Sale of a plot with a small architecture object and VAT exemption

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The sale of real estate continues to cause many problems for taxpayers. They are particularly relevant to transactions related to parcels. Taxpayers still do not know when to tax sales and when they can benefit from the exemption. Can the sale of a plot with a small architecture building be exempt from VAT? Answer in the article!

Real estate VAT exemption

Let us remind you that the legislator has defined the scope and principles of VAT exemption for the supply of goods or the provision of services in Art. 43 of the VAT Act. Based on Article. 43 sec. 1 point 10 of the VAT Act, the supply of buildings, structures or parts thereof is exempt from tax, except when:

  • the delivery is made at or before the first settlement;

  • a period of less than 2 years has elapsed between the first occupancy and the delivery of the building, structure or parts thereof.

In addition, the delivery of buildings, structures or their parts not covered by the exemption referred to above is exempt, provided that:

  • in relation to these objects, the person delivering them was not entitled to reduce the amount of tax due by the amount of input tax;

  • the person who delivered them did not incur the costs of their improvement, in relation to which he was entitled to reduce the amount of tax due by the amount of input tax, and if he incurred such expenses, they were lower than 30% of the initial value of these objects.

At this point, it should be emphasized in the first place that the exemptions we have described apply to the delivery of buildings, structures or their parts. So only for real estate where the above-mentioned buildings, the above-mentioned regulations.

Example 1.

In 2000, the taxpayer purchased a plot of land. He built a production hall on it. This hall was used by him in his activities subject to VAT. In 2021, the taxpayer sold the above hall together with the plot. Will he be able to take advantage of the VAT exemption by selling the property?

In such a situation, the taxpayer may benefit from the exemption. It used the hall for its activities. Thus, in this situation, the first occupation took place and the taxpayer may benefit from the exemption from taxation of the sale of the hall.

Sale of a plot of land and VAT exemption

The delivery of undeveloped land other than building land is exempt from tax (see Art. 43 (1) (9) of the VAT Act). The definition of construction areas can be found in Art. 2 point 33 of the VAT Act. Pursuant to this regulation, building land is understood as land intended for development in accordance with the local spatial development plan, and in the absence of such a plan - in accordance with the decision on building conditions and land development, referred to in the provisions on planning and spatial development.

Thus, the tax exemption does not apply to the delivery of land which is undeveloped land, which is construction land within the meaning of the above definition.

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Street furniture - definition

At the outset, it should be noted that the definition can be found in the construction law. It is worth pointing out at this point that pursuant to Art. 3 point 1 of the Act of July 7, 1994 - Construction Law, a construction object shall be understood as a building, structure or small architecture object, together with installations ensuring the possibility of using the object in accordance with its intended purpose, erected with the use of construction products.

In the light of the construction law, a building should be understood as a building object that is permanently connected to the ground, separated from the space by means of building partitions, and has foundations and a roof.

A building is, however, any structure that is not a building or a small architecture object, such as: linear structures, airports, bridges, viaducts, flyovers, tunnels, culverts, technical networks, free-standing antenna masts, free-standing advertising boards permanently attached to the ground and advertising devices. , earthworks, defensive (fortifications), protective, hydrotechnical structures, reservoirs, free-standing industrial installations or technical devices, sewage treatment plants, waste landfills, water treatment stations, retaining structures, overground and underground pedestrian crossings, land utilities, sports structures, cemeteries, monuments, as well as construction parts of technical devices (boilers, industrial furnaces, wind farms, nuclear power plants and other devices) and foundations for machines and devices, as technically separate parts of objects making up the usable whole (see Article 3 point 3 of the Building Law Act).

On the other hand, a linear object is a construction object, the characteristic parameter of which is length, in particular a road with exits, a railway line, water supply, canal, gas pipeline, heat pipeline, pipeline, power line and traction, overground cable line and underground cable line located directly in the ground, a flood embankment and a cable sewage system, while the cables installed therein do not constitute a building structure or its part or a building device.

To sum up, the construction law specifies in detail when we are dealing with a building or structure. It also indicates how to understand street furniture.

Sale of a plot with small architecture

In many cases, taxpayers do not know whether the plot is developed or not. As we have shown above, this is of particular importance for the definition of VAT taxation.

Example 2.

The taxpayer decided to sell a construction plot of considerable value. Five years ago he set up a small gazebo for tools on it. It is not permanently attached to the ground. In addition, the plot has a small shed - also unrelated to the ground - and a playground for the taxpayer's children. The playground and the shelter were built three years ago. If the plot is sold with street furniture, will the taxpayer be able to take advantage of the VAT exemption?

The presented description of the case shows that the property at the time of sale will be built with a gazebo, shelter and a playground, which constitute objects of small architecture.

Since, as is clear from the description of the case, there are no buildings, structures or their parts on the real property, the regulations concerning the sale of developed plots in the present case do not apply. Therefore, the taxpayer will not be able to take advantage of the tax exemption for the sale of the plot on this basis. It should be noted that in this case he sells the construction plot, which means that it should be taxed at the rate of 23%.

To sum up, the development of the plot with small architecture I have no influence on the VAT rate on sale. Street furniture does not affect the rate. In such a situation, the subject of sale is an undeveloped plot.