Starting from January 1, 2019 an amendment of Corporate and Personal Income Tax Acts went into force with regards to the so-called tax on commercial real estate. It was then renamed tax on revenue from fixed assets. Until December 31, 2018 it encompassed only owners of commercial and office buildings located in Poland. A group of potential taxpayers has now been extended to owners of other types of buildings which make part of assets related to economic activity and have been released for use on the basis of a leasing or rent contract or another contract of a similar nature. The recent tax rulings indicate that the tax encompasses also hotels, conference centers and sports facilities.
A short introduction
Tax on revenue from fixed assets is relatively new as it was introduced to Polish law on January 1, 2018. According to the provisions in force from January 1, 2019 tax is calculated at a rate of 0.035 percent and is payable by the 20th day of the month following the month for which the tax is paid. The tax base is the sum of initial value of all taxable fixed asset of a given taxpayer reduced by an amount of PLN 10 m (approx. € 2,5 m). Where a building has been released for use in part, the taxable base is determined proportionately to the share of the usable area released for use in the total usable area of that building. If, however, the total share of a building’s usable area released for use does not exceed 5 percent of the total usable area there is no need to include this building in the taxable base.
Taxpayers can deduct the amount of the tax on revenue from buildings paid for a given month from the tax advance that entrepreneurs conducting economic activity in Poland are obliged to calculate. It may also be deducted from a final yearly tax settlement. Amounts which have not been deducted can be refunded upon a taxpayer’s application.
Old tax, new taxpayers…
The most important change in force since January 1, 2019 is the extension of the scope of immovable properties affected by tax and consequently also a group of potential taxpayers. Until December 31, 2018 only commercial and office spaces were subjected to taxation. Currently, tax encompasses all buildings, being fixed assets, that meet jointly the following criteria:
- they are owned or co-owned by a taxpayer;
- they have been released for use in full or in part on the basis of a leasing or rent contract or another contract of a similar nature;
- they are located in Poland.
… and the new rules of determining the taxable base
According to the provisions in force before January 1, 2019 tax was calculated on income generated only by a building of value exceeding PLN 10 m. The initial value of each building had to exceed this threshold in order for it to be affected by tax. If a taxpayer owned numerous buildings but the initial value of none of them exceeded PLN 10 m, a tax obligation would not arise at all. Starting from January 1, 2019 the taxable base is the sum of all a taxpayer’s taxable fixed assets, reduced once by an amount of PLN 10 m. As a consequence, if a taxpayer’s assets are dispersed among numerous buildings and the initial value of each does not exceed PLN 10 m, a tax obligation arises anyway, provided that the total value of all taxable buildings exceeds PLN 10 m.
Tax authorities always pro fisco
The amendment, which is unfavorable to immovable property owners, has been followed by even less favorable tax rulings. It turns out that in the Polish tax authorities’ opinion tax also encompasses hotels, conference centers and sports facilities. Arguments are that a hotel service is to be regarded as similar to lease since it shares some of its characteristics and as a consequence a building used to provide hotel services should be subjected to tax on revenue from fixed assets. A service, in order for a building to be encompassed by tax, should consist primarily of letting someone use this building for some time. Other services (for instance organization or facilitation of conferences and workshops) are to be regarded, in principle, as related to lease. It means that hotels and conference centers hosting conferences and workshops are also affected by tax. Similar arguments have been brought up in the context of sports facilities.
On January 1, 2019 the legislator introduced also the anti-avoidance clause. The clause provides that the regulations on tax on revenue from fixed assets apply also if a taxpayer transferred, for no justified economic reasons, in whole or in part the ownership or co-ownership of a building or released this building for use on the basis of a leasing agreement in order to evade payment of tax. In other words, the clause provides for the legal fiction that for purposes of calculation of tax the transfer has never taken place.
There is no way out
The amendment to the Income Tax Acts leaves little room for the avoidance of tax. The most recent tax rulings show that every time a building – being a taxpayer’s fixed asset – is released for use by a third party, a taxpayer should be alarmed and stay vigilant as tax on revenue from fixed assets is likely to be due…