Real estate rental service - VAT consequences

Service-Tax

The property rental service based on value added tax causes specific tax consequences depending on who and for what purposes it is provided. And so, on the basis of the aforementioned act, the real estate rental service may be taxed at the standard rate of 23%, the reduced rate of 8% or it may be exempt.

Real estate rental service - taxation at the basic rate of 23%

Let us remind you that the lease contract is a civil law contract that imposes obligations on the parties - both the landlord and the tenant. According to Art. 659 § 1 of the Civil Code, the landlord undertakes to provide the tenant with the property for use for a specified or indefinite period of time, and the tenant undertakes to pay the landlord the agreed rent.

Taxation of the real estate rental service at the basic rate applies, as a rule, when the subject of the real estate rental service is a service premises.

Example 1.

The housing cooperative has in its resources, apart from residential premises, also service premises. These premises are rented for business purposes. In connection with the above, pursuant to art. 146a point 1 and point 2 of the Value Added Tax Act, in the period from January 1, 2011 to December 31, 2018, the tax rate is 23%. Thus, the above service of renting commercial real estate is subject to taxation at the standard rate.

VAT exemption and real estate rental service

On the other hand, the tax exemption for real estate rental services applies only to residential premises.

Pursuant to Art. 43 sec. 1 point 36 of the Act, services in the field of renting or leasing real estate of a residential nature or part of a real estate, for own account, solely for housing purposes, are exempt from tax.

It follows from the above-mentioned provision that only the provision of residential real estate rental services for residential purposes benefits from the exemption from tax on goods and services. The application of this tax preference depends on the fulfillment of objective conditions concerning the nature of the rented premises (residential unit) and subjective conditions concerning the intended use of the rented premises (housing purpose). Therefore, the exemption does not apply to renting residential real estate for purposes other than housing. However, the provision does not make the application of the exemption dependent on the type or legal form of the entity providing the service, as well as the entity purchasing the service.

Therefore, the conditions for applying the exemption are as follows:

  • provision of the service on its own account,

  • the residential nature of the property,

  • residential lease or tenancy purpose.

The occurrence of all the above conditions results in the application of the tax exemption. The absence of any of the above elements does not allow the exemption to apply and, as a consequence, the service provided is taxed at a rate of 23%.

Example 2.

The parish, in connection with its business activity (including providing real estate rental services), has become an active VAT payer. She owns the property complex on which the resort is situated. Most of the real estate was put into use by the company on the basis of a long-term lease agreement.

Long-term contracts will be concluded for a period of three months, after which they will be converted into contracts for a period of three years (which may then be extended). Agreements are concluded with elderly people, for whom living in the center will be an alternative to staying in seniors' homes or other facilities enabling the elderly to live. In the intention of the parish, long-term stays are to allow for an essentially indefinite stay of tenants, however, it is not able to predict with certainty the period of tenants' stay in the rented rooms.

In the above example, all the conditions required by law to apply the exemption from Art. 43 sec. 1 point 36 of the Act on tax on goods and services. At the same time, it should be noted that the above service is not a short-term real estate rental service, described below.

Property rental service taxed at 8% VAT

Finally, the third possibility of taxing the property rental service is related to the application of the reduced rate of 8%.

It should be noted that pursuant to Art. 43 sec. 20 of the Act on tax on goods and services, the exemption referred to in paragraph 1 paragraph 36, does not apply to the services listed in item. 163 of Annex 3 to the Act. This annex is the "List of goods and services taxed with the tax rate of 7%" (in the period from January 1, 2011 to December 31, 2018 - 8%, in accordance with Art. 146a, point 2 of the Act), which lists the services classified in division 55 of the Polish Classification of Products and Services - "Accommodation-related services".

Based on Article. 5a above the act, the goods or services being the subject of the activities referred to in Art. 5, listed in the classifications issued on the basis of the provisions on official statistics, are identified with the help of these classifications, if for these goods or services the provisions of the Act or the regulations issued on its basis provide statistical symbols.

The consequence of the above provision is the fact that when the legislator referred to the appropriate PKWiU symbol for a given product or service in the VAT regulations, the classification should be made based on this classification. This is the case for services related to accommodation - PKWiU 55.

Otherwise, classification is made on the basis of the characteristics of the benefit in question. An example of this are, among others services in the field of renting real estate of a residential nature or part of real estate, on its own account, solely for residential purposes, for which the legislator did not make reference to public statistics.

In the explanations of PKWiU in section 55 it was indicated that this section covers, inter alia, - temporary or long-term accommodation in student dormitories, boarding houses and school dormitories, employee hotels, apartment blocks. Moreover, the notes indicate that tourist accommodation establishments and short-stay accommodation provide accommodation on a daily or weekly basis.

Important!

The purpose of short-term accommodation is different from that of housing. It is related to temporary stay, not residence. Therefore, it does not refer to the regular life interests of a person who is a tenant of a room in a given apartment building.Short-term rental of accommodation is primarily intended to provide a place for a specified period of time, where the tenant is staying and is not related to his place of residence. The tenant's goal is not to transfer the interest in a given locality, but to be able to stay there for various reasons (due to seasonal work, holidays, conferences, etc.), i.e. only for a specified period of time.

Example 3.

The taxpayer provides accommodation services for seasonal workers. The main purpose of this service is, first of all, to provide a place for a specified period of time, where a given employee stays in connection with the work performed on a temporary basis. Employees do not transfer their life interests to a given locality, but the possibility of staying there in connection with the performed seasonal work, i.e. only for the period of its performance. Moreover, the employees are alone in a given place - without the family residing elsewhere.

In the example above, the VAT rate of 8% will apply. However, the provisions on tax exemption will not apply, because in this case one of the conditions relating to the residential purpose of the rented property will not be met, and the basic rate, i.e. 23%, cannot be applied in the described actual state, due to the fact that the subject of the lease is not a commercial premises.