We are pleased to present you an overview of recent Polish tax developments which can be important for Private Rented Sector (PRS): (i) additional transfer taxation imposed on certain transactions and (ii) court verdicts confirming applicability of higher Real Estate Tax (“RET” - local property tax) rates to certain residential properties subject to lease.
Additional 6% CLAT on acquisition of certain residential properties as per draft amendments to the Civil Law Activities Tax (“CLAT”) Act
At this stage the draft amendments cover VAT-able acquisitions of legally separated residential premises (units) in the same or different buildings located on the same plot of land.
Simplifying, such units can be subject to additional 6% CLAT (kind of a stamp duty) in respect of sixth and each next unit acquired by the same buyer. The 6% CLAT will apply on top of any VAT charged on the acquisition. CLAT is imposed on fair market value of transferred assets, payable by a buyer and non-recoverable (but, as a rule, can be deductible for income tax purposes). VAT is payable by a buyer and in some cases can be recoverable (subject to multiple conditions to be analysed case-by-case).
The draft amendments are currently processed by the Senate and are expected to be in force from 2024. The wording and entry into force date can be still subject to changes.
Key takeaway: The amendments can result in the additional CLAT burden for buyers of multiple residential units within the same project / location. Note, however, that the current wording imposes the 6% CLAT only on specific transactions covering completed and legally separated residential units. At the same time, PRS acquisitions can cover e.g. (i) whole buildings (without legally separated units), (ii) buildings or units classified as non-residential, (iii) on-going construction by a developer on land already held by a project SPV (without any transfer of completed buildings / units to the project SPV).
As a result, impact of the new regulations should be analysed in detail case-by-case and the additional CLAT should not automatically apply in every new PRS project. Further legislative works should be also observed.
RET (property tax) rates applicable in PRS
In some cases real estate owners in PRS apply reduced RET rates available for residential properties used to accommodate housing needs of individuals. It is based on the argument that the final tenant is an individual who accommodates own needs in this respect.
However, practice of tax authorities and administrative courts can be different - we are aware of their multiple standpoints that higher RET rates designated for properties used in business activities should be applicable in PRS. They are based on the argument that the property owner (being also the RET-payer) uses it for business activities (i.e. for lease) and the type of use by a final tenant is irrelevant.
Note that the financial difference is substantial (provided figures are statutory maximums for local municipalities which impose RET) - the annual reduced RET rate is currently ca. EUR 0.22 per sqm of a building, while the higher RET rate for business purposes is ca. EUR 6.45 per sqm (i.e. is 29 times higher).
Key takeaway: PRS investors should analyse which RET rates were applied in the past in the existing investments and consider what rates should be modelled for future investments. Applicability of the reduced rates requires detailed analysis and may be ultimately disallowed (it can be clarified via an individual tax ruling application).
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