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Investing in Polish wind farms – tax implications for chain supply participants


by Piotr Gajewski and Jakub Wajs

7 January 2021 


The current Polish law, specifically Article 23(1a) of the Act on the Marine Areas of the Republic of Poland and Marine Administration, prohibits the construction and operation of wind farms on internal sea waters and territorial sea.

Consequently, the only location available for investors to build offshore farms is Poland’s exclusive economic zone.

This zone is quite special because legally it is not a Polish territory, but according to international law it is to a certain extend Poland’s tax jurisdiction.

VAT implications

The fiscal status of the exclusive economic zone under the Polish VAT Act has been significantly determined by the judgement of the Court of Justice of the European Union. It says that the sovereignty of a coastal state over the exclusive economic zone is merely functional and, as such, is limited to the right to exercise the activities of exploration and exploitation laid down in the Convention of the Law of the Sea.

If the supply of goods related to the activities within the sovereignty of a Member State takes place in an exclusive economic zone, it will be subject to VAT as a supply of goods in the coastal Member State to which that zone belongs.

This principle applies also to the supply of services if the place of their supply, determined according to relevant rules, is located within an exclusive economic zone.

This conclusion was confirmed by the European Commission in its working paper no. 846 to the VAT Directive. The European Commission stated that:


  •  in respect of activities to which the coastal Member State has sovereign rights, the exclusive economic zone adjacent to its territorial sea shall be regarded as a part of the territory of that Member State,
  • in respect of other activities to which the rights of countries are shared, the exclusive economic zone shall be regarded as being outside the territory of the EU.

One of the above mentioned sovereign rights of a coastal state is the right to carry on other undertakings concerning the economic exploration and exploitation of the zone, such as producing energy from water, currents and winds. Still another is jurisdiction over the construction and operation of artificial islands, installations and structures. 

This means that the construction of an offshore wind farm and its subsequent operation are the rights of Poland, and are, thus, subject to Polish tax laws.

Therefore, suppliers of goods and services under supply chains must appropriately assess their activities in terms of VAT. In particular, they must remember to:


  • determine the place of supply correctly,
  • identify the entity which is the taxable person in the transaction,
  •  identify the risk of creating a fixed establishment in Poland in connection with investing in offshore wind farms.

Income tax implications

Generally, foreign tax residents are subject to tax on the income they earn in Poland.

According to the relevant tax laws, the territory of the Republic of Poland for the purpose of corporate/personal income tax shall be, among other things, the exclusive economic zone in which the Republic of Poland exercises its rights to explore and exploit the sea bed and subsoil and their natural resources according to domestic and international law.

The wording of the above provision raises doubt due to its equivocal interpretation.
It can be construed at least in two ways:


  •  the first way assumes that the lawmakers have limited the number of cases in which the exclusive economic zone is treated as the Polish territory for income tax purposes to only such cases in which the rights listed in the law are exercised, none of which – as it seems – correspond to the right to construct and exploit wind farms,
  •  the second way assumes that the lawmakers, for unclear reasons, did not choose to evoke Article 17 of the Act on the Marine Areas of the Republic of Poland and Marine Administration and tried to define in general the rights which Poland may exercise in the exclusive economic zone or, as the case may be, restricted themselves to mention only some examples of those rights, but their intention was to point to the exclusive economic zone in which Poland exercises all, and not only a part, of its sovereignty rights.

So far, tax authorities have not devoted much attention to the provision in question so its interpretation poses a challenge.

This is expected to change given the rise in offshore wind farm investments.

The interpretation of the purpose of the provision suggests that any and all income from operations carried on in the exclusive economic zone should be classified as income earned in the territory of Poland. However, the wording of the provision gives rise to doubts as it only refers to the exploitation of the sea bed, subsoil and their natural resources, and therefore it could be maintained that only income from such activities should be treated as earned in the territory of Poland.
For the sake of precaution and based on experience, we should assume that tax authorities will favour a broader interpretation.

Polish tax non-residents engaged in investing in Polish offshore wind farms should check whether or not they have any income tax obligations in Poland. In particular, they should take into account the possibility of creating a permanent establishment here. The conditions for creating a permanent establishment are specified in detail in individual double taxation avoidance agreements signed with Poland. The question whether a permanent establishment has been created needs to be answered on a case-by-case basis due to differences between double taxation avoidance agreements and the specific nature of work carried out under each investment project. If the investor’s construction activities trigger a permanent establishment, a part of corporate income tax will have to be paid in Poland.


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Piotr Mrowiec

Attorney at law (Poland)

Associate Partner

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