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Real property sale and VAT payment



Real property sale may be the subject to Value Added Tax (VAT) payment. When is the seller obliged to make this payment?


Property sale and VAT

In accordance with the Act on Value Added Tax (VAT), the notion of goods includes  buildings, structures, or components thereof, as well as land. It is an important information, as VAT is chargeable upon the payable goods supply, and the transfer of right to dispose of the goods in the same manner as the owner does, i.e. sale, shell be considered as such. However, the very act of the property sale does not result in the obligation to pay VAT.


VAT taxpayer is a person who carries out an economic activity within the meaning of Art. 15, par. 2 of the Act: "Any activity of producers, traders or persons supplying services, including entities obtaining natural resources and farmers, as well as activities of the professions, shall be regarded as economic activity. Economic activity comprises particularly activities which are related to the exploitation of tangible or intangible property for the purposes of obtaining income on a continuing basis".


Property sale and economic activity

Having in mind the aforementioned definition, the State Treasury may regard the sale of the property as economic activity of the Real Estate Agent. How is it possible? It is true that each economic activity should be recorded in CEIDG (Central Registration and Information on Business), but lack of entry on Real Estate Agent activity in your registration, or lack of registration in general, does not mean that the seller will not be considered a person conducting business activity by the tax authorities. The determining factor for the taxation will be the factual circumstances accompanying the disposal of the property.


Going back to the definition of economic activity provided in the Act, we learn that it is the number and frequency of property sales which indicate the aforementioned "continuing basis". Unfortunately, the Act does not provide the definition of "frequency", and so the State Treasury should always try to see the big picture of the situation; in particular, if the taxpayer undertook organized and continuous actions with the purpose of gaining profit from the sale of the property, i.e. development of the utility lines on the plot, application for the issuance of the Decision on Land Development Conditions, or advertising. It is worth to emphasize, that all this actions should be undertaken repeatedly, not occasionally.


Having a property sale considered an economic activity – consequences

Having a property sale considered an economic activity results the in the obligation of income tax payment, which in this case is usually higher than in the case of private property sale. With the sale of real properties, which are often valuable, it is almost certain that the seller will enter into the higher tax rate (currently it is 32 per cent). Profit, the difference between the income and the expenditure incurred, serves as the tax basis. Such expenditure (tax deductibles) includes, first and foremost, the purchase price of the property. In addition, all other costs incurred in order to increase the value of the property may also be deducted from the tax basis.


The problem appears when the tax authorities "surprise" the taxpayer and consider his sale as conducting business activity. The period of limitation for tax liabilities is 5 years. If the taxpayer will be obliged to pay the tax during this period, he will have to do it with interest. Moreover, if the tax authorities assume that the seller wanted to deceive the state, he will be face charges of both fiscal and criminal nature.


Jakub Jastrzębski


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