Property Purchase and Tax

Property purchase tax

Buying a property in Poland gives rise to tax implications. Depending on the seller’s tax status and the type of the property, the transaction will be subject to either value added tax (VAT) or tax on civil-law transactions.

Which tax applies to my property transaction?

In practice, it is often the case that the parties to a property purchase agreement find it difficult to understand which of the taxes – VAT or the tax on civil-law transactions – shall apply to the property transaction due to level of complication of the tax regulations. When in doubt, the parties apply to the tax authorities for an individual tax ruling to avoid negative tax implications. If the parties to a property purchase agreement comply with an individual ruling, they are generally protected against the negative implications arising from tax regulations.

VAT – Value Added Tax

If the seller executes a property sale transaction as a VAT payer, the sale will generally be subject to VAT. VAT is paid by legal persons, unincorporated bodies and natural persons running their own business, irrespective of the purpose or the result of their business operations.  The VAT payer status is not tied to running a registered business. For instance, an individual who does not run a business, but carries out activities that meet the definition of a business ran by an individual provided in the VAT Act will be treated as a VAT payer. This is often the case when a natural person sells property (especially building land lots). If that person’s actions are organized, repetitive and professional (e.g. the person acquires a building land lot, arranges for utilities to be available on the lot, delineates internal roads, performs marketing activities to sell the land lots that go beyond the regular form of advertising, obtains a preliminary planning decision), it is very likely that the tax authorities or administrative courts will treat them as an individual running a business who is required to pay VAT.

However, the fact that the seller of the property is a VAT payer is not the only criterion for the payment of VAT on a given transaction, nor is it sufficient to decide that VAT should be paid on that transaction. The type of the property to be sold should also be factored in. In accordance with VAT regulations, the sale of a property constitutes the supply of goods, which can be divided into two groups:

• the supply of undeveloped land and
• the supply of buildings, structures or their parts.

Supply of undeveloped land

The sale of undeveloped land classified as building area is subject to 23% VAT. It is worth noting that, pursuant to Polish VAT regulations, a building area is a land lot intended for building purposes in accordance with the area development plan (plan zagospodarowania przestrzennego) or, in absence of the plan, the preliminary planning decision (decyzja o warunkach zabudowy i zagospodarowania terenu). The sale of an undeveloped land lot other than a building lot (e.g. an agricultural lot) is covered by a mandatory VAT exemption.

Supply of developed land

The sale of a developed land lot, e.g. a land lot with a house or residential or business premises in a building, is treated as the supply of a building, structure or their part. The value of the land is not deducted from the taxable basis. In other words, the sale of land together with the building, structure or their part located on the lot is treated as a single supply of goods.

The supply of a building, structure or their part is generally exempt from VAT. The VAT exemption does not apply when:

1. the supply takes place within the framework of the first occupation (pierwsze zasiedlenie) or earlier or;
2. less than 2 years have passed between the first occupation and the supply of the building, structure or their part.

The first occupation is defined as the release for use of buildings, structures or their parts to the first acquirer or user in performance of taxable activities after their erection or upgrade. So, for the first occupation to take place, the buildings must first be released for use. What is more, the definition of new buildings (structures) includes buildings (structures) already in use, which have been materially upgraded, with the value of the upgrade constituting at least 30% of the initial value;

For these reasons, the sale of new buildings (structures) or buildings (structures) no older than 2 years, as well as buildings (structures) in use which have been materially upgraded (with the value of the upgrade constituting 30% of the initial value) will generally be subject to VAT.

Moreover, in the case of the supply of buildings in use, when the supply takes place after 2 years from the first occupation, the seller and the buyer can agree to pay VAT on the sale transaction, although they are under no obligation to do so. The option is available only if both parties to the transaction are registered as VAT payers. As an additional requirement, the parties to the sale transaction must submit a joint statement before the supply whereby they opt for the payment of VAT on the supply of the building, structure or their part (VAT opt-in). The statement is to be submitted to the head of tax office proper for the buyer or included in the notarial act executed in connection with the supply (i.e. the property purchase agreement).

Notwithstanding the above, the supply of a building or a structure must be exempt from VAT, if:

1. the seller was not entitled to deduct the input VAT or;
2. the seller incurred no upgrade expenditures from which the seller was entitled to deduct input VAT or the expenditures were lower than 30% of the initial value of the building, structure or their part.

The supply of residential buildings and dwelling units (with separate title) is subject to a reduced VAT rate of 8%. The reduced rate does not apply to spaces within residential buildings with the usable area of more than 300 m2 and apartments with the usable area of more than 150 m2. In these cases, the part of the space that exceeds these limits is subject to 23% VAT.

23% VAT is also charged on the supply of other buildings and structures.

The payable tax is assessed on the basis of the sale price stated in the sale agreement. VAT is included in the sale price paid by the buyer to the seller. The VAT return is filed by the seller.

Transaction tax – Tax on civil-law transactions

The tax on civil-law transactions is paid on property purchase transactions which are not subject to VAT (with some exceptions). In practice, this means that one transaction can be subject to either VAT or the tax on civil-law transactions.

The tax on civil-law transactions is charged on property sale transactions at 2% and is paid by the buyer. The tax is assessed on the basis of the market value of the property. It is collected and paid to the tax office by the civil-law notary when the sale agreement is executed. To that end, the buyer pays the tax charged to the bank account of the notarial office before the signing of the sale agreement.

Property tax

Once you are already an owner of the property you will be obliged to pay the property tax in Poland.

What properties are covered by property tax?

1. land,
2. buildngs or their parts,
3. buildings or their parts used to conduct business activity

Who is the property tax taxpayer?

1. owner,
2. perpetual usufructuary,
3. owner-like possesor,
4. in some cases – dependent possessor of real estate or its part owned by the State Treasury or a local government unit.

Property tax obligation

Tax obligation arises as of the first day of the month following the month of the acquisition of the legal title to an object of taxation or its acquisition. If tax obligation is dependent upon occurrence of circumstances of existence of a construction facility or a building or parts thereof, tax liability arises on January 1 of the year following the year construction is completed or in which a construction facility or a building or parts thereof is utilized before the construction of the said facility is finally completed.

Tax obligation expires at the end of the month in which the circumstances that substantiated this obligation end.

Property tax – tax returns

Taxpayers of a real property tax are obligated to file with the tax authority competent for the location of objects of taxation drawn up on the form conforming to the form specimen determined in the resolution of the commune council:

If a real estate or a building is held under joint ownership (or is in possession) of, simultaneously, a natural person and a legal person and an organizational unit (including a company) without legal personality, the natural person shall file a tax return and shall pay tax in accordance with regulations for legal entities.

In this case a decision determining the tax obligation amount is not served to a natural person.  Obligation to submit information on real estate and buildings as well as estate tax returns also applies to taxpayers subject to tax-exemptions under the local tax and fee act (both statutory and those determined in the resolution of the commune council).

In municipalities where the commune councils, by virtue of a resolution, determined principles and deadlines for submitting information on real estate and buildings as well as estate tax returns by means of electronic communication, filing the above mentioned documents shall be possible via Internet.

1. information on real estate and buildings (natural persons) within a period of 14 days from the day the circumstances substantiating the emergence or termination of tax obligation arose or from the day the event resulting in changes to the tax obligation amount occurred.

2. estate tax returns (legal persons and organizational units including companies without legal personality) by January 15 of the tax year and, if the tax obligation arose after this date within a period of 14 days from the day the circumstances substantiating the emergence or termination of tax obligation arose or from the day the event resulting in changes to the tax liability amount occurred.

Property tax rates

Tax rates are determined by virtue of a resolution by the commune council  taking into consideration the maximum tax rates announced in the form of an announcement by the Minister of Finance.

Deadlines and methods of property tax payments

1  natural persons – in 4 installments proportionate to the duration of the tax obligation – by March 15, May 15, September 15 and November 15 of the tax year,

2  persons for each month in installments proportionate to the duration of the tax obligation – by the 15th of each month.