As part of our series of articles on legal changes, we will present the most important changes, both planned and implemented. We will familiarize you with and summarize the regulations relevant to the real estate market and the entire construction industry.
1. Potential Restrictions on Electricity Consumption Related to the Energy Crisis – Regulation of the Council of Ministers of November 8, 2021
Due to the ongoing energy crisis caused by heat waves, the war in Ukraine, and the resulting shortages in energy supplies, it is becoming increasingly likely that the government will introduce restrictions on energy consumption. Considering the situation that occurred on July 4, 2022, i.e., the drop in power reserves in the national electricity grid to 0 MW, there is a real risk of application of Article 11, Section 7 of the Energy Law. Pursuant to the aforementioned Act, the Council of Ministers has the authority to restrict energy consumption for a limited period, which occurred in 2015.
The restrictions in question may apply to energy consumers who, in accordance with agreements concluded with operators, consume at least 300 kW of energy.
The Regulation of the Council of Ministers of November 8, 2021, defines detailed rules and procedures for implementing restrictions. The severity of the planned restrictions is expressed on a scale of 11 to 20. Each higher level reduces the limit of permissible power consumption and carries the risk of imposing a penalty on the customer for exceeding them, as specified in the Energy Law. Pursuant to the Regulation, operators are required to send owners of facilities such as shopping malls prepared plans for introducing power supply and consumption restrictions, precisely defining the permissible power values for specific restriction levels.
If electricity consumption limits are introduced, building owners may be subject to fines of no less than PLN 10,000 and no more than 15% of the penalized business's revenue generated in the previous fiscal year. However, these are not the only risks arising from possible restrictions. Many owners have concluded that the introduction of the first levels of power restrictions will render their facilities inoperable. The introduction of the final levels of power consumption limits may mean that, even with all systems turned off, a single activation of the fire protection system could exceed the limits. Furthermore, building occupants face a significant risk of incurring losses associated with having to turn off refrigerators or sports equipment.
2. Tax on income from buildings – Art. 24b of the Corporate Income Tax Act
Due to the amendment to the Corporate Tax Act in 2018, Article 24b, establishing the so-called tax on income from buildings or the minimum tax, came into effect. The tax liability under this provision was suspended for the duration of the Covid-19 pandemic, but has been in force again since June of this year, with the first payment deadline falling on July 20.
Owners and co-owners of buildings located in the Republic of Poland, which were leased in whole or in part, are obligated to pay the tax. The tax rate is 0.035% of the tax base per month. However, it's worth noting that the upper limit of the tax, previously set at PLN 10,000,000, has ceased to apply. Taxpayers who own more than one building will pay the combined tax. Taxpayers subject to this tax regime are required to submit and report in their annual tax return the fixed assets whose value constitutes the tax base, the amounts of both paid and due tax, and the amount of deductions made.
Due to the change in regulations in 2019, it is possible to refund overpaid tax from income from buildings, even in a situation where the CIT tax is too low to allow for a full deduction.
3. Draft Act on Changing the Use of Certain Non-Residential Buildings to Residential Buildings
On August 12, 2022, a draft bill on changing the use of certain non-residential buildings to residential buildings was submitted to the Sejm. The proposed bill is intended as an ad hoc response to the housing crisis in Europe, including Poland.
The growing number of vacant office and commercial buildings is expected to be addressed by converting them into residential units, which are increasingly difficult to acquire. While existing regulations in the Construction Law allow for the conversion of buildings from office/commercial to residential use, they contain barriers that the proposed law aims to eliminate. According to the bill's explanatory memorandum, the bill ultimately applies to buildings with a sales area exceeding 2,000 m², which are often very attractive for residential use. These buildings are often located within the scope of Local Spatial Development Plans, which are time-consuming to amend. The proposed changes are also intended to address this problem by amending the so-called "special budget act," which will expand its applicability.
The proposed changes are intended to ease the provisions of the Building Code for the conversion of office and commercial buildings into residential buildings by exempting these works from the requirement to obtain a building permit, but also without the requirement to report the work. However, the requirement to obtain appropriate permits will remain for changes to building structural elements, as they are crucial for occupant safety. A specific solution is to allow the use of tools introduced by the Special Housing Act. Pursuant to Article 5, Section 3 of the Special Housing Act, a residential or associated investment is implemented regardless of the existence or provisions of a local development plan, provided it does not conflict with the municipality's study of conditions and directions of spatial development.
The above solutions are intended to be only ad hoc, not systemic (for the time related to responding to the effects of the pandemic and in connection with the influx of refugees from Ukraine), therefore they could be applied for a specified period of time (a period of up to 2 years from the date of entry into force of the Act is assumed).
4. Sale of separate plots of land as a business activity – PCC tax or VAT based on the judgment of the Constitutional Tribunal in case no. SK 20/19?
On July 19, 2022, the Constitutional Tribunal ruled on a constitutional complaint concerning the constitutionality of personal income taxation resulting from a vague definition of "economic activity." The case before the Tribunal was based on the division and sale of some of his plots by a farm owner. The Tax Office classified this transaction as a professional real estate transaction subject to personal income tax (PIT).
The Tribunal ruled that the Tax Office will assess each case whether the owner's disposal of private property constitutes an economic activity. The complainant, who previously conducted agricultural and business activities, divided his land into smaller plots and systematically sold them, which the tax office considered to be undeclared professional business activity involving the sale of real estate. Both the Provincial and Supreme Administrative Courts agreed with the Tax Office, dismissing the owner's arguments, including numerous national and European case law and the ambiguity of the concept of "economic activity" in Article 5a, item 6 of the Personal Income Tax Act.
The ruling will allow the tax authorities to determine, in each individual case, whether an owner's disposal of their property constitutes a business activity. The only way to pursue their rights in the current situation is through legal action. In its judgment of December 18, 2019, file reference I SA/Gl 798/19, the Provincial Administrative Court in Gliwice sided with the taxpayer, citing the rulings of the Court of Justice of the European Union, which stated that if the sale of real estate occurs as part of the management of private assets, it cannot be considered subject to VAT (judgment in joined cases C-180/10 and C-181/10 of September 15, 2011).
The consequence of the Constitutional Tribunal's judgment may lead to a situation in which doubts will arise as to the type and amount of taxation when selling real estate.
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This article is for informational purposes only and does not constitute legal advice.
Legal status as of August 24, 2022
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