- Business breakfast 2019: Real estate in taxes – real estate taxes
- VAT on the transfer of assets within liquidation
- There will be a VAT refund for the purchase of an office building
- Change minimum income tax on commercial real estates
- Disposal of commercial real estate – consultations on taxation
- Key changes in income taxes since 2019
- Real estate tax – rates for 2019
1. Business breakfast 2019: Real estate in taxes – real estate taxes
We cordially invite you for another Business breakfast dedicated to the upcoming changes from 2019 and their impact on the real estate industry. Breakfast will take place on December 4 this year at 9.15 in the Advicero Nexia headquarters at Moniuszki 1A in Warsaw. Breakfast will be conducted in Polish. Please send applications to the address email@example.com, in the email, please enter “name, surname, company name and 4.12”
2. VAT on the transfer of assets within liquidation
Pursuant to the judgment of the Supreme Administrative Court of 11 September 2018 (reference number I FSK 1785/16), if a real estate is transferred free of charge to the shareholders of a limited liability company being in liquidation, then the company is obliged to pay VAT on such transfer.
In the case at hand, within the liquidations proceedings the company was obligated to transfer the property to the shareholders, (the company had the right to deduct the VAT on the acquisition of the real estate in the past). According to the standpoint of the Director of the Tax Chamber in Katowice, the transfer of property within liquidations proceedings is a supply of goods subject to VAT. The company disagreed with the said standpoint of the tax authority, and presents the opinion that the transfer of liquidation assets to shareholders will not result in the need to pay VAT because the property in question will continue to be used for business purposes and will not be part of the partners’ personal assets. In addition, the company claimed that the property will be transferred as a result of liquidation by the liquidators, and not in connection with the business activity of the company.
The Voivodship Administrative Court in Lublin and the Supreme Administrative Court upheld the position of the tax authority. Moreover the courts considered as irrelevant the fact that the property received by the partners will serve them for taxable activities, as well as the fact that it will be transferred as a result of the obligations under the Commercial Companies Code. In this case, according to the courts’ standpoint, it is important to transfer the property before the formal deletion of the company from the National Court Register and the fact that the liquidators will act only on behalf of the liquidated company.
3. There will be a VAT refund for the purchase of an office building
In September 2018, the Voivodship Administrative Court in Warsaw ruled that the taxpayer had the right to deduct PLN 42 million VAT, which he had paid in the purchase price of an office complex in Warsaw and did not have to return this amount to the tax office. The court ruled that the transaction was neither the sale of an enterprise nor its organized part.
In this case, the company acquired in 2016 a complex of office buildings in Warsaw for the amount of EUR 40.5 million. This transaction was considered as a delivery of goods subject to VAT and evidenced by a relevant VAT invoice. The company paid the VAT in the amount of PLN 42 million to the seller and deducted the input VA. Subsequently the application for VAT refund was submitted. The tax office decided to initiate a tax audit, after which it refunded the VAT to the company.
However, the Mazovian Customs and Tax Office initiated a subsequent inspection after several months, during which it stated that the transaction was incorrectly qualified. In accordance with the standpoint of the Mazovian Customs and Tax Office, this transaction was the sale of an organized part of an enterprise and should not be taxed with VAT but with tax on civil law transactions (TCLT), as a result the company was not entitled to a refund of input VAT. In 2017, the Chamber of the Tax Administration in Warsaw upheld the above decision, which resulted in lodging an appeal to the Voivodship Administrative Court in Warsaw by the company which disagreed with the assessment of tax authorities. The court concluded that the sale of the office complex was subject to VAT and the company was entitled to receive the VAT refund.
This is one of the first such judgments in Warsaw regarding the reclassification of a transaction regarding the sale of real estate, where the court stood with the taxpayer and granted the right to deduct the input VAT, despite the lack of binding ruling supporting it.
3. Change minimum income tax on commercial real estates
Starting 2019, after consultations with the European Commission, the regulations regarding the minimum income tax on commercial real estate is changing. Although this tax has been binding only since the beginning of 2018, it has already been modified, and the scope of taxation has been extended to all buildings being the subject of rent, lease or financial leasing (from January 1, 2019).
This means inter alia that both residential and non-residential buildings will be covered by the new regulations. An exception for taxpayers of Personal Income Tax will be buildings rented out of scope of business activity in the so-called private lease.
In addition, the tax will be paid only from the part of the building actually commissioned for rent and entirely excluded from tax will be real estates in which the ratio of leased space to the total area does not exceed the 5%.
Another unfavorable change is the change in the method of determining the tax free amount of PLN 10 million (below which the property is not subject to the minimum income tax). It is referring to the taxpayer, regardless of the number of properties he owns (currently the limit regards each of the possessed building). The above approach is to counteract the artificial separation of real estate into related entities.
An additional tool is to be the anti-abusive clause to be applied when transferring ownership of real estate without economic justification.
It is also worth noting that the provisions provide for the possibility of refunding the tax paid (on request), provided that the authorities do not find any irregularities in the calculation of the taxpayer’s income (or loss) on general principles and in the minimum income tax. In practice, it is possible to submit an application for a refund of the minimum income tax if the amount of the “standard” income tax is lower than it (or the taxpayer shows a loss in a given year). This possibility already exists for the tax paid in 2018.
5. Disposal of commercial real estate – consultations on taxation
Consultations on VAT taxation of commercial real estate sale transactions have started. According to the standpoint of the Ministry of Finance, the experience of entrepreneurs with the application of VAT regulations in the field of commercial real estate trading indicate that these regulations are perceived as complicated. The Ministry of Finance collects opinions regarding the criteria that must be met in order to recognize that the commercial real estate transaction is a disposal of an enterprise or organized part of the enterprise excluded from the scope of VAT. This will allow for the development of a possibly complete and precise set of rules on the basis of which taxpayers could classify the subject of transactions in commercial real estate for VAT purposes, i.e. determine whether the sale of a commercial real estate is the sale of an enterprise or its organized part.
The Ministry of Finance concluded that compliance with the developed and presented rules would result in the lack of grounds for questioning the correctness of settlements with taxpayers regarding the classification of the subject of the transaction for VAT purposes in the case of sale / acquisition of commercial real estate.
The Ministry of Finance plans to collect the standpoints regarding the criteria that must be met to recognize the transaction concerning a commercial real estate as the sale of an enterprise or an organized part of the enterprise excluded from the scope of VAT.
6. Key changes in income taxes since 2019
There is a number of revolutionary changes in taxes for the next year in Poland. Below we would like to present the most crucial of them:
- New WHT collection rules
The changes may mainly affect the settlements of the largest taxpayers who pay one entity receivables over PLN 2 million per year. In this case, the Polish remitter is in principle obliged to collect the withholding tax on a surplus of over PLN 2 million at a rate of 20% or 19%. Relevant exemptions or reductions of the tax rate may only be applied if the payer submits to the tax authorities appropriate statements on the possession of all necessary documents necessary for their application and fulfillment of relevant conditions (alternatively relevant opinion from tax authorities should be obtained by remitter in advance). The tax paid according to standard rates can be returned, but only after 6 months (with the option of extending this period).
- Exit tax
The aim of the new tribute is to prevent the state from losing tax revenues for the period in which the taxpayer was subject to Polish tax jurisdiction. The tax rate on unrealized profits is 19% of the tax base (for CIT taxpayers).
- Notional interest deduction (NID)
It is a possibility to include in the tax costs the “costs” of own financing (profit retained in the company or subsidies to the company) being equivalent to the costs of debt financing.
- New restrictions on general anti abusive clauses
Introduction of a new sanction in case of questioning transactions with affiliated entities on the basis of a anti avoidance clause (penalty rates amounting to 10 or 40% of tax advantage); modification of specific anti abusive clauses (eg regarding exemption for dividends); additionally, individual interpretations, the subject of which were tax regulations aimed at counteracting tax avoidance, are to be repealed.
- Introducing decreased CIT rate of 9%
The reduced tax rate will be due to revenue (income) other than capital gains. This tax rate is to be paid by the taxpayers whose revenues in a given tax year does not exceed the PLN equivalent of EUR 1.2 million. The preferences will be available solely for so caled small-taxpayers.
- The bill on companies investing in the lease of real estate (REIT)
The Act regulates the method of creating and operating the investment procedure on the model of REIT entities operating in the European Union. The project highlights special favorable tax solutions.
A new idea for Polish REIT assumes that REIT is to be a joint stock company which main activity will be the rental of residential real estates. The company, its subsidiaries and investors investing are to be provided with tax preferences. CIT on income earned by REIT from the rental of residential real estate and their sale will be postponed until the dividend is paid to shareholders. A rate of 8.5% CIT on the income derived from the rental of residential real estate is provided for. An exemption from income tax was introduced for the income of subsidiaries obtained from the lease and sale of residential real estate. The objectives of the draft of the act on companies investing in the rental of real estate is to increase the share of institutional investors on the domestic residential real estate market for lease and to enable retail investors to operate on this market.
Despite the fact that according to the plan all solutions contained in the Act are to come into force on January 1, 2019, we will have to wait for the final shape of the proposed solutions. Taking into account the high entry threshold and numerous legal restrictions, it may turn out that meeting certain requirements for tax incentives may prove to be difficult for some entities.
7. Real estate tax – rates for 2019
The Minister of Finance announced new maximum rates of local taxes and fees for 2019 – they will be about 1.6% higher than in 2018:
a) land associated with running a business – PLN 0.93 per square meter,
b) buildings or parts thereof:
- residential – PLN 0.79 per square meter of usable space,
- related to running a business – PLN 23.47 per square meter of usable space,
- related to the provision of health services – PLN 4.78 per square meter of usable space,
c) buildings – 2% of the building’s value.
This post is also available in: PL (PL)