Real estate / 28.09.2023

Long-term lease and property tax rate

Real Estate Attorneys of our Law Firm in Poland would like to inform about the judgment of the Supreme Administrative Court of 12 July 2023 (case file III FSK 250/23) concerning the profits of entrepreneurs from long-term leases. The court held that if the premises serve to satisfy residential needs, the increased real estate tax rate provided for real estate associated with the conduct of business activity will not apply to them. It is irrelevant whether the residential needs are fulfilled by the entrepreneur or the tenant of the flat.

Satisfying residential needs

Pursuant to Article 1a(2a)(1) of the Local Taxes and Fees Act, land, buildings and structures associated with the conduct of business activities do not include residential buildings and land associated with them. This means that such buildings and land will not be “associated with the business activity” even if the entrepreneur owns them.

According to the court, flats used to satisfy residential needs cannot be considered to be simultaneously associated with the conducted business activity. If flats are leased and the tenant uses them to satisfy his residential needs, such premises will be taxed at the ordinary residential property rate. This rule applies even if the flats are leased under a commercial lease by a company or cooperative. This is because what matters is that the premises are used to satisfy residential needs (it does not matter whose needs).

Significant consequences of the judgment

Recently, a view unfavourable to taxpayers has developed, according to which the authorities have often adopted a significantly higher real estate tax rate for flats leased by entrepreneurs in the situation in question. However, the court stressed that residential premises are taxed at a lower rate if they perform a residential function. Indeed, the adoption of the highest rate envisaged for business activities would be inconsistent with the Constitution, which provides for the promotion of satisfying the residential needs of citizens.