Regional Administrative Court in Warsaw confirmed the right to tax with flat-rate income tax at the rate 8.5% rent several apartments, which will be put on the board of the professional company.
The case concerned a natural person who plans to purchase several apartments as a capital investment, and to turn them into management of a professional business company, in terms of short- or long-term rental of apartments. The applicant indicated that it does not carry out any business related to renting or managing properties.
A company managing and offering properties for rent would act in its own name and on behalf of the applicant. On the other hand, the interested person will not undertake activities to rent the property.
The question was whether the taxpayer would have the right to settle the income obtained from the rental of apartments on the basis of 8.5% flat-rate income tax rates.
Flats not for the benefit of the rental
Initially, the tax authority disagreed with the applicant's position and issued a negative individual interpretation indicating that, given the characteristics of the economic activity, that is, its commercial nature, its continuous performance, its conduct in an organised manner, as well as the planned number of housing purchases (many) indicate the professionalisation of the rental by the taxpayer. According to the Authority, the above facts, as well as the intention to put housing into the management of an external housing company, prevent the taxpayer from applying a flat-rate income tax rate of 8.5%.
The taxpayer disagreed with such a ruling and brought an action before the Provincial Administrative Court for interpretation.
Real estate as assets
The Court of First Instance, after examining the case, granted the taxpayer the right and annulled the contested interpretation. In the judgment in reference no. III SA/Wa 2687/16 considers that the tax authority has defectively prevented the taxpayer from benefiting from flat-rate taxation.
In its judgment, the WSA stressed that the tax authority was of excessive importance in interpreting the concept of economic activity contained in Article 5a PIT laws while ignoring content Article 10(1)(6) that bill. Of this second It is clear that the only criterion excluding its application to lease contracts is the binding of assets to economic activities.
In addition, the court pointed out that since the taxable person does not pursue an economic activity which is the subject of the rental of dwellings and that the property is not assets entered in the accounts of fixed assets and the applicant did not benefit from the tax advantage in the acquisition of the premises, such activity should be considered as an lease which is not carried out in the course of the business.
As a result of the ruling, the tax authority changed its position and on 26 June 2018 gave the taxpayer a positive individual interpretation of tax law No. IPPB1/4511-270/16-5/KS1, fully confirming the applicant’s position.
This ruling and the interpretation in its aftermath show that the number of rented dwellings alone cannot prejudge the taxation of rental income on a general basis. Also, giving ownership of real estate to a company professionally involved in their management does not automatically mean that the taxpayer carries out business in the area of rental property.
At the same time, it should be borne in mind that each case requires an individual analysis, since not only the scale and degree of organisation of the activity, but also the way in which the property is acquired and even the type of property held (e.g. residential premises can be treated differently from the service).
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