Sale of land by a natural person and by an entrepreneur and VAT - part AND

Service-Tax

Natural persons running a business and not running it, while implementing their corporate and non-company plans, purchase land real estate for various purposes. Among them there are, among others built-up and undeveloped, and divided or undivided. An entrepreneur or a natural person before the purchase, and sometimes only afterwards, has a specific purpose in relation to a given land property. What impact can the sale of land have on VAT, when the purchase was made by the company, and what, when the seller is a private person without an activity or an entrepreneur who sells the land outside his business?

Sale of land by the company

Depending on the economic circumstances and the adopted strategy of the company, or natural persons who do not conduct any activity, decide to sell their land at the selected moment.

Some sell land without any interference with its structure or equipment, others - wanting to make their land more attractive - perform a number of activities, e.g. dividing the plot into smaller ones (also creating or adjusting the existing equipment of the plot with utilities or other infrastructure).

The first and second situations may have specific and different effects in taxing the sale of such land with VAT. However, there are some differences between the two cases.

Paid land delivery or management of own property

Pursuant to Art. 7 sec. 1 of the VAT Act, a paid delivery of goods is the transfer of the right to dispose of goods as an owner. The legislator in Art. 2 point 6 of the quoted act, goods mean things and their parts.

Both the supply of goods carried out by the taxpayer (within the meaning of the VAT Act) and all activities contributing to the initiation of the transfer of disposition rights to the sold goods as the owner will therefore be subject to VAT.

Referring to the above regulations, the sale of land may also constitute a paid delivery of goods (on the territory of the Republic of Poland).

Thus, the fundamental issue when selling land is whether the entrepreneur or the natural person who makes (first the purchase, taking action for the sale) of the sale is a VAT payer or acts as a VAT payer.

Nevertheless, it should be emphasized that a natural person who occasionally or once acquires a land property, and at the same time does not conduct any economic activity, will not be a VAT taxpayer.

Moreover, even if the entrepreneur carries out, apart from his business activity, the activities of managing his own personal property (as part of the purchase or sale of a plot of land), this does not allow for the assessment of the entire management board as running a business in the light of the VAT Act.

CJEU in case no. C-180/10 and C-181/10 of September 15, 2011 stated that the number of transactions cannot determine whether the taxpayer carrying out given transactions acts as VAT-sheep or not (operates in the light of the VAT Act) - i.e. a natural person does not act as a VAT taxpayer in a situation where he acquired land for personal property (apart from conducted business activity) and then sold it, if all activities performed by that person comprised the standard exercise of the property right. On the other hand, the number of transactions in the above sales configuration does not always qualify the seller as a VAT payer. But that's not all.

Another issue related to the issue of the sale of land is the type of activity for which the purchased land property was intended.

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Allocation of land for exempt or taxable activities?

An extremely important thing in determining the VAT taxation of the sale of land is to identify whether the land sale is intended for:

  1. activities subject to VAT,

  2. activity exempt from VAT,

  3. management of personal assets (apart from possible business activity).

Even if a natural person buys a land real estate not for the purposes of its business activity, but for private purposes only, but in relation to this land, it will carry out a number of activities similar to those that are carried out as if it conducts business activity and acts as a VAT taxpayer, then the purchase this land will have to be considered as earmarked for economic activities subject to VAT.

It should be remembered that, however, before the taxpayer adopts the status that when selling his land (apart from economic activity), he acts as a VAT payer, i.e. performs activities of a professional nature, he must unequivocally confirm that in his case there are many premises indicating continuity of processes, as in business (not single-threaded, one-off events).

Activities performed by a natural person should resemble the activity of persons dealing in real estate trading, and also indicate an organized form of purchase of land property (intended for development), utilities, separation of roads, marketing activities aimed at selling land, applying for a decision on development conditions (with zoning plan), development activities or activities similar to them, undertaking other activities exceeding traditional forms of activities aimed at managing one's own property.

This type of activity confirms the conduct of business activity and activities for the benefit of sales subject to VAT. It should be emphasized, however, that it is a series of active measures that can be called running a business and acting as a VAT taxpayer.

On the other hand, if the taxpayer was not entitled to a deduction of VAT upon the purchase of land, and the plot is intended only for activities exempt from VAT, then the taxpayer, when selling this plot of land, will be able to take advantage of the VAT exemption under the other conditions (no action aimed at taxable sales). VAT).

The moment of land acquisition

The very moment of its purchase has an influence on the determination of the effects of VAT on the sale of built-up and undeveloped land. Namely, an extremely important factor in the purchase of land is whether the buyer has deducted VAT or was not entitled to deduct it.

If the taxpayer has deducted VAT on the purchase of land, then the sale of land will also be subject to VAT.

On the other hand, when the purchase was not deductible for VAT, the further sale of the land may be exempt from VAT, but may still be taxed.

First of all, it depends on the nature of the taxpayer's action when purchasing the land, further activities related to the preparation of the land for sale and the sale itself. We have talked about it above, but we will come back to it later.

Purpose of the land purchase

Many taxpayers forget that at the time of the land purchase transaction (or even before it), they made a decision about the purpose of the purchase.

Nevertheless, at this point it is necessary to imply two planes of determining the purpose of the acquired land:

  • the purpose of the land acquisition determined by the taxpayer himself;

  • intended use of the acquired land resulting from the spatial development plan, and if it does not exist or there is no indication of the intended use, then from the decision on the development conditions of the land.

Here, again, two situations should be distinguished:

  1. when the taxpayer disposes of his land under private management,

  2. when the taxpayer runs a business and has acquired land for a business.

In the first case, if it is possible to state beyond any doubt that we are dealing with the ordinary disposal of own property, then neither the purpose of the sale of the land nor its intended use resulting from the spatial development plan does not affect the obligation of VAT taxation, which will not occur in this situation. .

There is a significant difference between the sale of land as part of managing own assets and as part of running a business. However, the above differences are not everything. What else may have a significant impact on the VAT treatment of land disposal in both cases? About it in the second part of the publication.