Sale of real estate without VAT - what should be done?

Service-Tax

Real estate trading is currently one of the main areas of business activity. The real estate market in Poland is developing very dynamically, and the real estate itself is a very good form of capital investment, thanks to which there are often real estate sales transactions. Taxpayers are often faced with the dilemma of how to tax such disposal for consideration and whether there are ways to avoid having to pay the tax. In the following text, we will explain when a property sale may occur without VAT.

Sale of real estate as a delivery of goods

At the outset, it should be noted that in the light of Art. 2 point 6 of the Act on tax on goods and services, real estate is classified as a commodity. As a result, the activity consisting in the sale of real estate for consideration constitutes a supply of goods. The VAT Act does not provide for any special regulations regarding the sale of real estate, therefore general rules must be applied. In the light of the provisions, the moment when the real estate is delivered is significant for the emergence of the tax obligation, i.e. the moment of transferring the right to dispose of as the owner.

Tax-exempt activities - sale of real estate without VAT

Even if the sale is considered a supply of goods, it is possible to avoid paying the tax if the activity is listed in the catalog specified in Art. 43 of the VAT Act. This provision also includes structures that allow for the complete exemption from tax on goods and services for the delivery of real estate against payment.

First, the supply of undeveloped land other than building land is tax-exempt.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. This exemption may only apply to the delivery of undeveloped land. Deliveries of land with buildings and which are included in the local spatial development plan do not benefit from this exemption.

Example 1.

The entrepreneur is the owner of the plot without buildings. Additionally, it is not intended for development in the local spatial development plan. He decided to sell it. Such sales will benefit from VAT exemption.

Secondly, the supply of buildings, structures or parts thereof is exempt from tax, except when:

  • the delivery is made within 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.

Consequently, the above exemption is applicable to deliveries of buildings, structures or parts thereof that were occupied at least two years ago. The first settlement is understood as putting into use, in the performance of taxable activities, to the first buyer or user of buildings, structures or parts thereof, after their:

  • construction or

  • improvement, if the expenses incurred for the improvement, within the meaning of the provisions on income tax, constituted at least 30% of the initial value

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Example 2.

The company built the building in June 2015 and leased it to another company in July of the same year. In August 2017, the parties agreed to sell the building. In such a situation, the property will be sold without VAT, because a period longer than 2 years has elapsed since the first occupation (which was the first taxable activity), i.e. from July 2015.

Example 3.

The company built the building in June 2014, and in July 2014 it was leased to another company. In January 2017, the building was modernized, the value of which exceeded 30% of its value. In August 2017, the parties agreed to sell it. Such a sale will be subject to VAT as the first occupation took place again in January 2017, meaning that a period of less than two years elapsed before the sale.

By the way, it should be added that entrepreneurs may waive the above exemption, provided that, before the date of delivery of these objects, they submit a consistent declaration to the head of the tax office competent for their buyer.

The last exemption applies to the supply of buildings and structures, in relation to which the person delivering them was not entitled to reduce the amount of tax due by the amount of input tax, and at the same time the person delivering them did not incur any expenses for improvement of these properties, which would exceed 30% of the initial value of these objects.

This exemption is available for deliveries of any real estate purchased without VAT. These activities include real estate:

  • acquired before July 5, 1993 (before the entry into force of VAT in Poland),

  • purchased from entities that are not VAT payers (e.g. from natural persons who do not conduct business activity),

  • acquired as part of a VAT-exempt transaction.

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Example 4.

The entrepreneur purchased the real estate from a natural person not conducting business activity. He was not entitled to a deduction of input tax on account of this purchase. After 5 years of using this property for business purposes, he decided to sell it. Such sale for consideration will benefit from VAT exemption.