Poland: Taxation of real estate and fees connected with holding of real estate by entrepreneurs
Poland has no cadastral tax, which would be based on the value of property and every government swears not to introduce it. What taxes and fees are associated with property ownership in Poland and who has to bear them? This is a key issue for foreign investors.
In Poland, the owner, a perpetual usufructuary, but also a so-called independent holder of a building object or a property pays so-called real estate tax annually, a regional tax that benefits the municipal treasury and the amount of which is adopted annually by decision of the municipal council. The amount of this tax depends on the area and the type of use of the property, as the rates differ according to whether the land or building is related to business activity or used for residential or other purposes. Until now, the rules blindly assumed that any property owned by an entrepreneur would be taxed at the tax rates for commercially-used land, regardless of whether it was used by the entrepreneur at all. This was only changed by judgment of the Constitutional Court of 24.02.2021 SK 39/19, in which this interpretation was declared to be in error. Currently, real estate tax is paid at a higher rate only for properties that are actually used for business purposes. However, you can now fall into a trap if you rent to an entrepreneur a part of a property that has not been used in any way so far: in this case, you may have to pay tax on the entire property at a higher rate, even though someone rents only a part of it.
The most expensive legal form of holding a property in Poland is perpetual usufruct, from which the user pays a so-called annual fee in addition to the above-mentioned tax. The annual fee in the case of real estate for business purposes is 3% of the property’s value. This fee may also be updated every 3 years by the municipality or the state authorities (depending on who owns the site) so that 3% of the current market value of the property is charged. It is not difficult to calculate that in the case of a perpetual usufruct granted for 99 years, an entrepreneur will pay the value of the property three times (and this increases over time). Nevertheless, the price per sqm of perpetual usufruct is the same as the price for 1 sqm of land ownership. So perpetual usufruct is expensive – the annual fee is in reality a secret Polish cadastral tax.
Before buying real estate, it is also recommended to check the local zoning plan. This plan determines what can be built on the property (max. parameters and dedication of the property), i.e., this results in restrictions for the future. In addition, the local zoning plan (if it exists at all, because there are no such plans for many parts of Poland) sets the so-called zoning fee, i.e., the percentage fee (up to 30% of the value increase of the property as a result of adoption of a local zoning plan), which the municipality can charge within 5 years after adoption of the local zoning plan if the owner sells the property. This fee increases the price of the property or even blocks the transaction for several years.
The legislative authority has noticed this problem, but in the draft amendment to the law, which is currently being prepared by the Ministry of Development, the Ministry may possibly throw the baby out with the bathwater because according to the information that has come to public attention, a zoning fee would in future be paid by every owner/perpetual usufructuary after adoption of the local zoning plan, regardless of whether they want to sell the property at all (and when they do it) or if they want to take advantage of the investment opportunities granted therein at all. For example, a retired person in a single-family house would also have to pay the fee if an architect draws a skyscraper on their property. A zoning fee understood in this way would introduce another tax and enhance gentrification – so let us hope that the authorities will abstain from this change of law.
Source: Judgment of the Constitutional Court of 24.02.2021 SK 39/19– Official Journal of 03.03.2021 pos. 401