Changes in Real Estate Taxes
Prepared by the Ministry of Finance, the draft amendment to the Act on Local Taxes and Fees (UPOL), among others, introduces a number of significant changes scheduled to take effect on January 1, 2025, with a specific exception. Although, according to the legislature, the changes are intended solely to clarify existing provisions in light of national court rulings and aim merely to preserve the fiscal status quo, there is concern that they may, in fact, expand the current scope of taxation.
What does the draft provide?
Primarily, the legislature introduces an autonomous set of definitions designed to detach the provisions of the Act on Local Taxes and Fees from the regulations of the Building Law, which were previously utilized for tax purposes. The draft includes definitions of “building,” “structure,” and “construction object.” Additionally, important definitions for the tax scope, such as “technical-functional entirety” and “permanent attachment to the land,” have been introduced. Moreover, a new Appendix No. 4 lists 28 objects for the purpose of determining the tax scope.
1. Definition of a Building
Under the proposed definition, a building is an object, including installations necessary for its intended use, constructed with building materials, permanently attached to the land, partitioned by building walls, and possessing a foundation and roof, even if it forms part of a structure listed in items 1–6 of Appendix No. 4 to the Act.
According to the legislature, the categorization of construction objects into buildings or structures is intended to prevent classifying parts of complex or heterogeneous objects as buildings when they meet the criteria for buildings but also constitute structures. In other words, if a part of complex objects (e.g., a sports facility or a wastewater treatment plant) meets the definition of a building, it will be taxed as a building, even if the remaining parts constitute structures (this may apply, for instance, to tanks, silos, elevators, and similar storage facilities).
2. Definition of a Structure
Previously, significant disputes arose over the classification of certain objects as structures, as this classification entailed taxation based on value rather than usable area, as is the case for buildings. Recognizing the issues currently raising the most interpretative uncertainty, the legislature decided to define the concept of a structure by using Appendix No. 4, which lists 28 types of objects “borrowed” from the Building Law. Notably, for structures listed individually in the appendix and also forming part of a larger entity, they are to be classified according to the category encompassing a broader conceptual scope.
Under the draft’s provisions, a structure includes:
– Objects listed in Appendix No. 4 to the Act, as well as installations and equipment forming a technical-functional whole with such objects,
– Structural parts of devices not constituting part of the structures mentioned in (a),
– Structural parts of wind and nuclear power plants,
– Foundations for machines and equipment, separate from these machines and equipment from a technical standpoint,
– Connections to the construction object
– constructed using building materials.
Although the changes introduced in defining structures aim merely to address previous areas of significant dispute, reasonable concerns arise as to whether they may lead to additional issues or expand the tax base to include objects previously exempt from taxation.
This concern is especially pertinent regarding the treatment as a structure of all installations and equipment forming a technical-functional entirety with an object listed in Appendix No. 4 to the Act.
The legislature explained in the justification for the draft that this provision aims to include transformers, switchgear, and battery units forming a technical-functional whole with a power grid for purposes such as power transmission.
Given the proposed wording, it is clear that in classifying a device or installation, determining whether it forms a “technical-functional entirety” with the object will be crucial. Although a definition of this term has been included in the draft, its content may still lead to further disputes and necessitate expert analyses.
As a result, the proposed definition of a structure may give rise to additional disputes regarding the taxation of other devices not currently subject to tax (e.g., equipment in photovoltaic farms or solar panels installed on building rooftops, or wind farms). Administrative courts have often (depending on the legal state) ruled that only the structural parts of such devices, namely the structures on which they are mounted, are taxable.
It is also worth noting that the legislature intentionally replaced the term “erected” with “constructed” in the definitions of a building and structure to include cases where an object or its parts were manufactured at a different location than their final installation site.
Other Changes
The draft amendment also provides for:
– Standardizing the taxation of multi-space garages located in residential buildings,
– Introducing an obligation in 2025 for individuals who co-own multi-space garages in residential buildings to submit information on real estate and construction objects (IN-1),
– Excluding the application of real estate tax exemption for railway infrastructure,
– Narrowing the real estate tax exemption for airports,
– Limiting the scope of real estate tax exemption for research institutes to only cover real estate or parts thereof used for activities specified in Article 2(1-3) of the Act on Research Institutes.