New VAT land law
Indeed, experts agree on the fact that the law is not prepared well. Certainly, legal regulations in the construction sector remain unclear. Moreover, in less than two months, the sale of real estate will become subject to a VAT rate of 22 percent.
This could have enormous consequences for entrepreneurs operating in the construction sector, and also for individuals who are looking to invest after May 1, 2004. The current VAT regulations state that two areas are taxed: the sale of goods and paid services. As far as the legislator is concerned, movables, buildings and all energy sources count as goods. According to the legal regulations currently in force, real estate plots are not included in the definition of goods and are therefore not subject to VAT, regardless of the intended use of the land. But change will also occur in this arena.
The new VAT law significantly expands the meaning of the term 'goods,' and clearly points out that plots are products too. Article 29 of the new law states that trade in land will therefore constitute a tax base, while the initial analysis of the appendices to the law suggests that the basic rate of VAT will be applied.
The term 'lands' can not be found in the specification of goods and services taxed at reduced VAT rates, which are exempt from tax, so that there is no point counting on any special dispensation. As a consolation, it could be maintained that stamp duty has been cancelled, which means that the old two percent stamp duty paid to the Revenue Office when buying land real estate is now gone. What has brought about this change?
The government's explanation is that the new fiscal charge concerning the trade in land has come about from the need to adjust Polish law to EU standards. The Sixth Directive of the EU, which is similar to the newly-signed VAT law, recognizes land rights and various kinds of property rights as goods.
The new regulations will force entrepreneurs who want to acquire real estate to add 22 percent VAT to its value, although in theory this should be unimportant for buyers because the general rule states that VAT is neutral. But that is not true. Why? Because there exist a number of questions concerning how VAT should be deducted.
VAT is not going to be deducted as an expense for buying certain products and cannot be treated as an allowable expense as far as income tax regulations are concerned. Unfortunately, however, expenses for land acquisition are not this kind of cost. According to the Minister of Finance, Andrzej Raczko, developers should be able to claim back the difference in VAT paid after they've bought land from an entrepreneur, who is a VAT taxpayer. Early analysis of the new regulations shows that developers acquiring land will be able to deduct VAT, but not immediately. Expenses for land acquisition will simply be treated as a tax cost. In practice, developers will have problems retrieving the VAT they have already paid.
By Robert Mikulski, Managing Partner of the Stopczyk & Mikulski law firm
This could have enormous consequences for entrepreneurs operating in the construction sector, and also for individuals who are looking to invest after May 1, 2004. The current VAT regulations state that two areas are taxed: the sale of goods and paid services. As far as the legislator is concerned, movables, buildings and all energy sources count as goods. According to the legal regulations currently in force, real estate plots are not included in the definition of goods and are therefore not subject to VAT, regardless of the intended use of the land. But change will also occur in this arena.
The new VAT law significantly expands the meaning of the term 'goods,' and clearly points out that plots are products too. Article 29 of the new law states that trade in land will therefore constitute a tax base, while the initial analysis of the appendices to the law suggests that the basic rate of VAT will be applied.
The term 'lands' can not be found in the specification of goods and services taxed at reduced VAT rates, which are exempt from tax, so that there is no point counting on any special dispensation. As a consolation, it could be maintained that stamp duty has been cancelled, which means that the old two percent stamp duty paid to the Revenue Office when buying land real estate is now gone. What has brought about this change?
The government's explanation is that the new fiscal charge concerning the trade in land has come about from the need to adjust Polish law to EU standards. The Sixth Directive of the EU, which is similar to the newly-signed VAT law, recognizes land rights and various kinds of property rights as goods.
The new regulations will force entrepreneurs who want to acquire real estate to add 22 percent VAT to its value, although in theory this should be unimportant for buyers because the general rule states that VAT is neutral. But that is not true. Why? Because there exist a number of questions concerning how VAT should be deducted.
VAT is not going to be deducted as an expense for buying certain products and cannot be treated as an allowable expense as far as income tax regulations are concerned. Unfortunately, however, expenses for land acquisition are not this kind of cost. According to the Minister of Finance, Andrzej Raczko, developers should be able to claim back the difference in VAT paid after they've bought land from an entrepreneur, who is a VAT taxpayer. Early analysis of the new regulations shows that developers acquiring land will be able to deduct VAT, but not immediately. Expenses for land acquisition will simply be treated as a tax cost. In practice, developers will have problems retrieving the VAT they have already paid.
By Robert Mikulski, Managing Partner of the Stopczyk & Mikulski law firm
