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Revolutionary Changes to Income Tax on Values of Commercial Properties

Pursuant to the Act of 27 October 2017, the legislators introduced new regulations on the so called minimum income tax. The regulations have subsequently been compounded by another act and a set of self-amendments to cohere the rules applicable since 1 January 2018. On 11 May 2018 the Sejm (Lower House of Parliament) passed The Act Amending the Acts on Personal Income Tax, Corporate Income Tax and the Act on Flat-Rate Income Tax on Selected Incomes Earned by Individuals, and forwarded the document to the President and the Speaker of the Senate.

The changes provide for a new, much wider definition of the taxation subject. If income tax on revenue from a fixed asset (and not on its ownership) applies to a building which:

  • is owned or jointly owned by the taxpayer,
  • has been partially or wholly put into use pursuant to contracts to lease or let the asset, or other agreements of similar nature,
  • is located on the territory of the Republic of Poland,

the applicable tax amounts to 0,035 per cent of the tax base for each month (the tax will hereinafter be referred to as the ‘tax on revenue from buildings’).

In the wake of the proposed changes the minimum income tax will as a rule encompass all buildings (residential and non-residential) located on the territory of Poland. The tax on revenue from buildings will be levied on those fixed assets that generate revenue from leasing or letting them among others. The minimum tax will not apply to lease contracts concluded outside the scope of business activities (the so called ‘private tenancy’).

Residential building that have been put into use under social housing programs carried out by the government or the local authorities will be exempt from the tax, provided that such an exemption will constitute compensation compliant with the criteria set out in the European Commission Decision of 20 December 2011.

The manner of applying the limit (amount) of PLN10m, under which properties have not been subject to the tax on revenue from buildings, and which constituted a tax exempt amount of sorts (per property). It has been suggested that the amount should be levied on taxpayers irrespective of the quantity and the value of buildings in their possession.

Simultaneously, in the case of capital-related entities within the meaning of the income tax acts, the amount of PLN10m will be split between the entities in the proportion which the revenue from a taxpayer’s building constitutes in relation to the total amount of revenue of all related entities.

The regulations on the abovementioned tax will also have to be applied if a taxpayer, without substantive economic reasons, should wholly or partially transfer the ownership or joint ownership of a building (or transfer the right of use under a leasing contract) with a view to avoiding the tax on revenue from buildings (the scope of application of this clause provides for buildings or their parts not being subject to tax at the level of the entity that has purchased them from a taxpayer).

The tax on revenue from buildings that has not been deducted will be subject to refund only on the taxpayer’s request. However, such a possibility will only exist if a tax authority does not identify inaccuracies in the amount of tax liability or loss, deducted pursuant to general rules, in particular when the cost of debt financing incurred in relation to the purchase or production of the building, as well as other revenues have been determined based on market conditions.

According to the explanatory memorandum, the introduction of the amendments stems from the recognition of the fact that current regulations on minimum income tax might be deemed illegal state aid, a conclusion that is reportedly “in line with the arrangements Poland has made with the EC”.

Hubert Hajdukiewicz
Tax Specialist

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