Tax on income from buildings. Settlement, doubts, refund applications

What is the tax on income from buildings?

The tax on income from buildings has been in effect in Polish law since January 1, 2018. This tax, commonly referred to as the “minimum tax on buildings,” is a solution designed to ensure effective taxation of entities operating in the real estate sector.

Who is subject to the tax on income from buildings?

The current regulations establish four conditions that determine whether a taxpayer is subject to the tax on income from buildings. This tax is due on income from a fixed asset that is a building, which:

• is owned or co-owned by the taxpayer;
• is a property asset related to conducted business activity;
• has been fully or partially made available for use based on a lease, tenancy, or other similar contract (the list is open, which causes practical doubts);
• is located in the territory of the Republic of Poland.

How to calculate the minimum tax on buildings?

The tax has a distinctive structure, as its amount depends on a specifically defined income and certain property assets.

The taxable income is the initial value of the fixed asset, determined on the first day of each month, according to the maintained records. In the month when the fixed asset is included in the records, the income corresponds to the initial value determined on the day the asset is entered into the records.

The tax base is the sum of income from individual buildings, reduced by the amount of PLN 10,000,000.

The reduction of the tax base demonstrates the legislator’s intention to target taxpayers owning high-value real estate. The tax on income from buildings should be calculated monthly and paid by the 20th day of the month following the one in which the tax is due. The tax rate is 0.035% of the tax base for each month.

Practical problems in the tax on income from buildings

Several years of applying the regulations regarding the minimum income tax on buildings have led to numerous doubts among taxpayers. Below, we present selected issues that have been the subject of disputes.

What if only part of the building is made available for use?

The legislator has regulated situations where the taxpayer makes only part of the building’s area available for use. In such cases, the taxpayer should determine the income proportionally to the share of the usable area made available for use under the relevant contracts compared to the total usable area of the building.

In practice, doubts have arisen regarding common areas in the context of properly calculating the proportion.

Is a hotel agreement considered a contract of a similar nature to a lease or tenancy?

The use of the term “other contract of a similar nature” by the legislator in the regulations have already raised concerns at the legislative stage. In practice, this led to numerous tax cases where it was debated whether a hotel agreement constitutes a contract of a similar nature to a lease or tenancy.

In the case law from the beginning of the legislation, there were two opposing views. Currently, according to the dominant position of the Supreme Administrative Court (NSA), a hotel agreement is not considered a contract of a similar nature to a lease or tenancy agreement.

Student dormitories, dorms, boarding houses, university buildings, and the tax on income from buildings

Doubts regarding the taxation of income from buildings also concerned university buildings (academic buildings). The main issue was whether providing accommodation (a room) to a student or doctoral student based on a specific contract for the purpose of their studies could be classified as a contract of a similar nature to a lease or tenancy agreement.

In the case law arising from these issues, several rulings have confirmed that the tax on income from buildings does not apply to:

• providing students with accommodation in a student dormitory;
• providing buildings to students, doctoral students, and interns;
• providing accommodation in boarding schools, as this is not considered a traditional contract but an internal relationship between the student and the university.

On the other hand, there have also been contrary positions in the past, which confirmed that the regulations of the tax on income from buildings also apply to academic buildings.

These examples lead to the conclusion that the tax on income from buildings, due to the ambiguous nature of the regulations, continues to create numerous for taxpayers regarding the correct settlement of the tax.

How to settle the tax on income from buildings?

Taxpayers are required to settle the tax on an ongoing basis. The amount of tax paid for a given month can be deducted from the CIT/PIT advance. The final settlement of the tax is done in the annual tax return.

Can you apply for a refund of the tax on income from buildings?

After filing the annual tax return (e.g., CIT-8), taxpayers who have not fully deducted the tax may submit an application for a refund of the tax paid. The refund is made without decision if the taxpayer’s application does not raise any doubts. However, it is important to note that as a result of submitting the application, the tax authorities generally initiate proceedings and verify the correctness of the calculation of the minimum tax and the entire CIT/PIT result for the given year.

Therefore, before submitting a refund application, it is essential to verify both the annual CIT/PIT settlement, with particular attention to financing costs and determining the initial value of fixed assets, as well as the settlement of the tax on income from buildings.

MDDP has significant experience in such matters and offers comprehensive support to taxpayers in the tax refund process, covering three stages:

• Stage I – verification of the CIT/PIT result and the calculation of the minimum income tax on buildings;
• Stage II – preparation of the application;
• Stage III – refund proceedings.