Purchasing real estate in Poland from business entity – what about VAT?
Are you a foreign entrepreneur considering purchase of real estate in Poland? In such a case, it is worth finding out about the VAT consequences of making such a purchase.
The key issue from the buyer’s perspective is to determine whether the purchase price of the property includes VAT, and if so, whether and how you can recover it.
With VAT or exempt from VAT
The purchase of real estate in Poland from business entity may be taxed with VAT or VAT exempt. In this context it should be stressed that different types of VAT exemptions might apply in respect of developed and undeveloped real estate, respectively.
A developed real estate is a building, structure or part thereof (e.g. a separate premises). In turn, land on which the indicated facilities are not located is considered undeveloped real estate from the VAT perspective.
In the case of developed real estate, the supply of buildings, structures or their parts is exempt from VAT if no more than 2 years have passed since the so-called “first settlement” of the property.
The first settlement of real estate is understood as putting into use to the first purchaser or user or starting to use for own purposes buildings, structures or their parts, after their:
- construction or
- improvement, if the expenses incurred for the improvement, within the meaning of the income tax regulations, constituted at least 30% of the initial value.
However, it should be noted that parties to the transaction who are registered active VAT taxpayers have the option to waive the exemption and tax the supply with VAT.
In situations where the above exemption cannot be applied, the supply of buildings, structures or parts thereof may be subject to another exemption if:
- the supplier did not have the right to deduct VAT with respect to these facilities, and also
- he did not incur expenditures for their improvement for which he had the right to deduct VAT, or they were less than 30% of the initial value of these objects.
As far as undeveloped real estate is concerned, the exemption applies to the supply of land other than construction land, where construction land means:
- land intended for development in accordance with the local development plan,
- and in the absence of such a plan – in accordance with the decision on the conditions of development and land development.
Regardless of the above exemptions, Polish VAT regulations provide for an additional exemption, which may apply to both developed and undeveloped real estate. The supply of real estate used exclusively for the purposes of VAT-exempt activities is exempt if the supplier was not entitled to deduct VAT in connection with the purchase or production of these goods.
If no VAT exemption might be applied in the given case, the sale of real estate is taxed with:
- in the case of developed real estate – 23% (as to the rule) or 8% (certain residential property) VAT rate,
- in the case of undeveloped real estate – 23% VAT rate (applying reduced VAT rate is not possible).
Ways to recover VAT
If the sale of the real estate is taxed with VAT in Poland and not exempt from VAT, the crucial issue for the buyer is the recovery of input VAT.
In order to recover VAT on the purchase taxpayer must use real estate for the purposes of activities:
- taxed with Polish VAT or
- whose place of taxation is outside the territory of Poland for which the taxpayer would be entitled to deduct VAT in the territory of Poland and the taxpayer has documents showing the connection of the deducted VAT with these activities.
On contrary, VAT recovery is not possible if the real estate would be used to activities exempt from VAT (for instance, lease of housing premises for the residential purposes).
As to the rule, VAT refund deadline for entities registered as Polish VAT payers (including foreign entities with the seat outside Poland) is 60 days from the date of submitting the VAT return. However, if such entity does not perform taxable activities in Poland, this deadline is longer (180 days).
The above deadline might be extended by tax authorities who might carry out audit of taxpayers’ VAT reconciliations before executing refund.
It should be also stressed that in order to obtain VAT refund the taxpayer must have bank account opened in the bank with the seat in Poland.
How can we help?
If you consider purchasing real estate in Poland for business purposes let us know as we will be happy to provide you with our tax advisory support in this matter.
