Real estate is typically the most valuable asset for individuals. Real estate transactions typically involve hundreds of thousands, and often even millions, of zloty. It's no wonder, then, that before selling a property, the parties to the transaction often request an individual tax ruling. An error in the tax settlement of the transaction can be costly. Typically, the dispute concerns VAT. A common question is whether value added tax (VAT) is payable when selling plots of land belonging to private property. Tax authorities take the position that it is not, provided the property was not used for business purposes and the sale did not involve activities typical of entities professionally involved in real estate transactions. One such activity, which tax authorities typically list in their rulings, is the division of the property into smaller plots to obtain a more favorable price.
The Provincial Administrative Court in Kielce addressed this issue in June 2024. It was reviewing a complaint filed against a tax ruling issued by the Director of the National Tax Information Service (KIS). The ruling found that dividing a property into smaller plots, obtaining a decision on development conditions, installing an electricity connection to one plot, installing a water connection on one of the plots, and paving one of the plots that provides access to the other plots were intended to "make the subject of sale more attractive, and consequently, increase the attractiveness of the subdivided plots and, as a result, increase the chances of selling the land for financial gain." Such activities are not typical for an individual managing personal assets, but are characteristic of professional and organized business operations. In the authority's opinion, by dividing the plot prior to sale, the applicant became a person conducting business activity (within the meaning of the VAT Act) in the field of real estate trading. According to the Director of the KIS, two conditions must be met for the transaction to be exempt from VAT. First, the transaction must be of a one-time or occasional nature, and second, it must involve the disposal of personal property and not the conduct of an organized business activity. In this case, however, the second requirement was not met.
However, the administrative court disagreed with the interpretation issued. It found that the applicant cannot be considered a VAT payer in the event of the sale of several plots resulting from the division of his property. It pointed out that since all plots are to be sold simultaneously, the transaction is a one-time transaction, not a recurring one. Furthermore, the sale offer will not be subject to marketing activities typical of professional commercial activity. No advertising will be associated with the sale. Advertisements for the sale will be limited to local media outlets and a banner at the plot location. This cannot be considered an activity undertaken by entities professionally involved in real estate transactions. Applying for approval of the division of the property into smaller building plots, securing the separation of the plot for a road, and initiating administrative proceedings to change the property's function from agricultural to construction does not, in itself, constitute proof that the seller is a professional real estate dealer. The sale of even a dozen or so building plots resulting from the division of agricultural land does not per se constitute commercial activity subject to VAT, as there are no grounds for proving that the seller was engaged in such activity in the sale of the land in question, which would be comparable to the activities of entities professionally engaged in this type of trade.
Importantly, the court emphasized that "the mere pursuit of obtaining the best possible price from the sale of plots is merely a manifestation of the pursuit of rational property management – achieving appropriate economic effects without engaging in business activity." The Provincial Administrative Court aptly pointed out that: "it is not possible to require that a natural person, as part of rational management of their private property, dispose of it in the least profitable and economically justifiable manner possible, simply to avoid taking any actions that would increase the attractiveness or intended use of the land, which could result in being classified as a VAT payer."
It's clear that every factual situation is different, and when assessing your own tax situation in connection with the sale of real estate, you should analyze all circumstances that may indicate that you are acting as a VAT payer in a given transaction. It's also a good idea to consult with a lawyer who specializes in tax law. Often, it will be advisable to seek an individual tax ruling. However, the presented judgment may support the argument that when selling personal property, you are not acting as a VAT payer.
(judgment of the Regional Administrative Court in Kielce of 27 June 2024, file reference number I SA/Ke 219/24)
This article is for informational purposes only and does not constitute legal advice.
Legal status as of January 13, 2025
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