Tax on revenue from buildings

In 2018, by law of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Flat-rate Income Tax Act on certain revenues generated by individuals[1], a new tribute was introduced into the Polish tax system, previously unknown to Polish entrepreneurs – so-called commercial property tax. The regulations added were reflected under Article 30g Act on 26 July 1991 on personal income tax[2] and Article 24b Act on 15 February 1992 on corporate income tax[3].

1. Introduction

The tax on commercial buildings was intended to charge owners only of certain properties, which were paid for use under civil law contracts, with a significant value exceeding 10,000,000 PLN. It was not concealed that the purpose of the amendment to the amending law was to combat the aggressive optimisation applied by tenants who either do not show income tax to be paid at all or pay it at an disproportionate level in relation to their revenues. Fearing that the European Commission initiated proceedings against Poland for infringement of Union law by the application of selective taxation of selected groups of taxpayers resulting in distortions of competition on the market, the Polish legislature decided to modify the rules on taxation of income from commercial property tax. According to the reasons for the bill 15 June 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Flat-rate Income Tax Act on certain revenues generated by individuals[4]: „According to the findings made by the Polish side with the EC, the provisions in force in Poland require changes in the direction of:

• 1) the minimum income tax on all properties– buildings, excluding residential buildings, where they have been put into service under government (self-government) social housing schemes and such exemption is compatible with the State aid rules;
• 2) the application of the minimum income tax to those properties (parts thereof) which are rented;
• 3) changes to the threshold 10,000,000 PLN, below which the property is not subject to taxation with a minimum income tax on the property per taxable person;

1. the possibility of avoiding (reimbursement) tax on the revenue from buildings in the event that the tax authority confirms payment of PIT or CIT at the appropriate level if the taxpayer requests reimbursement of that tax. The changes proposed in the self-correction meet the expectations of the EC.’

By the power of the bill with 15 June 2018, ‘autoamendment’, from 1 January 2019 the provisions on income tax on commercial real estate are amended. The tax was defined as a permanent property tax. However, the revised rules giving taxable persons certain powers entered into force retroactively, i.e.

January 2018 It should be noted that another change in the tax on commercial property has been made by law with 23 October 2018.amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act - Tax Ordinance and some other laws[5]. Well...

Article 17 of that Act amended Article 2(2) of the Act of 15 June 2018 content Article 24b(10) the Corporate Income Tax Act This amendment is related to repeal Article 11u.p.d.o.p., valid until the end 2018, and Article 11 the Corporate Income Tax Act, and the introduction of new transfer pricing solutions.

1. Subject matter of taxation — exemptions from taxation on revenue from buildings

To the end 2018 Only the following properties were subject to property tax:

1. commercial and service buildings classified as shopping malls, department stores, independent shops and boutiques, other commercial-service buildings (group 1, type 103 KST);
2. office buildings classified as office buildings (group) 1, type 105 KST). Other properties were not at all subject to income tax on revenues from commercial buildings. The tax base was the revenue determined by the initial value of the fixed asset, determined on the first day of each month on the basis of the taxpayer's record of fixed assets, less a fixed and equal amount for all (free) 10,000,000 PLN. This amount was fixed for each building separately. According to the current sound Article 30g(1) U.p.d.o.f. and Article 24bust. 1 the Corporate Income Tax Act the income tax on the fixed asset that is a building is charged to all buildings (no matter how much KŚT):
3. owned or co-owned by the taxpayer,
4. all or part of the use of the lease, lease or other similar contract,
5. located in the territory of Poland.

The income tax on the fixed asset that is the building continues to be 0.035% tax bases for each month. As a general rule, an entity must meet all the above conditions in order to be regarded as a taxable person liable to pay tax on the income from buildings, i.e.

be the owner of real estate located in Poland and return it to other entities. As an exception, tax on the revenue from buildings was made lessees the use of real estate under a leasing agreement, even though they do not have a real estate legal title based on ownership.

lessee ((financial) will pay the property revenue tax under the condition that they themselves obtain revenue from the lease of the building they have leased.

It should be noted that by virtue of the Act of 15 June 2018 another additional condition has been established for PIT taxpayers. Namely, the building devoted to the use of the taxable person must be an asset of the economic activity. As a result, buildings which are rented by PIT taxpayers as a source defined in Article 10(1)(6) u.p.d.o.f. (so-called private lease), even those of considerable value, will not be subject to taxes on revenue from buildings.

Tax exemptions on revenues from buildings of fixed-term income which is a residential building put into service in the framework of the implementation of general government programmes concerning social construction, if this exemption constitutes compensation meeting the conditions laid down in the EC Decision from 20 December 2011 on the application Article 106ust. 2 Treaty on the Functioning of the EU to State aid in the form of public service compensation granted to undertakings entrusted with the provision of services of general economic interest[6].The tax on the revenue from buildings does not constitute the cost of obtaining revenue, which is due to Article 23(1)(65) U.p.d.o.f. and Article 16(1)(74u).p.d.o.p. Article 5 Act 15 June 2018, corporate tax payers whose tax year is different from the calendar year and started before 1 January 2019, and will end after 31 December 2018, apply to the end of their tax year Article 24b and Article 24c the Corporate Income Tax Act in the sound before the auto-amendment, with some exceptions. The new rules on:

• 1) to cover only part of the building which is rented when establishing the tax base,
• 2) exemptions from the tax base for commercial and service buildings, where they are used exclusively or to a major extent for the taxpayer's own purposes (so far only office buildings have been covered),
• 3) on tax refund
• – apply all tax payers on revenue from buildings as early as the tax year starting after 31 December 2017
• 3. Tax base

The revenue for the holding of permanent buildings is fixed at first the date of each month the initial value of the taxable fixed asset, included in the records of fixed assets and CHP.

In the month in which the measure was entered in the register, it will be the initial value calculated on the date of entry of the fixed measure into the register (Article 30g(3) U.p.d.o.f. and 24 bust. 3 the Corporate Income Tax Act).

It must be consistently stated that the owner of the building, who will carry out improvements in the building within the meaning of the tax laws, will be obliged to estimate the new tax base on the revenue generated by the buildings.

From the month following the completion of the work, such a taxpayer will pay a higher tax on revenue from buildings.

Example

In the records of the taxpayer’s fixed assets, there is a building property whose initial value at purchase prices is set at the level of 9,600,000 PLN. From March to July 2019 improvement work of value 4,000,000 PLN. The administrative decision allowing the use of the upgraded facility was issued in September 2019.

The lease of usable space was signed by the entrepreneur In September 2019 tenants transferred object In October 2019 The taxpayer is obliged to pay property income tax starting in October 2019 The amount of tax for this month will be: 9,600,000 + 4,000,000 – 10,000,000 =3,600,000 × 0.035% = 1,260 PLN.

In the month when the building was disposed of or put into use under the lease agreement, the income shall be determined solely by the taxable person who disposed of the building or gave it for use under the lease agreement. This principle applies mutatis mutandis in the event of divestment of ownership of the building (Article 30g(4) u.p.d.o.f. and 24b. section 4 the Corporate Income Tax Act).

Where the building has been commissioned in part, the revenue shall be determined in proportion to the proportion of the useful area to be used in the total usable area of the building. The proportion is set on the first day of each month. However, income is not determined when (on the first day of each month) the total share of the building's usable area does not exceed 5% total building usable area (Article 30 taste.7 u.p.d.o.f. and 24b. section 7 the Corporate Income Tax Act).

Example

Spółka z o.o. providing medical care services is the owner of a clinic, a building constituting a permanent measure of initial value 14,000,000 PLN. The object of the lease agreements is the medical offices located on the last floor of the building and two offices on the ground floor.

Daily 1 March 2019 the company occupied for its own needs 62.86% useful surface, put into use 37.14% This surface. Thus, the tax on revenues from buildings in the company for March will be: 14 000000 – 10,000,000 = (4,000,000 × 37.14%)× 0.035% = 519.96 = 520 PLN.

Due to the fact that last-story medical office leases expire on the last day of September 2019, After this period, the board of directors decided to use them for their own clinics. Since October 2019 under the lease agreement, only the laboratory (with a usable area of less than 4%) located on the ground floor of the building.

As the rented usable area of part of the taxpayer's property does not exceed 5% the total usable area of the building, as of October, the company will not be obliged to determine income tax on revenue from the property held.

Where housing units put into use in the implementation of general government social construction programmes are located in the building, income shall be reduced proportionally to the share of the useful area of these dwellings in the total useful area of that building (Article 30g(8) and Article 24b(8) the Corporate Income Tax Act).

It is worth noting the judgement of the WSA in Gdańsk 19 September 2018[7].

Company that rented to other entities third part of the office building held (the so-called administrative centre), considered that it was nevertheless using the building in the applicant's response, noting that since the legislature in the Corporate Income Tax Act does not specify precisely what is meant by the concept of an office building used exclusively or principally for the taxable person’s own needs, in accordance with Article 24b(2) the Corporate Income Tax Act, the taxable person is not obliged to ‘perceive’ the content of the legal standard resulting from that provision and, when trying to interpret it, does not have to rely on the justification of the draft amending law.

The Court of First Instance held that the body should not use the justification for the law introducing the new provisions in the case of an individual interpretation, but should apply First, rules of linguistic interpretation. Therefore, the Authority should be convinced that it is not possible to decide (in such a state of fact) whether the applicant will be obliged or not to charge and pay the property income tax in the light of such editorial provisions and the use of concepts not specified therein.

It should be stressed that, in the original wording, the provisions imposing an obligation to pay tax on revenues generated by commercial real estate included all the properties listed in u.p.d.o.f. and the Corporate Income Tax Act, intended for hire, whether or not they are currently put into use.

Only the buildings on which depreciation was discontinued as a result of the suspension or termination of business activities were excluded from the tax. From 1 January 2019 tax on revenue from buildings is collected only on buildings that benefit.

Entrepreneurs who have paid tax on non-rented office or commercial buildings In 2018, may recover it by making an appropriate request to the tax authority. The refund of the unduly paid tax on the revenues from buildings due to the amendment of the legislation retroactively is not ex officio.

Example

The taxpayer owns a valuable office building 15,000,000 PLN and a value trading and service building 19,000,000 PLN. The office building is used in 70% for the taxpayer’s own purposes, the rest of the area was made available to other entities. The retail and service building was rented entirely to the premises of the bank. However, the agreement was terminated by agreement of the parties with effect on the last day of March 2018 From this point on to the end 2018, He was actively looking for a new tenant.

January - June period 2018

The taxpayer was obliged to charge and deduct commercial property income tax for individual buildings, calculated at the beginning of each month as follows:

1) office building: 15,000,000 –10,000,000 = 5,000,000 × 0.035% = 1,750 PLN

By law of 15 June 2018, retrospectively from 1 January 2018 the provisions which are unfavourable to taxable persons have been amended by making the payment of the tax calculated for a given month subject to the conclusion for all types of buildings covered by that tax of rental, lease and similar contracts, and by providing that the income will be determined by the taxable person in proportion to the proportion of the useful area to be used for the total area of the building owned by the taxable person (cf.

Article 6(7) Act on 15 June 2018). With retroactive effect Law of 15 June 2018 Trade and service buildings have also been excluded from taxation if they are used exclusively or to a major extent for the taxpayer's own needs.

Example

Data from the previous example apply.

January - December period 2018 (after the amendment)

The calculations are as follows:

• 1) office building: 15,000,000 –10,000,000 = [5,000,000 × 30% (area rented)] × 0.035% = 525 PLN;
• 2) service building: 19,000,000 –10,000,000 = 9,000,000 × 0.035% = 3,150 PLN.

Income tax on revenue from the service building should be calculated and paid only for the actual duration of the lease agreement (i.e. from January to March 2018). For other months 2018 This tax was not due to the tax. The taxpayer may request reimbursement from the competent tax authority.

4. New rules for calculating the tax base on 2019

In order to ensure the equality and universality of taxation, the legislator has decided, by countering the excessive use of the law by taxpayers, under Article 30 taste. 9 u.p.d.o.f. and 24b.

section 9 the Corporate Income Tax Act, that from 2019 the tax base will be the sum of revenue from individual buildings, less the amount 10,000,000 PLN. Thus, the free amount 10,000,000 PLN it has been closely linked to the entity liable to pay the tax on the revenue from the buildings and not to the subject of the tax.

Denmark was covered by a wide range of taxpayers with more properties of lower initial value.

Example

Entrepreneur X uses in his business three building (service) property – the value of each is equal to 8,000,000 PLN. In each of them, the area occupied for rent is as follows:

• 1) Building A — 80% the total usable area leased,
• 2) Building B — 60% the total usable area leased,
• 3) Building C — 100% the total usable area put into rent.

To the end 2018 the entrepreneur was not obliged to determine the tax on the income from the building property, as the initial value of none of them exceeded 10,000,000 PLN.

In 2019, In order to determine the volume of revenue from buildings, the entrepreneur must each time determine the size of the space occupied for rental purposes or contracts of a similar nature. the first day of each subsequent month (i.e.

determine the amount of revenue relating to the part of the rented property, then sum up the calculated values and establish the tax base to be reduced by the amount 10,000,000 PLN.

If the sum of the revenue determined in proportion to the share of the usable area to be used in the total usable area of the building is equal to or less than 10,000,000 PLN, then the taxpayer does not determine the tax on revenue from buildings.

In the case described in the example, entrepreneur X should calculate the income tax on buildings as follows:

• 1) Building A — 80% × 9,000,000 =7,200,000 PLN,
• 2) Building B — 60% × 9,000,000 =5,400,000 PLN,
• 3) Building C — 100% × 9,000,000 =9,000,000 PLN.

The revenue from the part rented in all buildings shall be: 13,500,000 –10,000,000 = 3,500,000 × 0.035% = 1,225 PLN.

5. Joint ownership of the building

Where the building provides:

1. the co-ownership of the taxable person, when calculating the initial value, the value resulting from the records of that taxable person,
2. property or joint ownership of a company that is a legal person, the provisions shall apply mutatis mutandis to the calculation of the initial value per shareholder. Article 8(1) U.p.d.o.f. and Article 5(1) the Corporate Income Tax Act concerning the proportionate determination of the revenue from participation in a company not a legal person, from shared ownership, of a joint venture with the common ownership or use of the goods (Article 30g(5) u.p.d.o.f. and 24b section 5 the Corporate Income Tax Act).

Thus, with regard to a passenger company or joint ownership of a building, the tax base on the revenue from buildings is the sum of the revenue from all rented buildings, less the amount[10] 0 PLN. Interestingly, despite the fact that the building is owned by a company (public, partnership, limited partnership), only its partners are obliged to pay the tax.

Example

Entrepreneur AA sp. z o.o., sp. k. in which the partners are:

• 1) Commandary – Adam Kowalski holding 20% share of the company's right to profit,
• 2) Deputy General – AA sp. z o.o. holding 5% share of the company's right to profit,
• 3) Commandary – Joanna Iksińska holding 75% share of the company's right to profit
• – built a commercial gallery with an initial value 16,500,000 PLN, which she included in her fixed assets records. Partners are not related parties.

The income tax on buildings of each partner will be determined as follows:

1. Adam Kowalski – 16,500,000 × 20% =3,300,000 PLN 2) AA sp. z o.o. – 16,500,000 × 5% = 825,000 PLN 3) Joanna Iksińska – 16,500,000 × 75%= (12,375,000 – 10,000,000) × 0.035% =831.25 PLN = 832 PLN.

Joanna Iksińska will be the only partner obliged to pay tax on the income generated by the property.

In the case of affiliated entities within the meaning of the relevant provisions of the Income Tax Act, the free amount 10,000,000 PLN is divided into those entities in the proportion that revenue from the building remains in the overall amount of income of the taxpayer and its affiliated entities.

This principle also applies when a building is a component of the property of a company which is not a legal person in which the affiliated entities are partners (Article 30g(10u).p.d.o.f. and 24b. section 10 the Corporate Income Tax Act).

Example

The company z o.o. A and the company z o.o. B are related entities. They are also members of the public company. The right to profit A sp. z o.o. is 27%, a B sp. z o.o.73%. The public company owns a hotel in Warsaw, which was leased to another entity. In the register of fixed assets of the public company there is a permanent measure, i.e. a hotel of initial value 22,000,000 PLN. The revenue tax on buildings in each partner will be as follows:

• 1) A sp. z o.o. – 27% × (22,000,000 – 10 000000) × 0.035% = 1,134 PLN,
• 2) B sp. z o.o. – 73% × (22,000,000 – 10 000000) × 0.035% = 3,066 PLN.
• 6. Tax payment

Tax on revenue from buildings taxpayers calculate and pay to the tax office's account within the time limit 20. the day of the month following the month for which the tax is paid.

Tax due for December or the last month of the tax year – to those taxpayers who would like to make an annual statement before 20 January the tax year – it shall pay up no later than the date of submission of the tax return. The amount of tax paid for a given month on income from buildings tax payers deduct from the advance on tax.

When taxpayers pay quarterly advances, the tax on the revenue from buildings paid for months per quarter (Article 30g(11) u.p.d.o.f. and 24bust. 11 the Corporate Income Tax Act). Tax payers may not pay income tax on buildings if it is less than the amount of the advance on the tax for a given month.

It should be stressed that the tax paid in a given month on the revenue from buildings is deductible only from the advance income tax for that month (quarter). The amounts paid and not deducted in the tax year of the building tax shall be deducted from the income tax PIT and CIT calculated for the full tax year.

The deduction shall be made in the annual tax return.

Consequently, it should be considered consistently that a taxable person who does not pay the tax on the revenue from buildings to the tax office (because the tax on the revenue from buildings is lower than the advance on income tax) cannot reduce his advance on the tax on the revenue from buildings which he did not actually pay.

This claim is in line with the explanations of the Ministry of Finance in the Communication from 15 December 2017[8]: „The taxpayer liable to pay the so-called minimum tax can therefore:1) to pay the minimum tax and, when calculating the CIT advance (PIT), deduct this tax on the tax due to the PIT (CIT)– section 8 and 9 either 2) payment of the advance on CIT (PIT) in full if the minimum tax is lower than the amount of that advance — section 10”.

Example

Advance on income tax in Company A for January and February 2019 was 6,570 PLN and 350 PLN. The tax due on revenue from buildings in each of these months was set at the level of 500 PLN.

The company can deposit to 20 February IRS:

• 1) for January – income tax on revenue from buildings in the amount 500 PLN and an advance on income tax of: 6,570 – 500 PLN = 6,070 PLN;
• 2) only a full advance on income tax of 6,570 PLN, except for the total tax on the revenue from the buildings, as this tax is lower than the amount of the advance.

In turn for February 2019 the company will not pay an advance on income tax if it pays due commercial property tax in the amount 500 PLN. The amount of that tax is higher than the amount of the advance calculated. The unpaid part of the paid building tax can be deducted in an annual statement, possibly a refund to the tax office in the absence of the income tax due to allow deduction.

7. Tax refund

By Article 45(3d) U.p.d.o.f. and Article 27ust.

1d the Corporate Income Tax Act, from revenue received from 1 January 2018, taxable persons liable to pay the tax on income from buildings shall show in an annual statement: 1) fixed assets whose initial value is to be taken into account when establishing the tax base on the revenue from buildings, 2) the amount of tax due and paid on revenue from buildings, 3) the amount of deductions made.

A new and beneficial solution for entrepreneurs is the introduction by law of 15 June 2018 The tax refund mechanism on revenue from buildings. This reimbursement will take place at the request of the taxpayer and will also cover the overpaid tax for 2018

Under Article 30g(15) u.p.d.o.f. and 24bust.

15 the Corporate Income Tax Act The legislator decided that the amount of tax on the revenue from buildings paid and not deducted is recoverable at the taxpayer’s request — unless the tax authority finds that the amount of the tax liability or loss in the compound tax return and the tax on the revenue from buildings is incorrect.

It can be concluded from the above that before the tax on the revenue from buildings, the calculation of this tax and the income tax declared by the taxpayer under the self-calculation must be verified.

When verifying the appropriateness of the tax refund, the tax authority will in particular draw attention to determining the amount of the costs of debt financing incurred in connection with the acquisition or construction of the building, as well as to verifying whether other revenues and costs of the tax payer on the revenue from the buildings for the tax year concerned have been established on market terms.

If the tax authority determines a tax liability or a loss of an amount other than the tax return, the taxpayer shall be entitled to a refund of: 1) the difference between the amount of tax paid and non-deductible on the revenue from buildings and the amount of tax determined by the tax authority, if the tax authority determines the tax liability, or 2) the tax paid and not deducted on revenue from buildings, if the tax authority determines the loss.

8. Buildings leased

In the previous state of the law, it was not entirely clear whether the buildings put into financial leasing should be subject to commercial property tax at all and who the tax actually imposes. Since the property was not a permanent measure, leasing provider, He should not have paid the tax on the building put into use. In turn lessee He was also not obliged to pay the tax because he was not the owner. So we had a legal loophole that was removed under the law 15 June 2018

Currently, after the entry into force of the Act of 15 June 2018, when the building has been put into service under a lease agreement, the provisions on the tax on revenue from the buildings shall apply only to the depreciator (Article 30g(17u).p.d.o.f. and 24b. section 17 the Corporate Income Tax Act). The situation is clear for operating leases. Here the financier, as the owner, putting the building to use and making depreciation write-offs, pays tax on the revenue from the buildings.

In the case of financial leasing, it is still unclear whether it is certain leasing provider should not be regarded as a taxable person on the revenue from buildings. However, as a result of the specific regulation, it seems that lessee (even though he is not the owner) pays and deducts tax on revenue from buildings.

However, it does so only if the building continues to be used on the basis of a lease, lease or other similar nature. In order to create an obligation to pay income tax from the building, there must be revenue from the transfer to use this building on the basis of a specific title.

In the month in which the sale of the building or the putting into service under the lease agreement was made, the income from that building shall be determined only by the taxable person who disposed of the building or gave it up for use under the lease agreement.

9. Abuse clause

The rules on the income tax on buildings shall also apply where the taxable person, without justified economic reasons, transfers in whole or in part the property or co-ownership of the building or puts the building into use under a lease agreement in order to avoid revenue tax on buildings.

In such a situation, no income in respect of the building or part of it shall be established for the entity to which the property has been transferred (Article 30g(18) u.p.d.o.f. and 24b. section 18 the Corporate Income Tax Act).

In view of the above, it should be assumed that, if the taxable person who has so far been liable to pay the tax on the revenue from buildings, in order to obtain the tax advantage, will return the building for use or dispose of it to another entity and its operation will be artificially and economically unjustified, the tax authority will not determine the taxable income at the buyer of the building, or tenant, but will direct his claim to pay income tax to an entity that had previously been obliged to pay building tax.

10. Tax on revenue from buildings in the case of a tax group

For tax groups, the tax base on building income includes the sum of the revenues of the companies forming PGK (Article 24c the Corporate Income Tax Act).

Example

Tax capital group two capital companies. Each of these companies holds properties which are the subject of lease agreements concluded:

• 1) in Company A, a property of value is rented 25,000,000 PLN,
• 2) Company B is rented two real estate — one value 8 0 PLN (in whole) and second value 14,000,000 PLN (In 50%).

Therefore, the tax on PGK will be: [(25,000,000 + 8,000,000 + 7 000000) – 10,000,000] × 0.035% = 10,500 PLN.

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