Flat rate taxation for short-term rental

Service-Tax

In the article below, we will try to answer the question of how lump sum taxation for short-term real estate rental is carried out. At the outset, we would like to remind you that in the Act of July 26, 1991.on personal income tax (consolidated text: Journal of Laws of 2016, item 2032, as amended), hereinafter referred to as the PIT Act, is mentioned as a separate source of income: rental, sublease, lease, sublease and other contracts of a similar nature, including lease, sub-lease of special departments of agricultural production and a farm or its components for non-agricultural purposes or for running special departments of agricultural production, with the exception of assets related to economic activity. Income obtained from lease may be taxed on general principles, the taxpayer may also choose to tax with a registered flat rate. At this point, it should be emphasized that the above source of income also includes the so-called short-term rental.

Occasional lease of real estate purchased in the mountains

In the current economic situation, many people consider buying an apartment in a holiday resort as an excellent form of investment. In the case of investments in premises for rent in a resort, we usually deal with a short-term rental, e.g. for a weekend or a week's stay, or possibly a month. Real estate can be purchased by both a person running a business and not. In the article we will try to present the possibilities of taxing short-term real estate rental in a tourist destination. A person running a business who plans to buy real estate can purchase it privately. In this case, the lease of assets (real estate) of a natural person that are not part of the enterprise may be taxed as income from a source from non-agricultural economic activity. It is the taxpayer himself who decides whether the income from the rental of real estate should be included in the source of income from non-agricultural economic activity.

If the taxpayer considers the short-term rental of premises, e.g. apartments, to be carried out as part of business activity, these services cannot be classified as a separate source of income referred to in art. 10 sec. 1 point 6 of the PIT Act, i.e. lease.

Example 1.

A taxpayer running a large production enterprise purchased a house in the mountains as part of this activity. After making the purchase, he decided that the above-mentioned property would be rented to tourists. The lease is short-term. The buyer stated that the rental income should be taxed in the same way as other income from business activities. The taxpayer is subject to a flat tax in the course of his business activity. Therefore, he taxed short-term rental income with a flat tax.

The above method of taxation of rental income should be considered correct. Income obtained from accommodation services should be taxed together with other income from business activities, i.e. according to the tax scale or flat tax (see individual interpretation of the Director of the Tax Chamber in Bydgoszcz of January 17, 2017, number 0461-ITPB1.4511.905. 2016.1.AK). To sum up, a taxpayer who decides to short-term rental of real estate as part of his business activity should tax it together with other income from this activity.

Until recently, tax authorities believed that short-term rental of real estate in a tourist destination, purchased as private property, can be considered as income from a lease source, to which taxation in the form of a lump sum on recorded income calculated at the rate of 8.5% applies. Confirmation of this position can be found in the interpretation:

Taking into account the description of the future event and the legal regulations, it should be stated that the lease will constitute a source of income for the Applicant, referred to in art. 6 sec. 1a of the Act on flat-rate income tax on certain revenues earned by natural persons in connection with Art. 10 sec. 1 point 6 of the Personal Income Tax Act. The revenues obtained from the above-mentioned sources will be able to benefit from flat-rate income tax at the rate specified in art. 12 sec. 1 point 3 lit. and the act on flat-rate income tax on certain revenues earned by natural persons, i.e. 8.5%, provided that a declaration on the choice of this form of taxation is submitted in due time to the competent head of the tax office. In addition, the Applicant will be able to independently settle all revenues on this account, when he submits to the head of the tax office an appropriate declaration on this matter, referred to in Art. 12 sec. 6 of the Act on flat-rate income tax on certain revenues earned by natural persons.

Individual interpretation of the Director of the Tax Chamber in Łódź of June 28, 2016, number 1061-IPTPB1.4511.399.2016.1.KLK.

This interpretation was favorable to taxpayers because short-term rental was not treated as income from non-agricultural economic activity. Taking the above into account, lease agreements between the taxpayer and persons using a dwelling, concluded for a short period, e.g. several days, a week or a month, were not recognized as income from business activity, when the dwelling being the subject of the lease is not an asset related to business activity. Thus, the short-term rental of the premises will constitute the source of income referred to in Art. 10 sec. 1 point 6 (rental income) of the PIT Act and may benefit from 8.5% taxation at the flat rate tax.

Flat rate taxation for short-term real estate lease

However, the above interpretation line has changed in recent months. The so-called short-term rental is in fact a series of cyclical, periodically repeated, organized and continuous activities undertaken for profit-making purposes, containing elements of the definition of economic activity. In the opinion of the authorities, such services bear the characteristics of accommodation-related services, which means that they constitute revenues from the source of income, which is non-agricultural economic activity, in accordance with Art. 10 sec. 1 point 3 of the PIT Act.

As a result, the revenues obtained from rental for short stays will constitute income from non-agricultural economic activity referred to in Art. 10 sec. 1 point 3 of the Personal Income Tax Act and taxpayers are not entitled to use the flat-rate form of taxation in the amount of 8.5%.

Therefore, taxpayers cannot benefit from a preferential flat rate of 8.5%. In the case of choosing the flat-rate form of taxation and meeting the conditions authorizing the taxation of income in this form, the appropriate rate - in accordance with art. 12 sec. 1 point 2 lit. e of the Act on flat-rate income tax on certain revenues earned by natural persons - there is a flat rate of 17%.

Example 2.

The taxpayer purchased an apartment by the sea. He will stay in the purchased apartment during the holidays for about 2 weeks. As the apartment will not be used for the entire holiday, the buyer plans to rent it out to tourists. For this purpose, an agreement will be concluded with a company that professionally deals with short-term rental of apartments for tourist purposes. The lease will usually last from a few to several days. The rental agreement is signed by the taxpayer, while the brokerage company only charges a fee depending on the number of tourists sent. The taxpayer chose a flat rate as a form of taxation. In order to obtain information on the amount of the tax rate, he went to the tax office. The official informed that the flat rate in this case was 17%.

The answer given by the official should be considered correct, it is justified in the following interpretations.

If the flat-rate form of taxation is chosen and the conditions entitling to taxation of income in this form are met, the appropriate rate for taxation of income from short-term accommodation services - in accordance with Art. 12 sec. 1 point 2 lit. e of the act on flat-rate income tax on certain revenues earned by natural persons - it will be 17% of revenues. However, if the Applicant does not submit a declaration on choosing a lump sum, the income from activity will be subject to taxation in the scale referred to in Art. 27 sec. 1 or a flat tax of 19%, according to the content of art. 30 c of the Personal Income Tax Act

Individual interpretation of the Director of the Tax Chamber in Bydgoszcz of January 13, 2017, number 0461-ITPB1.4511.980.2016.1.AK.

Referring the above legal regulations to the case at hand, it should be stated that the rental of apartments described in the application will in fact be a series of cyclical, periodically repeated, organized and continuous activities undertaken for profit-making purposes, including the above-mentioned elements of the definition of economic activity. The apartment rental services that the Applicant intends to provide are services related to accommodation. Therefore, it is impossible to agree with the position of the Applicant that the activities of renting apartments fall within the so-called private lease. In the opinion of the Authority, the Applicant should include the revenues obtained from the rental of flats - as services related to accommodation for short stays - as the source of revenues referred to in Art. 10 sec. 1 point 3 of the Personal Income Tax Act and taxed in the manner provided for this source of income. The above circumstance also means that the Applicant is not entitled to apply the flat rate on recorded revenues in the amount of 8.5% of revenues to the revenues from rental services. If you choose the flat-rate form of taxation and meet the conditions entitling you to tax income in this form, the appropriate rate - in accordance with art. 12 sec. 1 point 2 lit. e of the Act on the flat-rate income tax on certain revenues earned by natural persons - there will be a 17% flat rate on recorded revenues.

Individual interpretation of the Director of the Tax Chamber in Poznań of June 1, 2016, number ILPB1 / 4511-1-156 / 16-4 / TW.

Summary

Taking into account the change in the interpretation line, it can be concluded that short-term rental of a residential property in a tourist destination will not be able to benefit from a flat rate of 8.5%. The position of the tax authorities is that in the case of short-term rental of a flat in a tourist destination, it is an accommodation service. Therefore, the appropriate lump sum rate is 17%. Taxing a short-term rental with a flat rate of 17% is unprofitable from the point of view of the landlord. In the case of taxation with a lump sum short-term rental, we cannot deduct the costs associated with it. If you choose to tax on general principles, either in the form of a tax scale or a flat tax, we will be able to deduct tax deductible costs, such as depreciation or renovation costs, from the income.

Considering the above, the taxation of short-term rental of real estate performed in a repetitive manner will be classified by the tax authorities as income from economic activity, even if the subject of the lease is real estate not included in the company's assets. Such a classification of a short-term lease is of little benefit to the taxpayer. In this legal state, the only advantage of taxing lease with a registered lump sum seems to be the possibility of keeping simplified records.