated organisational entity to act as an intermediary in the name and on behalf of and for the account of the investment firm on a regular or periodic basis in relation to the activities carried out by that investment firm (agent for the investment firm). Agents may also be subject to a licensing regime and their scope of activities may be limited, depending on an individual case.

The remuneration policy should ensure a flexible policy regarding remuneration components dependent on results, including the possibility of non-payment, withholding, and refund.

Polish tax resident investors are, in principle, taxable on the distributions of the AIF and capital gains from a disposal/redemption of participation units/investment certificates/shares of AIF. The applicable tax rate is 19% on gains. Non-resident investors may be taxed in Poland in certain cases (in particular, if the given investment certificates are listed on the Warsaw Stock Exchange). In such cases, taxation may be mitigated subject to the availability of Double Tax Treaty protection and its provisions. Some rules apply to all investors, however, some exemptions are available.

Resident pension funds are exempt from tax irrespective of the source/type of income (ie, subjective exemption). Resident investment funds may benefit from a similar exemption (if they are of open-ended nature) or an objective exemption (where some types of income are not covered, eg, interest income from securities issued by tax transparent entities).

With regards to non-resident entities, similar exemptions are applicable to pension and investment funds, although some additional requirements are applicable (eg, being considered as body corporate for tax purposes in the country of incorporation or having an external licensed asset management company).

In general, AIFs are considered bodies corporate for tax purposes in Poland and as such should be able to obtain a Polish tax residency certificate, which should allow them to claim Double Tax Treaty protection.       

FATCA Compliance

Financial institutions operating in Poland (including the IFCs) are obliged to co-operate with Polish and American tax institutions in order to implement FATCA requirements. These obligations are imposed by:

• the Act of 9 October 2015 on the implementation of the Agreement between the Government of the Republic of Poland and the Government of the United States of America on improving the fulfilment of international tax obligations and the implementation of FATCA legislation; and
• the Agreement between the Government of the Republic of Poland and the Government of the United States of America on improving compliance with international tax obligations and implementing FATCA legislation, and the accompanying Final Arrangements, signed in Warsaw on 7 October 2014.

The main obligations arising from FATCA for the IFCs are:

• identifying the so-called “American” persons who have tax obligations in the United States; and
• annual submission of information about the accounts of these American persons to the body authorised by the Minister of Finance.

CRS Compliance

CRS was implemented in Poland based on the Act of 9 March 2017 on the exchange of tax information with other countries. Under this law, the issuer is required to collect information regarding certain account holders and to report such information to the local tax authorities.

AML Regime

AIF and the AIFM are institutions obliged to counteract money laundering and terrorism financing. The basic regulatory requirements of the AIF and AIFM include the appointment of an employee responsible for the entity’s compliance with the AML/CFT regulations and reporting notifications to the General Inspector of Financial Information (GIFI) or law enforcement authorities, implementation of the internal AML/CFT procedure, whistleblowing procedure and group procedure (should there be more than one obligated institution in the group), applying financial security measures towards clients, or conducting training for employees and associates who are responsible for AML/CFT processes at AIF/AIFM.

KYC Obligations

In the case of KYC processes, the AIF/AIFM is obliged in particular to establish and verify basic data about the client and the client’s beneficial owner, verify the client’s and beneficial owner’s PEP status, and check the CRBR register and monitor the conducted transactions with the clients.

The KYC process involves the analysis and assessment of the risk of money laundering and terrorist financing generated by a given client. In the case of high-risk clients, the provisions of the Polish AML Act impose additional obligations on the AIF/AIFM (eg, obtaining consent from management to establish/continue a relationship with the client, more frequent monitoring of the client’s transactions, or determining the source of the client’s assets).

Reporting Obligations

AIF/AIFM is also obliged to report suspicious client transactions to the GIFI.

An important requirement is to prepare a risk assessment generated by the AIF/AIFM, under which the entity should demonstrate the extent to which it is exposed to money laundering and terrorist financing.

Investment funds that are processors of personal data within the meaning of GDPR are not obliged to comply with the data-access obligations to the extent that this is necessary for the proper performance of AML/CFT and crime prevention tasks. The practical meaning of this provision is to remove the exclusivity of access to personal data by the data subject whose personal data is being processed by the controller.

Investment funds are obliged to implement technical and organisational conditions ensuring the safety and continuity of the business and its proper performance.

Soon, a number of changes to key financial market acts will enter into force (the Act on the development of the financial market and investor protection). The changes are aimed at ensuring the development of the financial market and investor protection and will also affect investment funds, in particular AICs and their managers.

The entry into force of the amendment will involve, among other things, the need to review the rules for collecting remuneration for the distribution of participation units/investment certificates or methods of financing of AICs as well as inclusion of a restriction on the marketing of participation rights of AICs for retail clients.