Taxation and Legal Framework for Real Estate in Poland

1. VAT on Apartment Purchases in the Primary Market

For apartments purchased in the primary market, Value Added Tax (VAT) is already included in the sale price, simplifying the payment process. When funds are transferred to the developer, the VAT obligation is automatically fulfilled.

1.1 VAT Rates Based on Apartment Size

VAT rates in Poland vary depending on the size of the apartment:

• Up to 150 m²: 8% VAT
• Above 150 m²: 23% VAT

For single-family houses, the VAT structure is similar:

• Up to 300 m²: 8% VAT
• Above 300 m²: 23% VAT

Apartments below 25 m², often referred to as micro-apartments, are considered commercial premises and taxed at the higher 23% VAT rate.

1.2 VAT Exemptions in the Secondary Market

Purchases from the secondary market do not include VAT, offering a significant cost advantage. Instead, buyers pay the PCC tax (discussed in the next section).

2. PCC Tax on Apartment Purchases in the Secondary Market

The PCC tax (Tax on Civil Law Transactions) applies to secondary market transactions:

• Rate: 2% of the property’s market value, as stated in the notarial deed.

2.1 Important Considerations for PCC Tax

• The PCC tax is not required when buying a property from a VAT-registered seller applying the VAT exemption (ZW rate).
• When purchasing properties at unusually low prices, buyers should justify the valuation (e.g., poor condition or unfavorable location) to prevent the tax office from reassessing the value and imposing additional tax with interest.

2.2 Deadlines for PCC Tax Payment

• Buyers must pay the PCC tax and submit the PCC-3 tax return within 14 days of the transaction.

3. Notary Fees for Apartment and House Purchases

The involvement of a notary is mandatory for all property transactions in Poland. Notary fees, determined by the Decree of the Minister of Justice, are calculated based on the property’s value.

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4. Taxation of Rental Income

4.1 Rental Income for Individuals and Sole Proprietors

Effective January 2023, private rental income is taxed using a lump-sum system:

• 8.5% tax: For total annual rents under PLN 100,000.
• 12.5% tax: For rents exceeding PLN 100,000 annually.

Investors operating as sole proprietors can choose between:

1. General Rules:
   • Progressive tax rates: 12% for income under PLN 120,000 and 32% for income above PLN 120,000.
   • Deductions: Expenses such as renovations, furniture, and repairs are deductible.
2. Flat Tax Scheme:
   • 19% fixed rate on rental income.
   • Ideal for high-income earners to avoid higher rates under the general rules.

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4.2 Rental Income for Companies

For companies, rental income is taxed as business income:

• 9% CIT: For companies with annual revenue (including VAT) under €2 million.
• 19% CIT: For companies exceeding this threshold.

Note: Depreciation of residential properties is no longer deductible for corporate tax purposes.

5. Tax on the Sale of an Apartment

The sale of real estate in Poland incurs a 19% capital gains tax, calculated on the profit made from the sale. Key rules include:

• Tax is applicable only if the sale occurs within five years of purchase.
• After five years, no tax is due, regardless of the sale price or profit.

6. Property Tax on Buildings in 2023

In 2023, property tax rates in Poland are based on the size and use of the building:

• Residential Buildings: Up to PLN 1 per m².
• Business-Use Buildings: Up to PLN 28.78 per m².

This tax is levied annually and payable to the local municipality.

7. Key Taxation Considerations for Investors

7.1 VAT and PCC Tax Strategy

Investors should assess whether primary or secondary market purchases offer better tax advantages, balancing VAT inclusion in new properties against PCC tax in secondary market transactions.

7.2 Rental Income Optimization

Choosing the appropriate taxation method (lump-sum, general rules, or flat tax) can significantly impact profitability.

7.3 Long-Term Planning for Property Sales

Holding properties for at least five years eliminates capital gains tax, maximizing net returns upon sale.

FAQs: Real Estate Taxation in Poland

1. Do I pay VAT on all apartment purchases?
VAT is included in the price of new properties but does not apply to secondary market purchases.

2. What is the PCC tax, and when is it due?
The PCC tax is 2% of the property’s market value for secondary market transactions, payable within 14 days of purchase.

3. How are rental incomes taxed for individuals?
Rental income is taxed at 8.5% (up to PLN 100,000 annually) or 12.5% (above PLN 100,000 annually).

4. What is the capital gains tax on property sales?
A 19% tax applies to profits from property sales within five years of purchase. No tax is due after five years.

5. Are notary fees fixed in Poland?
Notary fees are capped by law and vary based on the property’s value, with a maximum fee of PLN 10,000.

6. How is property tax calculated in Poland?
Property tax is based on size: PLN 1/m² for residential buildings and PLN 28.78/m² for business-use buildings.

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