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Overview of Polish Real Estate Tax

Rental income and capital gains of Polish real estate

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)

Resident individual

 

 

 

 

Non-resident individual

 

 

 

 

Resident company

 

 

Non-Resident company

Rental revenue (income)

 

Capital gains

 

Rental revenue (income)

 

Capital gains

 

Rental income

Capital gains

 

Rental income

Capital gains

Tax on recorded revenue/(Personal income tax)

Personal income tax

 

Tax on recorded revenue/(Personal income tax)

Personal income tax

 

Corporate income tax

Corporate income tax

 

Corporate income tax

Corporate income tax

8.5 /12.5%

(17/32%)

 

19%

 

8.5/12.5%

(17/32%)

 

19%

 

9/19%

19%

 

9/19%

19%

 

Rental income

Individuals

Rental income is taxed as ordinary private or business income.

Liability to tax
Rental income derived by individuals may be subject to taxation in different forms: a tax on recorded revenue, a personal income tax according to general rules or a flat tax (in case of performing business activity).

Basis to tax
Taxation of rental income by individuals is conditioned by reached revenue threshold. If the annual revenue on rental does not exceed PLN 100 000, then 8.5% tax rate applies. The surplus over PLN 100 000 is taxed at a rate of 12.5%. In this case, the tax base consists of income without deducting any costs. However, if taxation on general principles is chosen a flat tax rate of 19% or progressive tax rates of 17% or 32% are applied. In such cases the taxable base is income constituted by revenues minus the tax-deductible costs.

Companies

Rental income is taxed as ordinary business income.

Liability to tax
Rental income earned by companies is subject to corporate income tax and taxed as ordinary business income.

Basis to tax
If the value of sales revenue (along with amount of the due VAT) does not exceed an equivalent in PLN of 2 000 000 EUR both in the previous and current tax year or when the taxpayer starts his business activity (in the year of beginning), a company is subject to corporate income tax at a flat rate of 9%.

Other companies are subject to corporate income tax at a flat rate of 19%. The tax base in both cases is income equal to revenue less the tax-deductible costs.

Capital gains

Individuals

Capital gains resulting from the sale of real estate are taxed within the scope of personal income tax. Capital gains arising from the sale of real estate within five years of purchase are taxed at a flat tax rate of 19%. The sale of real estate after the end of 5 years holding period is exempted from taxation.

Liability to tax
Capital gains are subject to personal income tax. Capital gains derived from the sale of real estate are exempt from tax if an individual - upon its sale, has been in possession of the real estate for at least five years counting from the end of the year in which it was purchased.

Basis of tax
A flat-rate income tax applies to capital gains at a rate of 19%. The revenue derived from the sale of a real estate doesn't fall within aggregation with revenues reached from the other sources. Sales revenue is decreased by tax-deductible costs represented by the purchase price and transaction costs, as well as expenses for renovation etc.

Companies

Revenues derived from sale of real estate are not considered as capital gains (which is a separate source of revenues) and are taxed as usual business income.

Liability to tax
Sale of a real estate is subject to corporate income tax. Such income is taxed at a rate of 19% or a decreased rate of 9%.

Basis of tax
Revenue derived from the sale of real estate is decreased by tax-deductible costs incurred in order to achieve revenues or to maintain or secure a source of revenues. These are the underappreciated parts of a real estate, transaction costs and expenses for renovation and improvement.

Real property company

A real property company is defined as an entity other than a natural person, obliged under the accounting regulations to prepare a balance sheet, in which:

  • in the case of entities starting their activity:
  • on the first day of the tax year at least 50% of the market value of its assets is the market value of real estate located in Poland or rights to such real estate, and;
  • the market value of such real estate exceeds PLN 10 000 000 (ca. EUR 2,3m).
  • in the case of other entities:
  • as at last day of the year preceding the tax year, at least 50% of the book value of assets is the book value of real estate located in Poland or rights to such real estate, and;
  • the balance value of such real estate exceeds PLN 10 000 000 (ca. EUR 2,3m), and;
  • in case of the real property company not being a taxpayer of income tax, in the previous tax year the company obtained at least 60% of tax revenues from (sub)lease, of real estate and agreements of similar nature or from ownership rights relating to real estate/other real property companies.

If an entity qualifies as a real property company, it will fall within the scope of application of the real estate clause. Due to the real estate clause the taxation in Poland is triggered by:

  • sale of shares, rights and obligations of similar nature, as well as receivables resulting from holding them, if at least 50% of market value of assets of such entity consisted of real estate located in Poland or right to such real estate, or:
  • sales of shares or rights and obligations of similar nature in real property company.

An obligation to settle tax on the profit obtained by shareholders from the sale of shares (or rights and obligations of similar nature) will be placed on a real property company. The obligation will arise if (i) at least one of the parties of a transaction is an entity with its seat outside Poland, and (ii) the subject of the transaction is shares giving 5% of voting rights in a company, or rights and obligations giving 5% of profit participation in a real property company.

Moreover, a real property company without the registered office in Poland is additionally obligated to appoint a tax representative in Poland to discharge remitter duties (unless the company is subject to unlimited tax liability in an EU Member State or in another EEA country).

Furthermore, a real property company as well as taxpayers holding directly or indirectly at least 5% of shares (or interest of a similar nature) in such a company are required to provide the tax authorities with the information about its direct and indirect shareholders and the number of owned shares or rights and obligations of similar nature).

Liability to tax
Sale of shares (or rights and obligations of similar nature) in real property company is subject to corporate income tax. Such income is taxed at a rate of 19%.

Basis of tax
Revenue derived from sale of real estate is value expressed in the price specified in the sales contract.  If the price without a justified reason significantly deviates from the market value of these items or rights, the revenue shall be determined by the tax authority in the amount of market value. If a real property company does not have information about the value of the transaction, the fair market value of shares in the company subject to transaction should be taken as the basis of tax.

 

Polish VAT & transfer taxes

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)

Resident individual

 

 

Non-resident individual

 

 

Resident company

 

 

Non-Resident company

 

Rental income

Transfer of real estate

 

Rental income

Transfer of real estate

 

Rental income

Transfer of real estate

 

Rental income

Transfer of real estate

 

Value Added Tax

Transfer Taxes

 

Value Added Tax

Transfer Taxes

 

Value Added Tax

Transfer Taxes

 

Value Added Tax

Transfer Taxes

 

23%/8%*

2%

 

23%/8%

2%

 

23%/8%

2%

 

23%/8%

2%

 

*Sale of a real estate is subject to the VAT against a rate of 23% as a rule. Residential estates up to 150 m2 (flats) and 300 m2 (buildings) are taxed at the rate of 8%. Rental income is taxed at a rate of 23%.

Value Added Tax

Individuals

Value added tax (VAT) is a tax based on the increase in value of a product or service at each stage of the supply chain.

Liability to tax
Individuals performing business activities in Poland are in principle subject to the VAT.

Basis of tax
As provided for by the VAT Act sale and lease of a real estate is in general subject to the VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met. The sale of private property is not subject to VAT.

Exempt from the VAT is a sale, which is not affected as part of the first settlement, or if between the first settlement and the delivery of a building elapsed at least two years. If certain conditions are met, the exemption might be opted out. The seller and purchaser may relinquish the above-mentioned tax exemption on some conditions specified in the VAT Act.

If the above-mentioned exemption cannot be applied, a tax exemption may be applied if the seller did not have the right to deduct VAT when acquiring a real estate, and has not made any expenses for its improvement - exceeding 30% of real estate's value, from which they would have deducted VAT.

Sale of a real estate is subject to the VAT against a rate of 23%. However residential estates up to 150 m2 (flats) and 300 m2 (buildings) are taxed at a rate of 8%. Rental income is taxed at a rate of 23%.

Interaction with transfer tax
If the delivery of real estate is exempt from the VAT, then the obligation arises to pay transfer tax (in Poland: podatek od czynności cywilnoprawnych - PCC). The purchaser of a real estate is committed to pay the tax which amounts to 2% of real estate's market value.

Companies
The same rules apply as for individuals.

Transfer taxes

Individuals

Transfer tax is a tax on the passing of real estate from one person or company to another where the supply of real estate is exempt from the VAT.
Transfer tax is also applicable when the supply of real estate will be classified as the supply of an enterprise or as an organised part of the enterprise.

Liability to tax
Transfer tax applies by the sale of real estate or proprietary law and their trade. Transfer tax is paid by the purchaser within 14 days from signing the sale agreement.

Basis of tax
Market value of real estate is subject to tax. The tax rate amounts to:

  • 2%in the case of a sales agreement involving: real property, movable property, or perpetual usufruct right, a cooperative title to residential premises, cooperative title to business premises, and the following titles regulated by the provisions of cooperative law: title to a single-family house or title to premises in a small house;
  • 1% in the case of agreement involving other rights.

Exemptions
The transaction is exempt from transfer tax if the transaction is subject to the VAT.

Companies

The same rules apply as for individuals.

 

Polish local taxes

Municipalities may apply exemptions from real estate tax and extend the payment dates of its instalments to companies whose liquidity has deteriorated due to COVID-19 pandemic.

Subject to tax     

Basis of tax

Tax rates

Grounds

 

Real estates

 

Structures

Usable area

 

Usable area

 

Initial Value

 

 0.99 PLN/1 m2*

 

24.84 PLN/1 m2*

 

2%

*concerns maximum tax rates when it comes to grounds / real estates used within business activity; each municipality can lower them

Individuals

Applicable tax rates are determined in form of resolution individually by every authorised municipality.

Liability to tax
The real estate tax is paid in four instalments (exception: one instalment when the annual real estate tax is lower than PLN 100). Individuals owning a real estate are subject to the tax. Tax authority issues every year a decision that determines the subjectivity to the tax and the amount of the real estate tax.

Basis of tax
Real estate tax is calculated on the basis of a quota rate on every 1m2 of usable area of buildings and its parts and on 1m2 of ground.

Companies

Applicable tax rates are determined individually by every authorised municipality in the form of resolution.

Liability to tax
Real estate tax is paid in twelve instalments. Legal persons owning real estates are subject to tax, which is paid on the basis of the submitted tax return.

Basis of tax
Real estate tax is calculated on the basis of a quota rate on every 1m2 of usable area of buildings and its parts and on 1m2 of ground. As far as legal persons are concerned, structures (fences, roads, car parks, tanks, etc.) are also subject to tax. Real estate tax is a tax-deductible expense for a person performing business activity. Usually, it is charged to tenants.

 

Polish income tax on revenue from buildings (also called ‘minimum tax’)

Due to the Covid -19, companies are unconditionally exempted from paying the minimum tax for the periods from 1 March 2020 to the end of the month in which coronavirus epidemic would be revoked.

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)

Resident individual

 

Non-resident individual

 

Resident company

 

Non-Resident company

 

Initial value of real estate

 

Initial value of real estate

 

Initial value of real estate

 

Initial value of real estate

 

Personal income tax

 

Personal income tax

 

Corporate income tax

 

Corporate income tax

 

0.42%

 

0.42%

 

0.42%

 

0.42%

 

 

Individuals

Buildings - both residential and non-residential, which meet the below-mentioned criteria are subject to tax on revenues from buildings.

Liability to tax
Subject to the tax are buildings that are located in Poland, possessed or co-possessed by the taxpayer, and at least 5% of the usable space of the real estate has been given for use under a rental, lease or other agreement of a similar nature. Minimum tax is calculated and based only on the area of buildings actually subject to lease.

Basis of tax
Taxon revenues from buildings amount to 0.035% of building's worth a month which is 0.42% a year. The tax base is the value of the real estate on the first day of the month as per fixed asset register. The tax allowance is PLN 10 000 000 (ca. EUR 2,3m) and it concerns all related entities and real estates.

Companies

The same rules apply as for individuals.

 

Retail sales tax

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)

Resident individual

 

Non-resident individual*

 

Resident company

 

Non-Resident company*

 

Retail sales revenue

 

Retail sales revenue

 

Retail sales revenue

 

Retail sales revenue

 

Retail sales tax

 

Retail sales tax

 

Retail sales tax

 

Retail sales tax

 

0.8% /1.4%

 

0.8% /1.4%

 

0.8% /1.4%

 

0.8%/1.4%

*Retail sales tax is paid only by individuals and companies having retail sale of goods subject to Polish VAT.

Individuals

Retail sales tax has been already formally introduced into the Polish legal system in 2016. However, due to court proceedings before the Court of Justice of the European Union, the Ministry of Finance has suspended it.
Taxpayers conducting busines activity are obliged to pay retail sales tax starting from 1 January 2021. The new tax is imposed on retailers and covers revenue from retail sales of goods (B2C transactions).
The revenue from retail sales should be estimate on the basis of the total sales recorded on the cash registers.

Liability to tax
The tax obligation arises at the moment of achieving in a given month the revenue exceeding PLN 17 000 000 (ca. EUR 3,9m) and applies to the revenue exceeding that amount achieved from that moment until the end of the month.

Taxpayers are obliged to calculate and pay tax for monthly settlement periods.

Basis of tax
The tax base is the surplus of revenues from retail sales over PLN 17 000 000 (ca. EUR 3,9m) achieved in a given month.

The tax is progressive with two tax rates:

  • 0.8% of the tax base - in the part in which the tax base does not exceed PLN 170 000 000 (ca. EUR 38,6m);
  • 1.4% of the excess of the tax base over PLN 170 000 000 - in the part in which the tax base exceeds PLN 170 000 000.

Companies

The same rules apply as for individuals.

 

Vehicles for Polish real estate

Commonly used vehicles for Polish real estate

Limited
A limited liability company (in Poland: spółka z ograniczoną odpowiedzialnością - sp. z o. o.) is a private limited company which has legal personality. The company itself is a separate entity from the company's stakeholders. Income tax is paid both at the level of the company (corporate income tax) and at the level of the company's stakeholders - here the tax is levied on a profit distribution (dividend).

Partnership & joint ventures
Real estate may be owned either by an individual or a private limited company (i.e. limited liability company or public corporation). Many entities can invest in real estate. There is no distinction between taxation of joint ventures, individuals or partnerships.

Limited partnerships
Limited partnership is a partnership which has got no legal personality (in Poland: spółka komandytowa - sp. k.). Two categories of partners are distinguished: general partners (responsible for the company’s obligations without any restrictions) and limited partners (responsible for the company’s obligations only to the level of a limited liability amount). By establishing a limited partnership, partners determine the amount of contributions, the limited partner determines additionally the limited liability amount.

As of 1 January 2021 limited partnerships  becomes corporate income tax payers. However, companies may decide that the amended regulations will apply to them only as of 1 May 2021.

Therefore, the profits achieved by the limited partners  are double-taxed - once when they are achieved by the partnership and a second time when they are paid to the partners (as in case of a limited liability company).

The amendment provides for the exemption of an amount equal to 50% of the revenue obtained by a limited partner from a share in the profit of a limited partnership, but not more than PLN 60 000 (ca. EUR 13,6k). However, the exemption does not apply to a limited partner who:

  • holds, directly or indirectly, at least 5% of shares in a company having legal personality or a capital company in the process of incorporation which is a general partner in that limited partnership, or;
  • is a member of the management board:
    • a company having legal personality or a capital company in the process of incorporation which is a general partner in this limited partnership, or;
    • a company holding directly or indirectly at least 5% of the shares in a company having legal personality or a capital company in the process of incorporation which is a general partner in that limited partnership, or
  • is a related entity with a member of the management board or a partner of the company holding directly or indirectly at least 5% of shares in a company having legal personality or a capital company in the process of incorporation being a general partner in that limited partnership.

General partners of limited partnerships may deduct from income tax, calculated on income from a share in the profits of a limited partnership, the amount of tax paid by that partnership, in proportion the general partner’s share in such partnership’s profit.

Profit achieved by a limited partnership will be taxed at a rate of 19% or a decreased rate of 9%.

Sole proprietorship
An individual who sells and buys real estate permanently and in an organised manner, should set up a sole proprietorship (in Poland: jednoosobowa działalność gospodarcza) and settle the income and the VAT on the basis of a business activity.

Sole proprietorship is a business activity of an individual who is unlimitedly liable for all the payables, both with sole proprietorship assets and his personal property. The taxpayer, as provided for by law is an individual himself.

Foreign partnership
Non-residents are subject to tax only on the income (revenue) derived in Poland, within the scope of limited tax obligation. Having real estate in Poland leads to a fixed establishment (for VAT purposes) and might lead to the permanent establishment in Poland (for CIR purposes).

The same rules apply to the legal entities and their income derived in virtue of possessed real estates.

Specific real estate vehicles for Polish real estate

Real estate investment trusts - REIT
Real Estate Investment Trust (REIT) is a special purpose vehicle or investment fund established to invest in the market of commercial and rental real estates (in Poland: firma inwestująca w najem nieruchomosci- FINN), which is a company investing in real estates' rental. Instead of direct purchase of real estate, the purchaser invests his capital in shares of FINN. Frequency of dividend pay-outs is provided for by law. FINN has not become effective in Polish legal system yet.

Funds for joint account
Investment funds may invest directly in proprietary interests, including real estates. They are a type of closed-end investment funds, so that they offer investors investment certificates, that can only be purchased periodically during the usually non-public offer.

Report on execution of a tax strategy

Real property companies, as well as other companies, will be required to prepare and publish a report on execution of a tax strategy if their revenues in the tax year exceed 50m euros. The reports should include, among others:

  • the approach to processes and procedures for managing the tax-related obligations,
  • the number of provided information on tax schemes,
  • transactions with related entities, the value of which exceeds 5% of the balance sheet total,
  • submitted applications for a tax ruling, binding VAT rate information (WIS) and binding excise information (WIA)
  • restructuring activities planned or undertaken by the taxpayer.

Taxpayers will have 12 months from the deadline for submitting the annual CIT declaration to the tax office to publish a report on execution of a tax strategy on their website and provide relevant information to the tax office. A consequence of non-compliance with this obligation may result in a penalty of up to PLN 250 000 (ca. EUR 56,8k).

The first report on execution of a tax strategy should be prepared and published for 2020 by 31 December 2021.