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Selling And Transferring Polish Real Estate

DIRECT SALE OF REAL ESTATE

Resident individuals

Capital gains
Capital gains reached by individuals are taxed within the scope of personal income tax. Revenues derived from the sale of real estate within five years from the end of the calendar year in which the acquisition occurred or in which the real property was constructed are taxed at a rate of 19%. Subject to the tax is a reached income.

If the price agreed between parties, without any reasonable reason, differs from the market value of real estate substantially, the revenue is determined by the tax authority or tax inspection authority at the market value.

Deductibility of costs
Tax-deductible costs that arise from the sale of real estate represent the documented acquisition costs augmented by expenditures that increased the value of a real estate and decreased by the effected depreciation expenses.

Expenditures borne on a loan taken out for the purchase of a real estate do not represent tax­ deductible costs, in the event of its sale against payment.

VAT / transfer tax
As a rule, the sale of a real estate is subject to VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met.

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

Exempt from 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.

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

The place where the services are provided (country in which the transaction should be taxed) when it comes to real estates, is the country in which the real estate is located.

The sale of real estate is subject to VAT only on condition that the seller sells it in the course of its business.

If the delivery of real estate is exempt from the VAT or not subject to VAT, then the obligation arises to pay PCC. The purchaser of a real estate is committed to pay the tax which amounts to 2% of real estate's market value.

Losses
An individual who does not conduct a business activity is not able to deduct a loss. A taxpayer who carries out business activity and declares a loss within it, may deduct a loss from income derived during five consecutive tax years. A maximum of PLN 5 000 000 or 50% (depending on which of these values is higher) of a loss from each of the previous five consecutive tax years is deductible.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals. However, losses can only be offset against other Polish taxable income derived from an equal source of revenues.

Resident companies

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

If the value of sales revenue (along with amount of the due VAT) did not exceed an equivalent in PLN of 2 000 000 EUR both in the previous and current tax year or when the taxpayer starts their 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%.

VAT / transfer tax
The same rules apply as for individuals.

Losses
A taxpayer who suffered a loss in a given tax year e.g. if interest and depreciation costs exceed rental revenue, the loss can be deducted from income derived in the five subsequent tax years - provided that the loss from the earlier year reduces the income derived from the same source of revenues. A maximum of PLN 5 000 000 or 50% (depending on which of these values is higher) of the loss from each of the previous five consecutive tax years is deductible.

The taxable person’s losses are not taken into account if the taxable person acquired another entity or acquired an enterprise or an organised part of an enterprise, or received a cash contribution for which it acquired an enterprise or an organised part of an enterprise, as a result of which:

  • the subject of the taxable person's actual core business activity after such acquisition or purchase, in whole or in part, was different from the object of the taxable person's actual core business activity before such acquisition or purchase, or
  • at least 25% of the shares of the taxable person are owned by an entity or entities that did not have such rights at the end of the tax year in which the taxable person suffered such loss.

 Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is considered to be subject to corporate income tax in Poland. However, losses can only be offset against other Polish taxable income derived from the same source of revenues.

INDIRECT SALE

Resident individuals

Capital gains
Capital gains arising to individuals because of the sale of a share in real estate company are taxed within the scope of personal income tax, at a rate of 19%. Income from the sale of stocks (shares) against payment are also subject to tax. The income is calculated as a difference between the sum of revenue obtained from the sale of stocks (shares) against payment and tax-deductible costs. The sale price which is specified in the sale contract constitutes the revenue, whereas tax-deductible costs are represented by the expenses paid for purchase of sold stocks (shares).

VAT / transfer tax
Sale of a share in a real estate company, as provided for by the VAT Act is considered as a financial service exempt from the VAT.

Such a transaction might subject to PCC. The purchaser of a shares is committed to pay the tax which amounts to 1% of the fair market value of shares.

Losses
A taxpayer who declares a loss from the sale of shares may deduct it from income derived from the same source during five consecutive tax years. A maximum of PLN 5,000,000 or 50% (depending on which of these values is higher) of a loss from each of the previous five consecutive tax years is deductible.

Non-resident individuals

Taxation of the foreign individual in Poland is dependent on the Double Tax Treaty as not all treaties signed by Poland include the real estate clause. In general, revenues from the transfer of shares are taxed in the seller's country, nevertheless if the assets consist mainly of real estate, the revenues may be taxed in the country in which these assets (consisting of real estate) are located.

It should be highlighted that Poland introduced changes to local 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.

The regulations related to a real property company (please see “Quick overview of Polish real estate”) should be applicable accordingly.

Resident companies

Capital gains
The revenue derived from the sale of shares/stocks is qualified to a separate source of revenues - capital gains and is not combined with income derived from the other sources. Therefore, it is not possible to settle the loss suffered on capital gains with income derived from the other sources. Capital gains are taxed at a flat rate of 19% and there is no possibility to apply a reduced rate of 9%.

VAT / transfer tax
The same rules apply as for individuals.

Losses
A taxpayer who suffered a loss in a given tax year e.g. if interest and depreciation costs exceed rental revenue, can deduct the loss from income derived in five consecutive tax years - provided that the loss from previous years reduces the income derived from the same source of revenues. A maximum of PLN 5 000 000 or 50% (depending on which of these values is higher) of the loss from each of the previous five consecutive tax years is deductible.

The taxable person’s losses are not taken into account if the taxable person acquired another entity or acquired an enterprise or an organised part of an enterprise, or received a cash contribution for which it acquired an enterprise or an organised part of an enterprise, as a result of which:

  • the subject of the taxable person's actual core business activity after such acquisition or purchase, in whole or in part, was different from the object of the taxable person's actual core business activity before such acquisition or purchase, or
  • at least 25% of the shares of the taxable person are owned by an entity or entities that did not have such rights at the end of the tax year in which the taxable person suffered such loss.

Non-resident companies

Taxation of the foreign company in Poland is dependent on the Double Tax Treaty as not all treaties signed by Poland include the real estate clause. In general, revenues from the transfer of shares are taxed in the seller's country, nevertheless if the assets consist mainly of real estate, the revenues may be taxed in the country in which these assets (consisting of real estate) are located.

It should be highlighted that Poland introduced changes to local 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.

The regulations related to a real property company (please see “Quick overview of Polish real estate”) should be applicable accordingly.

DIRECT TRANSFER INTRA CONCERN (POLISH REAL ESTATE TO POLISH COMPANY)

Resident Companies

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

If the value of sales revenue (along with amount of the due VAT) did not exceed an equivalent in PLN of 2 000 000 EUR bath 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%.

 VAT / Transfer tax
As a general rule, the sale of real estate is subject to VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met.

Sale of real estate is subject to VAT at a rate of 23%. However, 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%.

Exempt from 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.

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 the VAT.

The place where the services are provided (country in which the transaction should be taxed) when it comes to real estates, is the country in which the real estate is located.

Fiscal unity
As provided for by law, it is possible to form a tax capital group (in Poland: podatkowa grupa kapitafowa - PGK) as a result of signing a contract between at least two private limited companies (i.e. limited liability companies or public corporations) with Polish tax residence, which remain in capital relationships. The holding company is required to have a direct 75% shareholding in the capital of other companies in the group. PGK applies only to corporate income tax. In such a case the group is taxed on the surplus of profits and losses of all entities in the group. If the group suffers a loss it dissolves as of the next fiscal year. Free of charge transfer of real estate within a group is treated as transfer between separate companies.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is considered to be subject to corporate income tax in Poland.

INDIRECT TRANSFER INTRA CONCERN (POLISH REAL ESTATE TO POLISH COMPANY)

Resident companies

Capital gains
The revenue derived from the sale of shares/ stocks is qualified to a separate source of revenues - capital gains and is not combined with income derived from the other sources. Therefore, it is not possible to settle the loss suffered on capital gains with income derived from the other sources. Capital gains are taxed at a flat rate of 19% and there is no possibility to apply a reduced rate of 9%.

Value of the revenue is represented by the price specified in the sales contract. If the sale is made by a company that does not conduct its elementary business activity in the area of capital gains, the sale of shares is not subject to VAT. This price cannot differ significantly - without any principled reason, from the real estate's market value.

Revenues from the transfer of shares are taxed in the seller's country, nevertheless if the assets consist mainly of real estate / estates, the revenues may be taxed in the country in which these assets (consisting of real estate/estates) are located. However, it should be highlighted that Poland introduced changes to local real estate clause.

Moreover, the regulations related to a real property company (please see “Quick overview of Polish real estate”) should be applicable accordingly.

VAT/ transfer tax
As a rule, the sale of real estate is subject to the VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met.

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

Exempt from 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.

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 the VAT.

The place where the services are provided (country in which the transaction should be taxed) when it comes to real estates, is the country in which the real estate is located.

Fiscal unity
As provided for by law, it is possible to form a tax capital group (in Poland: podatkowa grupa kapitafowa

- PGK) as a result of signing a contract between at least two private limited companies (i.e. limited liability companies or public corporations) with Polish tax residence, which remain in capital relationships. The holding company is required to have a direct 75% shareholding in the capital of other companies in the group. PGK applies only to corporate income tax.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is considered to be subject to corporate income tax in Poland.

DIRECT TRANSFER INTRA CONCERN (POLISH REAL ESTATE TO FOREIGN COMPANY)

Resident companies

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

If the value of sales revenue (along with amount of the due VAT) did not exceed an equivalent in PLN of 2 000 000 EUR both in the previous and current tax year or when the taxpayer starts their 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%.

VAT /Transfer tax
As a rule, the sale of a real estate is subject to the VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met.

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

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.

If the above-mentioned exemption cannot be applied, a tax exemption may be applied if the seller did not have the right to deduct the 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 the VAT.

The place where the services are provided (country in which the transaction should be taxed) when it comes to real estates, is the country in which the real estate is located.

Fiscal unity
A non-resident company cannot form or be included in a fiscal unity (PGK).

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is considered to be subject to corporate income tax in Poland. However, losses can only be offset against other Polish taxable income derived from an equal source of revenues.

INDIRECT TRANSFER INTRA CONCERN (POLISH REAL ESTATE TO FOREIGN COMPANY)

Resident companies

Capital gains
The revenue derived from the sale of shares/ stocks is qualified to a separate source of revenues - capital gains and is not combined with income derived from the other sources. Therefore, it is not possible to settle the loss suffered on capital gains with income derived from the other sources. Capital gains are taxed at a flat rate of 19% and there is no possibility to apply a reduced rate of 9%.

Value of the revenue is represented by the price specified in the sales contract. If the sale is made by a company that does not conduct its elementary business activity in the area of capital gains, the sale of shares is not subject to the VAT. This price cannot differ significantly - without any principled reason, from the real estate's market value. Revenues from the transfer of shares are taxed in the seller's country, nevertheless if the assets consist mainly of real estate / estates, the revenues may be taxed in the country in which these assets (consisting of real estate / estates) are located. However, it should be highlighted that Poland introduced changes to local real estate clause.

Moreover, the regulations related to a real property company (please see “Quick overview of Polish real estate”) should be applicable accordingly.

VAT/ transfer tax
As a rule, the sale of a real estate is subject to the VAT, unless certain circumstances that entitle the seller to apply the tax exemption are met.

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

Exempt from 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.

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 the VAT.

The place where the services are provided (country in which the transaction should be taxed) when it comes to real estates, is the country in which the real estate is located.

The sale of shares/ stocks might be subject to PCC at 1%.

Losses
The loss may be offset against taxable Polish income derived from an equal source of revenues.

Fiscal unity
A non-resident company cannot form or be included in a fiscal unity (PGK).

Non-resident companies

Non-resident companies are treated in the same manner as resident companies, since income derived from Polish real estate held by a foreign company is considered to be subject to corporate income tax in Poland.

TRANSFER OF POLISH REAL ESTATE TO AN EU-COMPANY

If the transferor's home jurisdiction is in the European Union, the liability to tax on the capital gains may be avoidable if the merger and acquisition provisions applies. Several detailed conditions apply which can be found in the Council Directive of 19 October 2009.

Key contact person:

piotr_liss_tax_partner_piotr.lissrsmpoland.pl_.png

Piotr LISS

Tax Partner
Tax Advisor (10240)

T: +48 61 8515 766
E: ekspert@rsmpoland.pl