- Real estate companies with new responsibilities
- New obligation – publication of the tax strategy
- Minimum tax exemption until the end of the epidemic period
- Perpetual usufruct fee and state aid
- What is the rain tax
- Conditions for VAT treatment of real estate supply
- Resale of utilities as a transaction connected with real estate
1. Real estate companies with new responsibilities
As of January 1, 2021, a new category of entities has been introduced in the Polish income tax law – the so-called real estate company, which is defined as an entity other than a natural person, obliged to prepare a balance sheet on the basis of accounting regulations, in which:
- as at the first day of the fiscal year), at least 50% of the market value of assets, directly or indirectly, was the market value of real estate located in the territory of the Republic of Poland or rights to such real estate, and at the same time this value exceeded PLN 10 million (definition for entities starting activity) or
- as at the last day of the year preceding the tax (or fiscal) year, at least 50% of the balance sheet value of assets, directly or indirectly, was the balance sheet value of real estate located in the territory of the Republic of Poland or rights to such real estate, and at the same time this value exceeded PLN 10 million, and in the year preceding the tax (or fiscal) year, tax revenues (or revenues recognized in profit and loss account, respectively) from lease and similar contracts, or from the sale of real estate or shares from other real estate companies, accounted for at least 60% of total revenues (definition for entities other than those indicated above).
A real estate company whose shares, rights and obligations or rights of a similar nature would be disposed of, will be obliged to pay to the competent tax office – as a payer – 19% tax on this income, by the 20th day of the month following the month in which the income was generated. The above obligation arises when:
- the selling party is a Polish non-resident (legal or natural person) and
- shares or rights that represent at least 5% of the voting rights (or 5% of the profit participation rights) are sold.
Importantly, in the event that the company would not have information on the transaction amount, the tax due is set at 19% of the market value of the shares to be sold.
Moreover, an obligation to appoint a tax representative is introduced for a real estate company that has no seat or management board in the territory of the Republic of Poland – real estate companies that are subject to unlimited tax liability in an EU or EEA country are exempt from this obligation.
In the final wording of the regulations, the provision that real estate companies had to present their tax policy was removed. This only happens when the turnover exceeds EUR 50 million.
2. New obligation – publication of the tax strategy
The Act of 28 November 2020 amending the PIT Act, CIT Act, the Act on flat-rate income tax on certain income received by natural persons and certain other laws introduces an obligation to publish information on the tax strategy implemented by entrepreneurs. Thus, from January 1, 2021, CIT taxpayers whose income in the tax year exceed EUR 50 million as well as tax capital groups, regardless of the amount of revenue generated, will be required to publish on their website (or failing that on the related party’s website) information on the tax strategy.
What elements should be included in the published tax strategy? Primarily, information about the processes and procedures for managing tax liabilities, including the number of tax schemes reported to the Head of the National Tax Administration, information on transactions with related parties where value exceeds 5% of the balance sheet total of assets, information on planned or undertaken restructuring measures, information on applications for tax rulings submitted by the taxpayer, binding rate or excise information, as well as information on tax settlements between countries where harmful tax competition is applied. And all this while maintaining commercial confidentiality.
It has been problematic so far to determine the appropriate date for the obligation to publish on the website. However, on December 9th, 2020, the MF clarified that the amending law does not provide for transitional regulations, so taxpayers will be obliged to prepare and publish information already for 2020 until December 31st, 2021.
The provision of information on applied tax practices is crucial for taxpayers, as failure to comply with the obligation may result in a fine of up to PLN 250,000. It is therefore important that those affected by this obligation already take proper care of the effective procedures of the new obligation.
3. Minimum tax exemption until the end of the epidemic period
The entrepreneurs will not pay a tax on income from buildings (the so-called minimum tax) until the end of the epidemic.
On the basis of the Article 38ha of the Act of 28 November 2020 amending the PIT Act, CIT Act, the Law on flat-rate income tax on certain income received by individuals and certain other laws, the revenue liable to tax under Article 24b determined for the period from 1 March 2020 to 31 December 2020, as well as from 1 January 2021 until the end of the month in which the state of epidemics is revoked – in the event that the state of epidemics declared on account of COVID-19 continues after 31 December 2020 – shall be exempt from the tax on income from buildings.
Keeping in view the continuing state of epidemic, the exemption from tax on income from buildings, will be available as per the provisions also from January 1, 2021.
It is worth mentioning that initially, Shield 1.0 only postponed the deadline for payment of minimum tax on commercial properties to May 2020. In contrast, these provisions were later repealed and replaced by a complete exemption until the end of the epidemic period, without any conditions.
4. Perpetual usufruct fee and state aid
According to the published decision of the European Commission of November 13th, 2020, No. SA.57172 (2020/N), the possibility of applying for aid in respect of deferring the deadline for payment of tax, or spreading the payment of tax into instalments, or in respect of deferring or spreading into instalments tax arrears together with default interest, or interest on tax advances not paid on time was introdcued, even until December 31st, 2022.
According to the published decision, this aid concerns only taxes mentioned in Article 3(3)(a) and (b) of the Tax Ordinance, where fees and non-tax budget dues are excluded from this scope. Bearing in mind that the fee for perpetual usufruct is of a civil law nature, it is excluded from the scope of the above aid.
However, it is worth noting Article 15ja of the Act of March 2, 2020 on special solutions, according to which the annual fee for perpetual usufruct of real property belonging to the resources of the Treasury may be reduced in proportion to the number of days during the year when the state of epidemic risk and the state of epidemics due to COVID-19 was in force.
However, the conditions stipulated in the act must be met, which include, inter alia, notification of payment of the fee in the reduced amount to the head oft he district authority or president of the city with poviat rights, performing tasks within the scope of government administration, before the deadline of January 31, 2021. In addition, the taxpayer must meet the condition of not being in arrears in the payment of tax liabilities, contributions to social insurance, health insurance, the Guaranteed Employee Benefits Fund, the Labour Fund or the Solidarity Fund by the end of the third quarter of 2019. In addition, it is necessary to demonstrate an actual decrease in turnover, following the occurrence of COVID-19, the value of which must be (i) not less than 25%, calculated as the ratio of the turnover of any month after 31 December 2019 to the previous month or (ii) not less than 15%, calculated as the ratio of the turnover of 2 consecutive months (after 31 December 2019) to the corresponding period of the previous year.
Let us pay attention not only to the conditions that entitle to a reduction of the fee, but also to the fact that the property must belong to the State Treasury resources.
5. What is the rain tax
Contrary to appearances, this is not a new fee, as it has been in force in Poland since 1 January 2018, and the basis should be sought in the Water Law Act. It is characterised as a fee, not a tax, as it has no fiscal character.
It is levied for the “reduction of natural land retention as a result of performing on the real property with an area exceeding 3500 m2 works or construction facilities permanently connected with the ground having an impact on the reduction of this retention by excluding more than 70% of the real property from the biologically active area in areas not covered by open or closed sewage systems.” To clarify – it is a situation in which the constructed object causes that the outflowing water does not find its way to green areas, but to the sewage system, thus causing water losses.
The amount of the fee for water services is, as a rule, determined by the head of the village, the mayor or the president of the city and provides the relevant information to the entities obliged to pay the fees for water services, including the method of calculation of this fee. If a plot of land has a water retention device with a capacity exceeding 30% of the annual outflow from a given area, the fee amounts to PLN 0.05 per 1m2. However, if the property owner has not introduced such a solution, they will pay PLN 0.5 per 1m2.
Currently, the fee is mainly paid by entrepreneurs, while the planned changes will increase the spectrum of payers. It is planned that the fee will apply to areas from 600 sqm, with over 50% of buildings, and the rates will range from PLN 0.45 to PLN 1.50 per year.
6. Conditions for VAT treatment of real estate supply
In a judgment of August 28th, 2020 (file no. I FSK 1476/17), the Supreme Administrative Court (NSA) confirmed that division of a plot into smaller plots and separation of a road are within the scope of management of private property. By the same, it cannot be held that the entirety of the actions taken by the taxpayer in connection with the planned sale of the plot, namely the division of this plot into 5 smaller plots and sectioning off the road as well as applying for a planning permission, proves that the taxpayer acted as a person conducting activities in the real estate trade.
In the present case, the taxpayer was the owner of a plot of land in respect of which he applied for planning permission and subsequently divided it into several smaller plots. The taxpayer requested an interpretation in order to confirm whether the sale of the plots would be subject to VAT and he would be deemed to be acting as a VAT payer on this account. In the interpretation issued, the authority confirmed VAT taxation, which the taxpayer appealed against. The court of first instance issued a different ruling.
As the NSA stated, the key to the ruling is to determine whether the actions taken meet the prerequisites of business activity, and this requires an assessment of the factual circumstances. Based on the theses formulated by the CJEU in the judgment of September 15th, 2011 in joined cases C-180/10, C-181/10, actions connected with the ordinary exercise of the right to property cannot be deemed to be carried out within the framework of conducted economic activity, but it is different when an interested party takes up active activities in the area of real estate trade, involving means similar to those used by producers, traders and service providers, to the extent that the actions take on a professional and, consequently, organised form. The mere number and scope of sales transactions is not decisive as to the nature of business activity within the meaning of Article 15(1) and (2) of the VAT Act. What is decisive is the means employed by the seller to sell the land. If those means are similar to those used by traders, then the party selling the land behaves like a trader.
7. Resale of utilities as a transaction connected with real estate
The brief facts presented in the individual interpretation are as follows. A housing association, due to the fact that it is not possible to conclude individual agreements for water supply and central heating for individual apartments, makes settlements with suppliers of the above utilities; it is a purchaser of utilities from external suppliers, which it buys in its own name, but on behalf of the owners of the apartments. The subject of the dispute at the NSA was whether the costs of supplying utilities to flats constitute a transaction connected with real property known under the provision of Article 113(2)(2)(a) of the VAT Act.
According to the NSA, not every service connected with real estate is subject to this provision. When making the assessment, reference should be made to Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013 amending Implementing Regulation (EU) No 282/2011 and the jurisprudence of the CJEU. The resale of so-called utilities has a certain connection to a specific property, but not a direct connection. Instead, a direct connection may occur in the case of the supply of heat, water or heat extraction. Consequently, the value of a transaction consisting in settlements with utility providers cannot be directly included in the value of sales under Art. 113(1) of the VAT Act (judgment of the NSA of 19 August 2020, ref. I FSK 2063/17).