White Clarke Group Poland Asset and Auto Finance Country Survey 002

7/28/2019 White Clarke Group Poland Asset and Auto Finance Country Survey 002

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ASSET FINANCE INTERNATIONAL

IN ASSOCIATION WITH

WHITE CLARKE GROUP

White Clarke Group

Poland Asset and Auto Finance

Country Survey


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White Clarke Group

White Clarke Group is the market leader in sotware solutions and business

consultancy to the automotive and asset finance sector or retail, fleet and

wholesale. WCG solutions enable end-to-end credit processing and

administration to streamline business practice, cut operational cost and

deliver outstanding customer service. WCG has a twenty year track record o

leadership and innovation in finance technology, consultancy and new market

entry. Clients value WCG industry knowledge, market intelligence and

innovation. The company employs some 500 finance and technology

proessionals, with ofces in the UK, USA, Canada, Australia, Austria and

Germany.

White Clarke Group publish the Global Leasing Report, which is part o The

World Leasing Yearbook. To download a copy please go to:

http://www.whiteclarkegroup.com/downloads/view/global_leasing_report_2012

Acknowledgements

Brendan Gleeson, executive vice president, White Clarke Group; Andrzej

Sugajski, director general, Polish Leasing Association; Arkadiusz Etryk,

president, Raeisen Leasing Polska; Wojciech Rybak, chie executive ofcer,

Millenium Leasing; Tomasz Kukulski, CEO, Siemens Finance Poland; Jacques

Fenwick, vice president, Europejski Fundusz Leasingowy; Radoslaw Wozniak,

vice president, Europejski Fundusz Leasingowy; Robert Bienkowski, board

advisor, BRE Leasing; Marius Kurzac, general manager, NG Lease (Polska);

Robert Wisniewski, head o property (capex) leasing, BNP Paribas Leasing

Solutions; Mikolaj Grzegorczyk, head o development and marketing at BNP

Paribas Leasing Solutions; Peter Kainradl, managing director, Germany and

Austria, White Clarke Group; Tomasz Sudaj, market strategy director at BZ

WBK Leasing; Janusz Kowalik, managing director, Arval Service Lease Poland;Slawomir Wontrucki, managing director, Leaseplan Fleet Management

(Polska); Artur Sulewskii, commercial director, Leaseplan.

http://www.whiteclarkegroup.com/

http://www.assetfinanceinternational.com

Publisher: Edward Peck

Editor: Brian Rogerson

Author: Nigel Carn

Asset Finance International Ltd.,

39 Manor Way,

London SE3 9XG

UNITED KINGDOM

Telephone:+44 (0) 207 617 7830

Asset Finance International, 2013, All rights reserved No part o this publication may be reproduced or usedin any orm or by any means graphic; electronic; or mechanical, including photocopying, recording, taping or

inormation storage and retrieval systems without the written permission rom the publishers.

POLAND ASSET ANDAUTO FINANCE SURVEY


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Contents

Introduction 4

The leasing market in Poland 06

Types o provider 06Regulatory issues 07

2012 industry highlights 07

Commentary rom Polish Leasing Association 08

New business volumes 10

- Vehicle 11

- Plant and machinery 11

- IT 12

- Air, rail and shipping 12

Economic overview 6

GDP Growth 12

Inflation 15Inward investment 16

Economic outlook 17

Projected GDP and price growth 17

Global competitiveness index 19

Stage o development 22

Industry view o the leasing market 23

Current economic situation 23

Future growth 24

Auto sector 29Growth prospects 30

Leasing in Poland - potential tax traps and benefits 32

Slawomir Dawidowicz, DLA Piper

Accounting or leases 35

KPMG Poland

CHINA ASSET ANDAUTO FINANCE SURVEY


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Introduction

In recent years Poland has experienced the astest economic growth in the EU,

and is increasingly acknowledged as a major player in it. The country has a large

population o over 38 million, with solid institutions and a diversified economy.

Importantly, Poland's financial system survived the global financial crisis without

suering serious damage, although the knock-on eects o the recession and

continuing problems in the eurozone have been unavoidable. This aspect o the

economic downturn in particular has had an adverse eect on businesses,

particularly in the small and medium-sized enterprise (SME) sector.

The vast majority o the country's businesses are SMEs, which orm the backbone

o the economy and are the firms most likely to consider access to unding

through leasing rather than traditional bank loans. Such loans orm the bulk o

asset finance in Poland, but their availability is being gradually reduced, especially

or SMEs.

Probably the element within the SME segment that is most susceptible to lendingrestrictions and tighter conditions is microenterprises. This business sector

generates 30% o Polish GDP but is being eectively excluded rom access to

financing other than leasing.

Fortunately or these many businesses, they have access in Poland to an

established, relatively mature and competitive leasing market, which in 2012 was

estimated to be the 14th largest worldwide by new business volume (NBV).

The opportunity to play an increasingly necessary role in supporting investment in

equipment, albeit in a more restricted economic environment, is not lost on

lessors the majority o which, it must be noted, are bank-owned anyway.4


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It is acknowledged that the industry needs to promote leasing's greater

availability and flexibility compared to loans, as well as its potential to diversiy in

the uture into more consumer-oriented sectors such as individual passenger car

finance. That sort o change is or the longer term and will take place gradually,

but there are signs o the beginnings o a shit in attitudes generally, with a more

westward-looking stance being encouraged by closer ties with the EU which

may eventually lead to Poland joining the eurozone, and although nobody

seriously sees that happening beore about 2019, the act that it is viewed as

more likely than not indicates the direction Poland is taking.

Positive trends

The EU has in act been a major contributor to Poland's financial balance, with

inflows over the last unding period that ends in 2013 adding considerably to the

agriculture sector, and which has boosted the leasing industry accordingly.

Government economists and lessors alike are looking to a continuation o this

support in the next unding period.

The consensus is that the leasing market will be rather flat in 2013, but there are

several bright spots. Agriculture is expected to witness continuing strong growth,

as to a lesser extent is the passenger car sector. The construction industry, having

allen back ollowing a surge provided by preparations or the Euro 2012 ootball

tournament, should move back into positive territory, particularly i government

initiatives or housing are approved.

In the commercial vehicles sector, truck and trailer leasing are oten seen as

bellwethers o the economy, and here industry opinion overall avors an end to the

recent sharp decline and a return to growth, i slight and in what remains a

challenging situation.

With regard to regulation, the prospects also look brighter, with positive changes

to taxation legislation on VAT taking eect and developments in progress

regarding consumer leasing.

About this survey

This Country Survey aims to provide a balanced view o the equipment finance

and auto leasing market in Poland. The survey covers the ollowing areas:

A summary o leasing activity in Poland;

The current economic climate and the incentives or and constraints on

doing business in Poland;

Comment rom key industry figures on the market, its outlook and the

challenges and opportunities that ace it;

The latest developments in taxation and how these reorms aect leasing;

and

The basic requirements regarding accounting or leases.

5


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The Leasing Industry in Poland

Background

Leasing as a method o asset finance is well established in Poland and has

grown as the post-Communist economy has prospered. The Polish Leasing

Association (PLA, or ZPL Zwizek Polskiego Leasingu) was ounded in 1994and now has 32 leasing company members, plus the Polish Vehicle Renting

and Leasing Association (PVRLA, or PZWLP Polski Zwizek Wynajmu iLeasingu Pojazdw), which has the status o a collective member.

Leasing in Poland in the 2000s grew at a rate significantly aster than the

already impressive rate o economic growth, at least until 2008 when the

global slowdown began to influence new business volumes (NBV). The market

declined severely in 2009 and only started to revive towards the second hal

o 2010, mainly due to the eects o investment rom the EU, rom which the

agriculture sector and state inrastructure projects have benefited in particular.

In 2012, the provision o unding remained firmly in avor o bank-owned

lessors, which held 83% o the market, with captive companies taking a

steady 15% and leaving independents with not much more than 2% asituation that has not changed in recent years. I there is a gradual move

towards consumer leasing, as is anticipated or passenger cars at least, there

should be greater opportunities or captives and independents.

6

Funding by type o provider (PLN millions)

Company type 2008 2009 2010 2011 2012

Bank-owned lessor 26,504 17,901 20,780 24,134 23,824

Captive 4,511 3,240 3,539 4,407 4,296

Independent 717 869 624 637 585Total 31,733 22,010 25,054 29,179 28,706

Bank-owned lessor 83.5% 81.3% 83.4% 82.7% 83.0%

Captive 14.2% 14.7% 14.1% 15.1% 15.0%

Independent 2.3% 3.9% 2.5% 2.2% 2.0%

Source: Figures compiled by Asset Finance International rom data supplied by the Polish Leasing Association.


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Regulatory issues

Changes to consumer credit legislation regarding problems with lease

contracts and the transer o asset ownership are expected. This is an area in

which the PLA has been active and would acilitate the development o

consumer leasing, when it happens.

The PLA has also been involved in attempts to amend Polish taxation

legislation, resulting in a long-lasting dispute being finally resolved in January2013, when the European Court o Justice pronounced judgment regarding the

VAT taxation o insurance o the leased asset being a separate service rom

the financing.

This has a major impact on the leasing industry in Poland, as many leasing

companies have been involved in legal disputes with local tax authorities

regarding the matter. The main outcome is that the provision o insurance o a

leased asset is to be treated as a separate service, which allows VAT

exemption or it. Beore this, the Polish tax authorities claimed it was a part o

a complex service and should be taxed at the basic VAT rate (currently 23%).

This is a major breakthrough or the industry and one o its biggest successes

in recent years.

For more on this topic, please reer to the later section in this survey, 'Leasing

in Poland potential tax traps and benefits or entrepreneurs'.

2012 industry highlights

The total volume o 'movables' assets (i.e. not including real estate)

financed by leasing companies in 2012 was PLN29.8bn rising just

0.8% year-on-year compared with growth o 14.9% in 2011, and

marking the end o the period o significant growth which began in

March 2010.

In Q1 2012 there was actually YOY growth o 11.3%, but in Q2 thisdropped to 1.4%. The market then started to shrink in the second hal: -

3.8% or Q3 and -3.1% or Q4 2012.

7


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Commentary

The director general o the PLA, Andrzej Sugajski, commented on the figures

to Asset Finance International:

"2012 was a year o relative slowing down. In the first quarter at least, the

market dynamics stayed at a similar level to the latter part o 2011, with

growth o 11%. However, the subsequent quarter noted only a single-digit rise,

leading to overall growth in the first hal o 6%, and the market ell back inthe third quarter, leading to growth in Q1-3 o just 1%).

"The eect o the slowing down was especially visible in the sector o

commercial and heavy vehicles (including trailers).

"However, certain sectors o industrial machines and equipment perormed a

lot better. The new market leader was the agricultural equipment segment,

which saw a rise o 45%. Even better news came rom the catering and ood

production equipment sectors (up 66% and 62%, respectively).

Rising turnover was noted also in the sectors or metal and plastics

processing equipment (35%) and ork-lit trucks (9%).

"These positive results should be partially credited to the recent flow o EU

unding, especially visible in investments in the agricultural sector. The high

level o production capacity in Polish companies, which was 79.8% at Q3

2012, demonstrated well the development o investments in these market

segments.

"During 2012 the total volume o new business transactions or movables and

real estate financed by leasing companies amounted to PLN31.2bn, which is

0.3% more than in the previous year.

"The Polish Leasing Association estimates that 2013 will be a year o

stabilization o market development and will close with similar volumes to2012."

8


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Auto sector

The car fleet management (CFM) market in Poland can be broken down as

ollows:

The year-on-year growth rate in the CFM market between Dec 2011 and Dec

2012 was 4.5% (by comparison, the PVRLA growth rate was 9%). The CFM

market has grown consistently, more than doubling since 2006.

The number o clients in the CFM market as o 31 December 2012 was

17,340. This was a y-o-y growth rate o 3.9% over 2011.

9

The car fleet management (CFM) market in Poland

Total number o vehicles inlong-term rental (contract duration: over 24 months);

and lease (contract duration: 6-23 months) as o 31 December 2012 151,507

Leased and rented vehicles, end-2012

Vehicles in ull service leasing (FSL) 115,466

Vehicles in leasing and service (LS) 17,255

Vehicles in fleet management (FM) 14,243

Vehicles in lease (no long-term rental category) 4,543

Total 151,507

Source: KerallaResearch CFM Report 2012 (www.keralla.pl); PVRLA statistics and data analysis

Growth in CFM market

2006 2007 2008 2009 2010 2011 2012

Total vehicles 68,482 93,217 123,916 130,535 132,822 144,932 151,507


Client Growth in CFM market

2006 2007 2008 2009 2010 2011 2012

Clients 4,912 8,244 12,458 13,907 13,885 16,693 17,340



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Sector analysis

The market is quite evenly split between leasing companies, with many

involved across the sectors and business segments, whilst some specialize in

particular areas such as printing equipment, medical equipment or IT;

however, several lessors have tended to dominate the market overall, as can

be seen in the second table below.

Data comprises figures or PLA member companies plus an uplit based on an

estimate o the percentage representation o the total national leasing

market.

10

Polish leasing new business volume, 2008-12 (PLN millions)

Asset 2008 2009 2010 2011 2012 2013 Q1

Vehicles 18,624.7 12,120.4 15,897.6 16,874.4 16,856.8 4,139.8

Plant and machinery 9,717.0 7,649.1 8,536.5 10,796.5 11,132.2 2,335.9

IT 538.0 468.6 463.8 604.8 553.9 127.6

Air, Rail and Shipping 520.0 544.0 649.7 925.3 919.6 112.5

Moveables 29,653.0 20,923.3 25,696.3 29,513.4 29,757.7 6,762.4

TOTAL 32,927.2 22,996.6 27,291 31,142.1 31,225.5 7,061.8

Source: Polish Leasing Association

New business volumes - total (PLN millions)

35,000

30,000

25,000

20,000

15,000

10 000

5,000

02008 2009 2010 2011 2012


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11

New business volumes - VEHICLES total (PLN millions)

20,000

18,000

16,000

14,00012,000

10,000

8,000

6,000

4,000

2,000

02008 2009 2010 2011 2012

New business volumes - PLANT AND MACHINERY total (PLN millions)

12,000

10,000

8,000

6,000

4,000

2,000

02008 2009 2010 2011 2012


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12

New business volumes - IT total (PLN millions)

700

600

500

400

300

200

100

02008 2009 2010 2011 2012

New business volumes - AIR RAIL AND SHIPPING total (PLN millions)

1,000

900

800

700

600

500

400

300

200

100

02008 2009 2010 2011 2012


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Economic overview

Poland's economy is currently classified in the 'Emerging Europe' group.

However, it has been emerging at a pace and, although not in the top 20 in

the global league by nominal GDP, is definitely heading in that direction.

Some orecast that it will enter that club in the next ew years, although one

o the most authoritative projections, rom the Centre or Economics and

Business Research (CEBR) in its World Economic League Table 2013, has

Poland just outside but knocking on the door in 2022. The CEBR predicts that

by then Poland will have risen rom 26th place in 2012 to 21st, and overtaken

Switzerland, Sweden, Norway and Belgium in the process to become the

seventh largest economy in Europe. In the 10-year period, the CEBR estimates

an increase in Polish GDP o 75%, rom $470bn to $826bn a rate o increase

that is considerably higher than any European nation in the top 30.

A player in the EU, but not the eurozone

Such a level o growth should not be surprising, as Poland has in recent years

been the astest growing economy in the EU, and increasingly acknowledged

as a major player in it. The country has a large population o over 38m; it has

solid institutions and a diversified economy and now, more than two decades

ater the adoption o a market economy ollowing the all o Communism,

strongly integrated into the EU.

Meanwhile, Poland is not part o the eurozone, which may have helped it

avoid the worst o the global financial crisis and the Great Recession. The

strongest areas o Poland's business environment relative to its regional peers

in Central and Eastern Europe (CEE) are the size o its internal market and the

perormance o its financial system, which survived the financial crisis without

serious all-out.

13

10

5

0

-5

-10

%c

hange

2

003

2

004

2

005

2

006

2

007

2

008

2

009

2

010

2

011

2

012

2013f

2014f

GDP growth in Poland compared to Europe and Central Asia developing markets

Projections 20 2014

Europe and C. Asia

Poland

Source: World Bank


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There is a strong eeling among many politicians that joining the euro is

desirable, as Poland would then be able to exercise greater influence and

demonstrate commitment to its key trading partners. The majority o business

leaders in Poland (64%) would also like their country to join the single

currency (source: Grant Thornton, IBR 2012), although it is highly unlikely that

this will happen or some years.

However, whether in or out o the eurozone, the situation o being closely

linked to the other eurozone member states has inevitably had an eect thatis being elt right now. The Polish central bank, Narodowy Bank Polski (NBP),

stated in its March 2013 inflation report that the economy would expand by

only 1.3% in 2013, the worst perormance since 2001, although it raised its

orecast or GDP in 2014 to 2.6%, rom 2.3% predicted in the previous report

in November 2012. The Bank also stated the economic slowdown in the

second hal o 2012 was accompanied by a workorce that is stagnating in

size.

14

GDP growth in Poland by quarter

8

6

4

2

0

2007Q2

2007Q4

2008Q2

2008Q4

2009Q2

2009Q4

2010Q2

2010Q4

2011Q2

2011Q4

2012Q2

2012Q4

%c

hange

Source: Central Statistics Ofce


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The NBP lowered the base rate by hal a percentage point to 3.25% in early

March 2013, the fith decrease since November 2012, when the rate was

4.75%. Inflation rates have certainly allen, although this has been in tandem

with the general economic slowdown. February inflation figures (net o ood

and energy prices) were 1.1%, against 1.4% in both January and December,

and the consumer price index (CPI) dropped to 1.3% in February.

15

6

5

4

3

2

1

0

-1

-2

2012Q1

2012Q3

2013Q1

2013Q3

2014Q1

2014Q3

2015Q1

2015Q4

GDP Growth Breakdown

Source: NBP

Source: NBP

Consumption

Change in

inventories

GDP

Gross fixed

capital

ormation

Net exports

5

4

3

2

1

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

%c

hange

Polish inflation rate


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SME lending

The NBP said that a deceleration seen in corporate lending in Q4 2012 was

driven by a decrease in investment loans and a urther decline in short-term

loans. In its report it noted: "The tightening o lending policy aected mostly

the small and medium-sized enterprise (SME) sector. Also the decline in

demand or long-term credit was more pronounced among SMEs. As a result,

growth in lending to the SME sector in October-November 2012 was slightly

lower than that to large enterprises. In Q1 2013, both banks and enterprisesexpect a urther decrease in demand or credit among large companies,

whereas their orecasts o credit demand among SMEs diverge."

Inward investment

Poland attracted 5.2bn ($4.1bn) in oreign direct investment (FDI) in 2012,

compared with 13.6bn ($18.9bn) in 2011. The drop in 2012 has been

attributed by some to the possibility that the status o Poland's special

economic zones (SEZs, which attract a great deal o FDI) is not going

maintained beyond the current end-date o 2020, but the ofcial line is that

the Government will look to extend the lie o the SEZs. This will mean

incentives to attract companies interested in committing to such long-term

investment.

Up to now, Poland has benefited rom the economic downturn experienced by

advanced economies by attracting industrial investment rom manuacturers

that have been orced to seek savings in costs. However, the slowdown in the

EU is inevitably having an eect in Poland, particularly where multinational

corporations have been aected. One example can be seen in the auto sector,

which received a blow dealt by Fiat when it cut jobs and production targets at

its southern Poland actory in late 2012. This came in spite o Poland having

invested widely in inrastructure such as highway development, although this

should aid regional development in the longer term.

Poland has also benefited in recent years rom considerable input rom EU

structural and cohesion unds, receiving a total o 67.3bn in the current

financing period (2007-13), equivalent to nearly 3% o GDP per year. The

influence o this unding can be seen in the figures or unding or leasing in

certain sectors such as agricultural machinery shown in the previous section

o this survey. The next financing period covers 2014-20, and Poland will be

looking to continue receiving a similar level o EU support.

The Polish Agency or Enterprise Development is the body responsible or the

management o unds assigned rom the State Budget and the EU, with

priorities to support entrepreneurship and innovation, particularly among

SMEs, technology innovation and regional development. 16

FDI inflow to Poland 2001-2012

20

15

10

5

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

%c

hange

Source: NBP


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Outlook

Economic outlook

The consensus is that the slowdown in economic growth in Poland seen rom

the second hal o 2012 will continue through the first hal o 2013 as a result

o weaker domestic and external demand. However, the Organization or

Economic Cooperation and Development (OECD) predicted in its lasteconomic orecast (November 2012) that "activity should pick up again in the

second hal o 2013 and strengthen urther in 2014. Yet slack in both product

and labour markets will increase, pushing inflation below 2% in 2014. The

current account deficit should stabilize above 3% o GDP in 2014."

In its April 2013 World Economic Outlook, the International Monetary Fund

(IMF) orecast real GDP growth in Poland to decline to 1.3% in 2013, a urther

reduction rom the 2% predicted in October 2012. However, the IMF now

orecasts a rise to 2.2% in 2014. Comments made in January by David Lipton,

first deputy managing director and acting chairman o the Executive Board o

the IMF, still apply to the underlying economic situation: "Poland has very

strong economic undamentals and policy rameworks. A credible inflation

targeting regime has helped contain inflation, while the flexible exchangerate has played a key stabilizing role, and the sound financial supervisory

ramework has contributed to a well-capitalized, liquid and profitable banking

system."

He also noted: "The authorities' skilul macroeconomic management

underpinned Poland's solid recovery in 2010-11, allowing a gradual

restoration o policy buers despite the challenging external environment.

These eorts included substantial fiscal consolidation, steady reserve

accumulation, measures to mitigate risks related to oreign currency lending,

and reorms to boost long-term growth potential."

The Economist Intelligence Unit (EIU) takes a similar line: "We orecast a

urther deceleration o real GDP growth in 2013, to 1.4%, because o the

recession in the eurozone, weak domestic demand and sluggish investment

expenditure."

In its longer-term assessment, the EIU sees the potential or growth in

productivity but stagnating real GDP, commenting: "Poland still has

considerable scope to catch up with its more developed partners, and, with an

improving policy background and the gradual adoption o modern technology,

productivity growth will continue to be strong. Labour productivity growth is

orecast to be 3.3% per year over the next two decades. However, the poor

demographic outlook means that this relatively strong productivity

perormance will be insufcient to prevent a slowdown in the growth o real

GDP per head in 2012-30 compared with the early years o the 2000s."

17

GDP and price growth - Projected change (%)2013 2014

Real GDP 1.3 2.2

Consumer prices 1.9 2.0

Source: IMF World Economic Outlook (April 2013)


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It should be noted that Poland's present GDP per capita is only 63% o the EU

average ($21,000 estimated or 2012, source: CIA World Factbook).

In terms o risk ratings, the major credit rating agencies put Poland in the

upper medium grade, with 'stable' to 'positive' outlooks or the longer term.

The view is that, with economic activity expected to moderate, Polish

authorities will continue to implement economic and financial policies that

aim to promote economic growth and maintain the resilience o the banking

system, particularly against risks rom contagion rom any worsening o the

situation in the eurozone. Improving competitiveness is a priority, and the

government has introduced reorms to develop innovation in commerce and

public administration, as well as raising the retirement age.

18

Growth and productivity (% change; annual av)

2012-20 2021-30 2012-30

Growth o real GDP per head 3.5 3.4 3.4

Growth o real GDP 3.3 2.9 3.1

Labour productivity growth 3.2 3.3 3.3

Source: EIU


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Competitiveness

Slowdown

Whatever government has been doing, it has definitely been making the right

moves, as Poland heads the World Bank's list o 'Improvers' the list o top

10 improving economies in Doing Business 2013. Poland is ranked at 55

out o 185 countries, a rise o 19 places over its equivalent position in 2012

(adjusted or additional countries in the total). The higher the ranking, the

more conducive the regulatory environment is to operating a business, and

although Poland is behind its peer CEE countries o Slovakia and Hungary,

such a jump up the ranking is very impressive.

Improvements over 2012 have been in the areas o starting a business,

registering property and paying taxes, but the biggest gains were in enorcing

contracts and resolving insolvency issues. One reason or these improvements

has been through greater computerization o processes.

19

Starting a business (124)

Dealing with constructionpermits (161)

Getting electricity (137)

Registering property (62)

Getting credit (4)

Protecting investors (49)

Paying taxes (114)

Trading across borders (50)

Enorcing contracts (56)

Resolving insolvency

How Poland and comparator economies rank on the ease o doing business

How Poland ranks on Doing Business topics

Denmark

Germany

Regional Average

Slovak Republic

Hungary

Poland

Czech Republic

Bulgaria

0 20 40 60Source: Doing Business database


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Poland's strongest areas include ease o getting credit, resolving insolvency

issues, investor protection, and cross-border trade. On the WB criteria, Poland

is in act superior to its powerul economic neighbor and major trading partner

Germany in the areas o ease o getting credit and investor protection.

Poland's weakest areas include organizing construction permits and starting a

business (i.e. the bureaucratic basics).

How Poland and comparator economies rank on the ease o getting credit

Competitiveness

Looking at the macro- and microeconomic productivity actors that orm the

basis o the World Economic Forum's Global Competitiveness Report or 2012-

13, Poland is placed in the group o relatively advanced economies intransition rom being 'efciency driven' to 'innovation driven' and is ranked

41st overall a position that has remained airly stable over the last three

years.

The report notes that Poland "displays a airly even perormance across all 12

pillars o competitiveness. Notable strengths include its large market size

(19th) and high educational standards, in particular its high enrolment rates (it

is ranked 20th on the quantity o education sub-pillar). The financial sector is

well developed (37th), and confidence in the banking sector has been

increasing or a number o years to rank 14th this year. Indeed, banks are

assessed as more sound than they were only three years ago, although

additional strengthening will be necessary given the country's still mediocre

57th rank on this indicator."

Although, as previously mentioned, investment has been made in roads, the

report says that transport inrastructure overall is in need o significant

upgrading in order to improve connections between dierent regions in the

country.

20

Poland

Slovak Republic

Germany

Denmark

Bulgaria

Regional Average

Hungary

Czech Republic

Ease o getting credit (1 is best)

0 15 30 45 60


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Poland's position in the Global Competitiveness Index, 2012-

2013

GCI 2012-2013 Rank/144 Score/7

GCI 2011-2012 (out o 142) 41 4.5

GCI 2010-2011 (OUT OF 139) 39 4.5

Basic requirements (28.7%) 61 4.7

Institutions 55 4.1

Inrastructure 73 3.9

Macroeconomic environment 72 4.6

Health and primary education 43 6.0

Efciency enhancers (50.0%) 28 4.7

Higher education and training 36 4.9

Goods market efciency 51 4.4

Labour market efciency 57 4.5

Financial market development 37 4.6

Technological readiness 42 4.7

Market size 19 6.1

Innovation and sophistication actors (21.3%) 61 3.7

Business sophistication 60 4.1

Innovation 63 3.3

Source: Global Competitiveness Report 2012-2013, World Economic Forum,

Switzerland

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The most commonly cited constraints to conducting business, as perceived by

Global Competitiveness Report respondents, relate to government and fiscal

regulations and restrictions. It is interesting to see that, although the World

Bank research above shows that getting credit is one o the most positive

aspects o doing business in Poland, access to financing is given as one o the

more problematic actors. The tightening o lending conditions introduced by

banks in the final quarter o 2012 might have contributed to the slowdown incorporate lending. It may be that the most commonly approached financial

institutions are not always the most cooperative.

22

Inrastructure

Macroeconomic environment

Health and primary education

Higher education

Goods and market efciency

Labour market efciency

Financial market development

Technological readiness

Market size

Business sophistication

Innovation

Source: Global Competitiveness Report 2012-2013, World Economic Forum, Switzerland

Poland Economies in transition rom 2-4

The most problematic actors or doing business

Tax regulations 20.4

Restrictive labour regulations 13.6

Inefcient government bureaucracy 13.4

Tax rates 11.5

Access to financing 10.3

Inadequate supply o inrastructure 8.2

Insufcient capacity to innovate 5.9

Inadequately educated workorce 3.2Poor work ethic in national labour orce 2.8

Inflation 2.7

Corruption 2.6

Policy instability 2.1

Poor public health 1.3

Government instability 1.1

Crime and thet 0.5

Foreign currency regulations 0.4

Source: Global Competitiveness Report 2012-2013, World Economic Forum,

Switzerland


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Leaders' insights

Asset Financial International spoke with senior executives at major equipment

and auto lessors in Poland to gain an assessment o the current state o the

market, the opportunities and challenges it aces in the near and medium

term, and opinions on the market's growth prospects.

The eect o the current economic situation on the market

The general view is that, although Poland has managed to steer clear o much

o the financial trauma o recent years, it is inevitably eeling the knock-on

eects o the economic slowdown, particularly rom its closest trading

partners in the EU. Currently, its financial institutions are in relatively good

shape and there are plenty o opportunities or businesses o all sizes.

However, the economy has slowed rom the second hal o 2012, and rom a

leasing point o view the position was summed up by Arkadiusz Etryk,

president o Raieisen Leasing Polska and chairman o the Executive

Committee o the Polish Leasing Association (PLA), who said:

"

Leasing in Poland has always been inseparable rom investments. Their drop

in the second part o 2012 has contributed largely to the visible slowing down

in the leasing market."

Arkadiusz Etryk, President o Raieisen Leasing Polska, chairman o the

Executive Committee o the PLA.

The link with investment was also made by Wojciech Rybak, chie executive

ofcer o Millennium Leasing, who pointed out that leasing is closely

connected to new business investment, as leasing to individuals in Poland is

only o marginal importance. He commented: "The leasing market is rather

flat due to low and decreasing willingness to invest," adding that, according

to Polish National Bank data, "34% o companies plan to start new important

investments in 2013 compared to 38% some 12 months ago; 25% o

companies aim to increase investments versus 35% orecasting a decrease

(respectively, 33% and 28% 12 months ago)."

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This was taken up by Tomasz Kukulski, CEO o Siemens Finance Poland:

"Poland's GDP increased by circa 2.0% year-on-year in FY2012, according to

the first ofcial estimates published in January 2013. The data shows an

economic slowdown in growth compared with 2011, where GDP grew by

4.3%. Accordingly levels o capital expenditure also slowed in 2012 to under

1%, reducing the demand or leasing in Poland to circa 1% growth in 2012

(ollowing a buoyant demand or leasing in 2011 o circa 15%)." He continued:

"Growth in GDP is predicted to be slightly below 2% or 2013, and capex

growth at 1.75%; thereore the growth in demand or leasing is likely to be

somewhat subdued, particularly within the negatively impacted construction

industry."

Tomasz Kukulski, CEO o Siemens Finance Poland.

Worsening conditions or businesses

It is worth noting here the one-o eect o Poland being co-host o the Euro

2012 ootball competition, which involved much construction and related

work prior to kick-o in June.

As Jacques Fenwick, vice president o Europejski Fundusz Leasingowy (EFL)

stated in relation to the market contraction in the second hal o the year,

"The situation in the leasing sector was influenced by the end o the work

associated with preparations or Euro 2012. The reason or the growth o leasecontracts was caused by the need to supplement and develop machinery

parks, as a result o increasing capacity utilization."

Jacques Fenwick, vice president o Europejski Fundusz Leasingowy (EFL).

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His ellow vice president at EFL, Radosaw Woniak, pointed out that

"the weakening o the Polish economy and the significant slowdown in the

European economy is also reflected in this sector."

Radosaw Woniak, vice president o EFL.

Difculties in sectors such as construction that are closely linked to broader

economic conditions were also noted by Robert Biekowski, Board Advisor atBRE Leasing, who said:

"

Poland's economy is still one o the most attractive in Europe, but recently

has slowed aster than predicted. In the current year the increase in leasingwill be curtailed by reductions in companies' investments, declining exports

due to the eurozone recession and growth in unemployment. Additionally, the

worsening financial condition o some entities may aect positive results in

the leasing industry with the probability o bankruptcy (e.g. in the construction

sector)."

Robert Biekowski, Board Advisor at BRE Leasing.

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Mariusz Kurzac, general manager o ING Lease (Polska) continued the theme:

"The first two quarters o 2013 are not expected to be easy. We do not see a

lot o large leasing transactions and we see a slowdown in the auto industry,"

but added, "However, medium-sized companies still continue their

investments and there are some sectors like IT, rail and the ood industry with

a lot o potential in 2013."

Mariusz Kurzac, general manager o ING Lease (Polska).

A similar view was provided by Robert Winiewski, team head o Property

(Capex) Leasing at BNP Paribas Leasing Solutions, who said that all the

indicators rom Q4 2012 and orecasts or Q1 2013

"suggest a urther decrease in business investment companies plan to

spend less on fixed assets in 2013 than a year earlier. This is due to the act

that in most cases investments planned or the current year will involve

replacing existing assets, which usually requires a smaller amount than when

the company is expanding, or perhaps involve the use o better and more

advanced technology."

Robert Winiewski, team head o Property (Capex) Leasing at BNP ParibasLeasing Solutions.

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His colleague Mikoaj Grzegorczyk, head o Development & Marketing,

continued:

"Businesses still have problems with payment backlogs. Interest on credit, as

well as the number o borrowers, remains low, and the newly acquired unds

are needed primarily to finance current operations. The availability o bank

credit has not changed in the last three months and has remained low relative

to the same period o the previous year."

Mikoaj Grzegorczyk, head o Development & Marketing at BNP Paribas

Leasing Solutions.

Meanwhile or Tomasz Sudaj, market strategy director at BZ WBK Leasing,

"I the adverse macroeconomic trend is not reversed, it will be difcult to

expect a recovery in the leasing market in 2013." However, he noted, "The

first quarter o 2013 ended with a positive result (3.3% in total, movables

+0.8%), despite the negative orecasts taking into account market dynamics,"

which was "a better-than-expected start o the year," as market orecasts had

predicted the first quarter would be the worst time or the market, and only

ollowing this would there be gradual improvement. Despite such a relatively

positive start to the year, Sudaj stressed continuing concerns that "the market

situation is still rather unstable, and the negative growth in the area o

Machinery & Equipment clearly indicates the decrease in entrepreneurs'

interest in key investments that would increase production capacity."

Tomasz Sudaj, market strategy director at BZ WBK Leasing.


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Strong undamental actors

However, there are still reasons to stay bullish. Kukulski stressed: "There

remains an opportunity or leasing companies in Poland to continue to play an

important role in supporting necessary investment in equipment albeit in a

slower growth environment."

And Rybak emphasized that

"Economic growth actors are positive in Poland. As the portolios o leasing

companies are o good quality, all major companies are profitable and I would

not expect changes."

Wojciech Rybak, chie executive ofcer o Millennium Leasing.

A urther positive actor was pointed out by Peter Kainradl, managing director,

Germany and Austria at White Clarke Group, who said:

"It should be noted that Polish enterprises tend to react quickly to changing

macroeconomic conditions. In this situation o a noticeable slowdown in

economic growth and potential macroeconomic instability, there are many

Polish businesses that are still able to invest."

Peter Kainradl, managing director, Germany and Austria at White Clarke

Group.

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Eects on the auto sector

The vehicle market in Poland, like any other, has been aected by the

economic slowdown in Europe, but the leasing sector has ared much better.

An overview was provided by Janusz Kowalik, managing director o Arval

Service Lease Poland and Member o the Board o the Polish Vehicle Rental

and Leasing Association (PVRLA), who noted that

"the current crisis eeling in the country is certainly justified. The near-term

outlook or the domestic economy remains very sot, given rising

unemployment, tighter fiscal policy and much weaker credit growth."

Janusz Kowalik, managing director o Arval Service Lease Poland and Member

o the Board o the Polish Vehicle Rental and Leasing Association (PVRLA).

But he pointed out that, despite the drop in the overall auto business caused

by the slowdown, vehicle lessors such as Arval have managed to maintain

fleet volumes.

This was taken up by ellow PVRLA Board Member Sawomir Wontrucki,

managing director o LeasePlan Fleet Management (Polska), who said:

"Most o the key players at least in my opinion are doing well. Our business

due to its nature comprised mainly o contracts o 36-42 months is not that

badly aected by the economic situation."

Sawomir Wontrucki, managing director o LeasePlan Fleet Management

(Polska) and PVRLA Board Member.

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His LeasePlan colleague, commercial director Artur Sulewski, added:

"Although car sales are down, the number o lease companies' customers

continues to increase. Taking into account the results o the long-term lease

sector in 2012 (an increase o 9%), we can say that the direction taken by the

car fleet management (CFM) sector is correct. In difcult times it is crucial or

customers to minimize risks associated with fleet management and to have

the ability to transer them to the supplier. From the entrepreneurs' point o

view it is also important that they do not have to reeze their unds. "

Artur Sulewski, commercial director at LeasePlan.

Regarding the overall status o the market, Wontrucki commented: "The

majority o our business is still corporate (including international/global) and

local companies. The market potential, although statistics are not reliable,

may extend to 500,000 cars excluding light commercial vehicles. The current

penetration is around 150,000 cars." This certainly indicates room or growth,

and in addition, as Wontrucki points out, "The public sector remains an

opportunity or the uture."

Growth prospects

The consensus view on overall prospects or growth in the market in the

coming year was that it will be flat, as summed up by Mariusz Kurzac, who

said: "In 2013 we do not expect ast growth o the leasing market in Poland. Iwe repeat the figure or 2012 the industry will recognize it as a success."

Wojciech Rybak stated that he sees the market staying in positive territory or

2013, and does not see it taking o again rapidly in the medium term: " In a

three-year perspective I expect market to stay in 0-5% growth."

With regard to the auto market, Sawomir Wontrucki also anticipates a slow

rate o growth or both near and medium term,

"up to 5% this year and or ollowing years at more or less the same pace,

unless the State imposes austerity measures and actions."

Sawomir Wontrucki, managing director o LeasePlan Fleet Management

(Polska) and PVRLA Board Member.

Artur Sulewski sees a stable situation with solid prospects: "Although the

national economy is inhibited, the CFM industry is not threatened by

stagnation. Depending on economic growth CFM may hover around 10%,"

which has been the rate o expansion o the LeasePlan parc. In terms o the

market's ultimate size, Sulewski suggested "the saturation level is large and

estimated at 500,0001m rental vehicles, but achieving ull saturation will

take more than 10 years."

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A more moderate view was taken by Arval's Janusz Kowalik, who said:

"Despite significant drops in many business sectors across various markets in

Poland, ull service leasing remains positive and will slowly rebound; however,

it's ar too optimistic to expect a return to 10% growth like in previous years.

Recent economic considerations will definitely shape a 'price market', but

hopeully also a quality-related environment."

Comments were made about the Polish market in relation to its regionalemerging market neighbors in Central and Eastern Europe (CEE), where growth

has been similarly impressive up to 2011 but has since witnessed a slowing

down. Arkadiusz Etryk made the point that,

"In 2011 the Polish leasing market saw growth o 14%, with a 15% growth

rate across the CEE region. It appears that 2012 and the whole economic

downturn period will show a similar relation. However, it is important to stress

that the Polish market seems to be much more stable in comparison to the

rest o the countries in the region."

Arkadiusz Etryk, President o Raieisen Leasing Polska, chairman o the

Executive Committee o the PLA.

The Polish market is the largest in the CEE region, and market leader with

Russia in the wider emerging markets region that includes Russia and the

Baltic States o Estonia, Latvia and Lithuania. Looking at medium-term

prospects, Robert Biekowski estimates that "Within the next two to threeyears, Russia should orm almost 50% in the region's leasing market, Poland

about 20%." In terms o growth rates, or Poland, "we expect a single-digit

increase and the volume market growth will not exceed 7% CAGR."

This opinion was echoed by Mikoaj Grzegorczyk, who emphasized that

"Poland is doing very well compared to other CEE countries. Poland is one o

the countries that was well prepared or the crisis. In our opinion, the

economic slowdown will not have a bad impact on the leasing market, andPoland will record one o the biggest growth rates among CEE countries,

except maybe Russia, where the potential or development is even greater."

Mikoaj Grzegorczyk, head o Development & Marketing at BNP Paribas

Leasing Solutions.

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Leasing in Poland potential tax traps and benefits or

entrepreneurs

For many years leasing has been gaining popularity among Polish

entrepreneurs as a flexible and efective way o financing business activity.

Currently, the ofering rom Polish lessors is wide and the awareness o

businesses is high. In this article, Sawomir Dawidowicz addresses a ew o the

most important technical aspects o tax settlements o leasing agreementswhich may be useul or firms planning to enter into such an agreement.

Although leasing as a method o financing has been present or many years in

the Polish economic environment, it may still cause difculties rom the tax

perspective. Both on the Corporate Income Tax (CIT) and Value Added Tax

(VAT) level, there are strict regulations which have to be ollowed in order to

avoid exposure to a tax risk.

From the tax perspective, leasing agreements, just as or accounting purposes,

are divided into financial and operational leasing. However, the qualification

o leasing agreements or tax purposes varies rom what is made or

accounting purposes. Thereore, the same agreement may be classified as

financial leasing or accounting purposes and operational leasing or taxpurposes. Due to this dierence, the tax result will most likely be dierent

rom the accounting result and certain changes have to be made in the

annual CIT reconciliation, as well as monthly or quarterly advance tax

payment obligations.

CIT requirements

Another element which an entrepreneur should pay attention to beore

entering into a leasing agreement is a confirmation that such an agreement in

act ulfils the requirements o the CIT Act to be classified as a leasing

agreement. It is important or lessors o passenger cars, e.g. fleet operators.

The Polish CIT Law allows treatment o costs related to the use o personal

cars only in ull as tax deductible i such a car is owned by a taxpayer or a

taxpayer is using it based on a leasing agreement (considered as such based

on the Polish CIT Law). In any other case, e.g. i the car is used by a taxpayer

based on a rent agreement, the amount o expenses which may be considered

as tax deductible is limited. Consequently, even i the agreement is named as

a leasing and is classified as such, e.g. or accounting purposes, not meeting

requirements set in the Polish CIT Law will result in limitation o tax

deductibility o costs related to the use o such a car (i.e. rent ee, uel,

insurance, etc).

Moreover, the limit o costs in such a case results rom the mileage register

which a taxpayer is obliged to set up. Such a register requires enteringdetailed inormation, such as a description o routes made (the beginning and

the end o a route), travel dates, vehicle mileage. The sum o kilometers

presented in such a register is then multiplied by a value set in special

provisions (currently approx. 0.2 per kilometer). I no mileage register is set

up, no costs related to the use o such a car may be considered as a tax-

deductible cost.

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As a consequence, i an agreement is questioned by the tax authorities as a

leasing agreement and the taxpayer does not have a mileage register, the ull

value o expenses incurred or the use o such a car will probably be

questioned by the tax authorities. This might be a material amount or fleet

operators. As the tax risk in the above respect is on the lessees only, many

lessors in particular smaller ones do not pay attention to the wording o

the agreements and expose their customers to tax risks. Thereore, beore

entering into a leasing agreement o a passenger car, it is important to veriy

i such an agreement is in line with the Polish CIT Law.

Entering into leasing agreements, apart rom being the preerred orm o

financing or the lessee, has an additional advantage or those planning to use

passenger cars with an initial value exceeding 20,000.

The Polish CIT Law limits tax deductibility o passenger cars to an initial value

o the above amount. More expensive cars would not be eligible or deduction

o revenues on the ull amount paid. Using such a car based on a leasing

agreement may be more avorable as the Polish CIT Law does not have any

limitations in this respect. Consequently, businesses that plan to purchase a

passenger car or more than 20,000 should consider leasing it.

VAT implications

Apart rom CIT implications which should be taken into account when

entering into a leasing agreement, there are also certain VAT implications that

should be careully verified.

The classification o the leasing agreement or VAT purposes ollows the

classification which is made under the Polish CIT Law. The agreement which is

classified as financial leasing under the CIT Law (i.e. the agreement according

to which depreciation write-os are made by a lessee) is considered or VAT

purposes as a delivery o goods. Operational leasing, or instance, is classified

as provision o services. The main and most important dierence in that

classification is the moment when VAT has to be paid and its amount. In thecase o financial leasing, the ull VAT amount resulting rom the agreement

has to be paid at the beginning o the leasing period (when the object o

leasing is given to the lessee to use). In the case o operational leasing, the

VAT payment is distributed or the whole leasing period as payments or the

use o the object o leasing are made. The above classification should be

taken into consideration rom the perspective o a lessee's cash-flow

constraints.

Recently, an important uncertainty was resolved by the European Court o

Justice (ECJ) in the area o VAT treatment o leasing agreements. In its verdict

o 17 January 2013 (case C-224/11), the ECJ confirmed that the insurance ee

(VAT exempt), which is supplied by a lessor together with a leasing ee (not

VAT exempt), should not be considered as a part the latter ee. Consequently,both ees should be considered or VAT purposes separately according to its

individual VAT treatment.

The case was taken to the ECJ as the standpoint o the Polish tax authorities

and administrative courts was viewed as unavorable to taxpayers, by which

an insurance ee should be treated as supplementary to a leasing ee and,

consequently, the standard VAT rate should apply to the insurance ee.

The ECJ verdict means there is the possibility o claiming VAT overpayment or

past periods or those taxpayers who were charging standard VAT rate on the

insurance ees.

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Thin-cap changes in Poland

The most recent drat amendments to the Polish Corporate Income Tax Law

presented by the Polish Ministry o Finance (published on 12 February 2013)

include significant changes to the thin capitalization rules, which are

currently applied by Polish taxpayers. Due to the strong and inseparable

correlation o the leasing sector with external financing, the suggested

amendments may have an impact on that sector. The drat amendments are

still at the beginning o the legislative process; however, as some o them hadalready been planned to be introduced as rom 1 January 2013, there is a will

to finalize the whole process so that they come into orce as rom 2014.

The first change relates to the objects (entities) which are taken into

consideration or the thin-cap rules. Currently, thin-cap restrictions apply i a

loan is granted by a direct shareholder or shareholders (holding at least a 25%

share) or a sister company (where the parent company holds at least a 25%

share) only. According to the drat amendments, the thin-cap rules will be

extended to include entities which are not only directly, but also indirectly

related to the borrower. Consequently, tax deductibility limitations may aect

those loans which are currently granted by entities urther down the

shareholding structure o a given group. According to the drat amendments,

the assessment o an indirect relation will be made based on transer pricing

regulations.

The second suggested amendment relates to the method o calculating which

part o interest cannot be tax deductible. According to the drat amendment,

taxpayers will have the option to choose a method based on which limitation

o tax deductibility o interest will be calculated. Thereore, the taxpayer will

be allowed to choose either rom the current 3:1 ratio method, or rom the

new one.

Based on the new method presented in the drat amendment, tax deductibility

o interest will depend on the value o the taxpayer's assets. Following the

suggested solution, interest may be tax deductible only on loans which do notexceed 5% o the tax value o the assets calculated based on the accounting

regulations. Additionally, the amount o interest which can be considered as

tax deductible in a given year cannot be higher than 50% o the operating

profit.

The new rules will not apply to loans granted and transerred to the borrower

beore 1 January 2014. For new agreements, it is strongly advisable to veriy i

the lender alls under the new thin-cap rules and what would be the impact o

the new regulations on one's activity now, as the potential restructuring to

maintain the status quo may require some time to implement.

Sawomir Dawidowicz is an associate in the tax department o DLA Piper in

Poland.

DLA Piper Wiater sp.k.

Emilii Plater 53

00-113 Warsaw, Poland

www.dlapiper.com

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Accounting or leases in Poland

Accounting in Poland is governed by the Accounting Act dated 28 September

1994 (the 'Act', the 'Accounting Act'). The Polish Accounting Act provides an

accounting definition or leasing that is similar to International Accounting

Standards (IAS). IAS 17 sets out the principles or the classification, valuation

and presentation o leasing transactions in the accounting records o a lessor

and lessee. Additionally, the accounting treatment or sale and leasebacktransactions is addressed.

Classification o leases or accounting purposes

The Accounting Act precisely defines the criteria or classification o leases.

According to article 3, paragraph 4 o the Act, a lease agreement should be

classified as a finance lease provided that the agreement meets at least one

o the ollowing conditions:

The agreement transers ownership o the asset to the lessee at the

end o the lease term;

The lessee has the option to purchase the asset at the end o the lease

term, at a price lower than the market value o the asset at the datethe option becomes exercisable;

The lease term is or the major part o the economic lie o the asset.

The lease term should not be shorter than 75% o its economic lie. The

ownership right o the leased asset may be conveyed to the lessee

ater the agreement expires;

At the inception o the lease, the present value o all lease payments

during the lie o the lease exceeds 90% o the market value o the

leased asset at the inception date; the total payments include the

residual value o the leased asset, which the lessee agrees to pay or

the transer o its ownership. The total payments do not include

additional ees being the reimbursement or additional services, taxes

and insurance i the lessee incurs them apart rom the lease

instalments; The lessor promises to conclude another agreement with the lessee or

extend the existing one on terms significantly more advantageous than

those under the previous agreement;

The lease agreement may be cancelled and the lessor's losses

associated with the cancellation are borne by the lessee;

The leased assets are o a specialized nature such that only the lessee

can use them without major modifications being made.

Lease agreements that do not meet any o the above conditions are classified

as operating leases. In the case o ulfilment o at least one o the conditions

specified above, since it would lead to the lease being classified as a finance

lease, the fixed assets or intangible assets and legal values let to be used by

the beneficiary shall be included as liabilities in the fixed assets o the lessor.

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Accounting standards

The Accounting Act does not provide any guidance on how leasing should be

accounted or. Article 10, paragraph 3 o the Act specifies that in situations

where guidance is not provided in the Accounting Act, while adopting the

accounting policies, an entity may apply national accounting standards issued

by the Accounting Standards Committee. In cases where there is no national

standard, IAS may be applied. At the time o publication, no national

standards have been issued in this respect; thereore IAS should be applied inrelation to accounting or leases.

In connection with the above, it is necessary that revenues and costs as well

as the recognition o assets and liabilities in the balance sheets o lessees and

lessors should be recorded in both types o lease contracts based on IAS 17.

Operating and finance leases dier in their consequences with regard to the

right to include the leased asset as the asset o either the lessor or lessee or

amortization purposes. The distinction between operating (o-balance sheet)

and finance leasing (on-balance sheet) or accounting purpose is based on the

Accounting Act.

Exchange controls

Generally, there are no specific restrictions regarding payments resulting rom

leasing contracts. However, it is advisable to analyze each individual case as

to the requirements o the provisions o the Exchange Law Act to make sure

that the particular activity or transer does not require a permit rom the

National Bank o Poland.

The content o this section was provided by KPMG Poland.

KPMG Tax M.Michna sp.k.

51 Chodna St,

00-867 WarsawT: 00 48 (22) 528 1100

www.kpmg.pl

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