You can buy your own castle
Anna Szymańska is a tax senior manager at the Warsaw office of Ernst & Young.
Following on from my two-part miniseries on annual tax reconciliations, you are, no doubt like me, sick to the eyeteeth of tax. This week's column, by way of a breath of fresh air and for which many thanks to my colleague Sabine Heyning, deals with the issues surrounding the purchase of real estate by nonresidents. It is, if you like, an idea as to how you can invest that tax rebate you may receive from the tax office if you remember to file your return within the deadline date which is this Wednesday, April 30.
At present, foreigners almost always need a permit to purchase real estate here. The Act on the Acquisition of Real Estate by Foreign Persons (March 24, 1920) is very strict in this respect. There are some exemptions, but the only one that can actually be applied in practice is that foreigners can buy apartments without having a permit. For the past two years, entrepreneurs from a European Union country, who have a company or branch here, have been issued a permit if the real estate is to be directly used to carry out business activity. You all probably know that when land is used for agricultural or forestry purposes, foreigners are only granted permits in very exceptional cases.
The whole permit system will change when the country becomes an EU member - which is expected to be in May 2004. The act of 1920 will continue to be in force, though its area of application will be limited. Although the act is clearly in breach of the principle of freedom of capital contained in the EU treaty, Brussels has agreed to a transitional period, which means that the act's provisions will still apply in certain cases for the first few years.
For five years after accession a permit will still be needed for the acquisition of secondary residences. However, to ease the pain, there will be exemptions for EU citizens and citizens of countries that are party to the European Economic Area Agreement. The countries that have signed this agreement are Norway, Iceland and Liechtenstein. Under this exemption, citizens from EU and EEAA states, who have been legally resident in Poland for four consecutive years, do not need a permit. This will also apply to citizens from any of the other nine new EU member states. Although no definition of legal residency is given, it seems in practice to be based on an appropriate residence permit (permanent or temporary).
Polish farmland will be protected for another 12 years after accession, which means that a permit will be needed to buy farmland until 2016 (assuming that May 1, 2004, is the actual accession date). The same applies to forestland. Exemption from this rule applies to EU and EEAA citizens who wish to establish themselves as self-employed farmers and who have been legally resident here and have leased land for at least three consecutive years.
The Sejm has just passed the Agricultural Systems Act, which is expected to come into force soon. Under the new law, people with the appropriate education can purchase farmland. This will apply to both foreigners and Polish citizens. Until the country's accession date, only Polish diplomas will be accepted; after accession, diplomas from EU and EEAA states will also be accepted. This means that foreign self-employed farmers need to have certain qualifications in addition to residency in the county in which the land is situated.
Foreign farmers will be given time to transform their farms from company farms into self-employed farms and transfer the lease agreements accordingly. In this case, the total period of farming and leasing will be counted as one.
This three-year period does not apply in all regions here. For the more developed regions, such as Warmińsko-Mazurskie, Pomorskie, Kujawsko-Pomorskie, Zachodniopomorskie, Lubuskie, Dolnośląskie, Opolskie and Wielkopolskie, the residence and lease period is extended to seven years.
Poland has been asked during the transition period to authorize real estate acquisitions in the country on the basis of transparent, objective, stable and public criteria, which should be applied in a nondiscriminatory manner that does not differentiate between citizens of member states. This means that we will have to amend the Act on the Acquisition of Real Estate by Foreign Persons by adding strict criteria for granting a permit. It also means that the ministries will have to grant a permit to any EU citizen, if he meets all the required conditions.
Brussels has set up a control system under which, three years after accession, the European Commission will submit a report to the EC, which will then decide either to shorten or terminate the transition period.
What conclusions can be drawn from the regulations in force during the transition period?
First, EU and EEAA citizens can buy their own castles after May 1, 2004, without a permit, as long as they use it as their first residence and no farm or forestland is attached. They can also buy their castle as a second residence, as long as they have been legally resident in Poland for four years. In other cases, a permit for second residences will still be needed for another five years.
Second, from May 1, 2004, a permit will not be needed to purchase real estate for business activity, as long as the land is not designated as agricultural or forestland.
Third, for 12 years after accession, the purchase of farm and forestland will still be protected by the act, but a permit cannot simply be denied if the application is submitted by an EU citizen or company. This period is limited to seven years for self-employed farmers in the western part of the country. For the eastern part, the three-year period is retained. The new Agricultural System Act imposes certain educational requirements for farmers.
It will be up to the EU itself to decide if the transition period will be extended after May 1, 2007.
One final note: It was interesting to read in the papers just last week that, according to government statistics, only 0.1% of available real estate here has been purchased by foreigners in the last 13 years.
