Renting a property after liquidation of business - the issue of VAT


The use of real estate in business activities is a common phenomenon. It happens, however, that the taxpayer decides to rent the property after liquidation of the business. In this article, we will analyze the tax consequences of such an action based on the provisions of the VAT Act.

Lease under the VAT Act

First of all, it is worth considering how the lease agreement and the landlord are treated in the light of the provisions on tax on goods and services. Remember that VAT applies only to those entities that have the status of a taxpayer. However, according to Art. 15 sec. 1 of the VAT Act, taxpayers are legal persons, organizational units without legal personality and natural persons independently performing economic activity referred to in paragraph 2, regardless of the purpose or result of such activity. Next, the definition of economic activity should be recalled. According to Art. 15 sec. 2 above of the Act, economic activity includes all activities of producers, traders or service providers, including natural resource harvesters and farmers, as well as the activities of freelancers. Economic activity includes, in particular, activities consisting in the use of goods or intangible assets on a continuous basis for commercial purposes.

It follows from the very essence of the lease that it is a contract concluded for a longer period and is paid for - it is a continuous activity conducted for commercial purposes. As a result, under the tax on goods and services, rental is an economic activity, and the landlord has the status of a VAT taxpayer.

Additionally, it should be noted that the presented definitions make the qualification of a given activity as an economic activity conditional on meeting material criteria (continuity and earning goal). However, formal reasons, such as registering a company in CEIDG, are irrelevant. In other words, the status of a VAT taxpayer can be obtained even if the activity is not reported to the city or commune office. In the light of the VAT Act, the rental of real estate constitutes the provision of services for consideration, which is a form of economic activity. On the other hand, the owner of the rented property is a VAT taxpayer.

Business liquidation and taxpayer's obligations

In the event that the entrepreneur liquidates a business activity, he has certain obligations under the VAT Act.

First of all, as indicated in Art. 96 sec. 6 of the VAT Act, if a taxpayer registered as a VAT payer has ceased to perform a taxable activity, he is obliged to report the cessation of activity to the head of the tax office; this notification is the basis for the head of the tax office to remove the taxpayer from the register as a VAT payer. You must report using the VAT-Z form and it must be done on the last day of performing taxable activities.

In addition, the taxpayer is also required to prepare and tax the liquidation inventory. According to Art. 14 sec. 1 point 2 of the VAT Act, in the event of cessation of taxable activities (liquidation of activities), tax is imposed on goods of own production and goods that, after purchase, were not the subject of the delivery of goods (i.e. were not sold). for which there was a right to reduce the amount of tax due by the amount of input tax.

In the light of Art. 14 sec. 5 of the VAT Act, taxpayers are obliged to make a physical inventory of goods as of the date of cessation of taxable activities, hereinafter referred to as the "physical inventory". You should submit information about the physical inventory made, the value of the goods determined on its basis and the amount of tax due, no later than on the date of submission of the tax declaration for the period including the date of cessation of taxable activities.

Example 1.
An active VAT taxpayer decided to terminate his business activity on October 10. On the same day, he submitted a VAT-Z declaration to the competent head of the tax office. By November 25, the taxpayer will submit the last VAT-7 declaration and will be accompanied by a physical inventory. A taxpayer who liquidates a business is obliged to report this fact via the VAT-Z form and to prepare a physical inventory (liquidation inventory), which is subject to taxation.

Renting a property after liquidation of business - the issue of VAT

Moving on to the analyzed problem: renting real estate after liquidation of the business, a very important thing should be emphasized. A deeper analysis of both the content of Art. 14 sec. 1 of the Act and Art. 96 sec. 6 of the Act leads to the conclusion that the phrase "ceasing to conduct business" was used there.

At the beginning of this article, it was indicated that the rental of real estate (also in the case of private rental) constitutes an economic activity within the meaning of the VAT Act. Consequently, if, after the liquidation of business activity, understood as the removal of the company from CEIDG, the taxpayer continues to rent real estate used in this activity, then he will still be a VAT taxpayer. This means that such a person is not required to submit a VAT-Z declaration and to prepare a liquidation inventory within the meaning of the provisions of the VAT Act, because under this regulation, he has not ceased to perform taxable activities.

It is worth noting that in the perspective of the VAT Act, each rental, regardless of whether it is carried out as part of company or private property, is an economic activity, as provided for in Art. 15 sec. 2 of the Act.

Example 2.
An active VAT payer decided to terminate his business activity on October 10. On that day, he submitted an application CEIDG-1 to be removed from the register.The taxpayer started renting real estate previously used in business activities - and therefore, despite the liquidation of the business, it continues to provide services for consideration, which constitute economic activities. As a result, there is no need to submit a VAT-Z declaration or to prepare a physical inventory. Leasing real estate after the liquidation of activity in the city or commune office is still an economic activity within the meaning of the provisions of the tax on goods and services. Activities are not ceased.
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Property lease after liquidation of business activity and VAT exemption

An active VAT payer who has ceased to operate in CEIDG, but still rents real estate as part of private property, may still tax the rental with VAT. Maintaining the status of an active taxpayer allows him to deduct input tax in connection with purchases made.

However, it may turn out that the expenses are so small that it is unprofitable to remain an active VAT payer. Therefore, the taxpayer has the option to choose a subjective tax exemption pursuant to Art. 113 of the VAT Act. This provision states that sales made by taxpayers whose sales value did not exceed the total of PLN 200,000 in the previous tax year are exempt from tax. The amount of tax is not included in the sales value. The choice of tax exemption should be made by updating the VAT-R declaration.

However, it should be remembered that the change of the purpose of the real estate - from taxable activities to exempt activities - results in the need to correct the previously deducted input tax. In the case of tax deducted when purchasing real estate, the correction period is 10 years.
Therefore, the above means that if, in the field of business activity, the taxpayer deducted VAT on the purchase of real estate, and then, after its liquidation, rents out this real estate as a VAT exempt taxpayer, it will be necessary to correct the relevant part of the tax deducted. Only after 10 years from the commencement of use of the property, the period of necessary adjustments expires. The correction is included in the tax return for the first tax period of the year following the tax year for which the correction is made. Leasing real estate after liquidation of business activity may result in the need to adjust previously deducted input tax on the purchase of real estate if the taxpayer decides to be exempt from tax under private renting.

Moving on to the summary, it should be noted that the VAT Act contains its own and autonomous definition of economic activity, which includes private rental. As a result, the rental of real estate used in the company, after its formal liquidation in CEIDG, is still an economic activity within the meaning of the VAT Act. This means that the owner is still subject to the regulations on tax on goods and services and is a VAT taxpayer.