We know the wording of the regulations introducing new PCC taxation rules for the purchase of a first dwelling and for the purchase of more than 5 residential units. Who will benefit and which investors will be taxed more? When do the new regulations take effect?
Amendments to the Law on Tax on Civil Law Transactions were proceeded as part of the amendment of the provisions on the conversion of the right of perpetual usufruct into ownership. The addition of amendments to the tax burden not until the stage of work in the Sejm in practice deprived the public of the opportunity to consult on this issue. In the statement of reasons to the draft act, there is no word on the PCC itself, because at the draft stage there was no intention to amend the tax obligations in this particular act.
The government has been communicating for some time and brought up the idea of limiting the ability of institutional investors to purchase apartments in bulk again in April, thus raising a slight concern of the real estate industry. However, the enacted amendments (which are still awaiting the president’s signature) should not be particularly severe for large foreign investors or the growing institutional rental market (PRS, i.e. Private Rented Sector).
Conditions for taxation of the sixth and subsequent dwellings
So what do the provisions for taxing the purchase of more than 5 residential units really mean? It seems that the sale must meet numerous conditions in order for the transaction to be subject to the 6% tax on civil law transactions.
- It must be a residential unit that is the subject of the contract of sale
- The unit is a separate property
- The units are located in a building / buildings developed on a single land property
- Sales subject to VAT
- The purchase is of at least 6 units (or shares in them)
- Contract with the same buyer (the same parties to the sales contract)
The lawmakers have introduced an exception to the existing rule that VAT-taxable activities are not subject to PCC. The said exception is to apply to sales contracts involving separate residential units, taxed at the same time with VAT and a 6% PCC rate under newly enacted rules. This means it only applies to residential units – not houses or commercial premises. The regulation also does not apply to entire buildings, which are usually the subject of transactions by major real estate players.
It is worth noting that only the sale of residential units (or shares in them), which is subject to VAT, can be subject to 6% PCC. This means that the change mainly addresses retail sales in the primary market. Apartments purchased second-hand from a private individual remain subject to PCC at a rate of 2%. In addition, the obligation to pay 6% PCC will not be triggered by a VAT-exempt transaction – such as the sale of premises by a VAT taxpayer after the expiration of 2 years from initial occupancy, i.e., for example, after it has been rented for at least such a period.
The acquired premises have to constitute separate properties – they must therefore be separated in accordance with the regulations of the Act on Ownership of Premises. And while this is common in the practice of real estate developers, in the case of the PRS sector, for example, major entities tend to acquire full-scale, custom-built buildings and then rent out the units within them – not sell separate apartments.
Another condition is the acquisition of at least 6 apartments in a building or several buildings that are located on a single piece of land. Then the tax is levied on the sale price of the sixth and each subsequent unit. Confirmation of whether the buildings are built on the same piece of land will be found in the land registry records – each property has a separate Land and Mortgage Register (KW). On the other hand, it may turn out that buildings built as part of a single development (e.g., a housing estate) will be located on several pieces of land, in which case it seems that the limit of 6 apartments would have to be verified for each land property independently.
The last criterion is that the sales contract is entered into by the same entities. The regulation does not contain a time limit. It does not only apply to the purchase of multiple units in a single transaction. An investor could have purchased 5 residential units in a particular development in the past and then approach the same seller with an offer to buy more, even years later. In this theoretical situation, 6% PCC will become due on the price of the sixth and subsequent apartments purchased.
In the case of acquiring residential units for joint ownership, the 6% tax will apply if at least one of the co-owners meets the conditions stipulated in the regulation. Unless the property or property rights accruing to each buyer are separated, 6% should be applied to the total purchase price. The joint and several liability for payment of this tax will be borne only by those buyers who meet the conditions for taxation at the 6% rate.
As for the calculation of the tax due, the provisions of the law stipulate that the tax base for a sales contract is the market value of the property or property right. In our opinion, therefore, the 6% tax should be calculated on the net sales price, without taking VAT into account.
The amended regulations on taxing the sale of residential units with additional PCC are scheduled to take effect on January 1, 2024. Actions performed before that date will be taxed under the old rules. The same will apply to transactions completed as early as 2024, but as a result of the execution of contracts that obligate the parties to complete the sale (e.g., a preliminary agreement) entered into before the new regulations came into force.
PCC exemption for the purchase of the first apartment / house
Moving on to the more favorable amendment, the discussed Act also provides for the introduction of a new exemption from the tax on civil law transactions for the purchase of the first privately owned or cooperative apartment or single-family house. It is mainly a purchase on the secondary market – from a private individual (possibly a VAT-exempt transaction).
The 2% tax rate will not have to be paid by those who, on and before the date of purchase, did not have an analogous right to a dwelling or residential building. There are no time limits in this regard either, so it would appear from the wording of the provision that buyers can never have a prior right to an apartment or house. The exception is if it was acquired through inheritance and did not exceed 50% of the share in the right to the apartment or apartment building, in which case such a buyer will still be able to take advantage of the PCC exemption on the purchase of the first dwelling.
In the above regard, the amendment does not provide specific regulations for the acquisition of real estate under joint ownership. For the transaction to be exempt from PCC, all co-owners must meet the conditions in the enacted provision – if at least one of them has previously owned an apartment or a share in it in excess of 50%, the exemption will not apply.
The PCC exemption for the first apartment or house will apply to actions that are made after the Amendment comes into effect, i.e. 30 days after its announcement in the Journal of Laws.
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