Introduction
Determining whether, for the purposes of value added tax (hereinafter: “VAT”), the subject of a supply is developed or undeveloped land is not always straightforward. At the same time, this determination serves as the starting point for the proper settlement of VAT, as well as the tax on civil law transactions (hereinafter: “TCLT”).
In this article, we will take a closer look at several cases that may raise doubts in this regard, namely the supply of land on which there are unfinished buildings, remnants of buildings or structures (ruins), buildings designated for demolition, fragments of neighbouring buildings (encroachment), or technical infrastructure belonging to utility companies.
Legal basis
Pursuant to the Act of 11 March 2004 on Value Added Tax (Journal of Laws of 16 June 2025, item 775, consolidated text, hereinafter: the “VAT Act”) – Article 43(1)(9), the supply of undeveloped land other than building land is exempt from VAT.
Applying the VAT exemption to the sale of real estate results in the transaction being subject to TCLT, with the supply of undeveloped, non-building land being taxable under TCLT – in which case the taxpayer is the purchaser. The supply of undeveloped building land, on the other hand, is generally subject to VAT at the rate of 23%.
The VAT Act does not contain a definition of “undeveloped land.” In judgements of administrative courts and in individual tax rulings, it is generally accepted that it is land on which no buildings, structures, or their parts are located (cf. judgment of the Supreme Administrative Court [hereinafter: “SAC”] of 16 July 2019, ref. I FSK 1049/17, judgment of 5 February 2019, ref. I FSK 44/17, and individual tax ruling of the Director of the National Tax Information [hereinafter: “DNTI”] of 7 March 2022, no. IPPP1/443-784/14-3/22/S/AS).
The VAT Act also does not contain definitions of the terms “building” or “structure.” Consequently, administrative courts and tax authorities refer in this respect to the provisions of the Act of 7 July 1994 – Construction Law (Journal of Laws of 1 April 2025, item 418, consolidated text, hereinafter: the “Construction Law Act”).
According to Article 3(2) of the Construction Law Act, a “building” is defined as a construction object that is permanently attached to the ground, separated from surrounding space by structural partitions, and equipped with foundations and a roof.
Pursuant to point 3 of the cited article, a structure is understood as any construction object other than a building or a small architectural object, including, among others: linear objects, airports, bridges, viaducts, flyovers, tunnels, culverts, technical networks, free-standing antenna masts, free-standing billboards and advertising devices permanently fixed to the ground, earthworks, defensive (fortifications), protective, hydrotechnical works, tanks, free-standing industrial installations or technical devices, wastewater treatment plants, landfills, water treatment stations, retaining structures, above- and underground pedestrian crossings, utility networks, sports facilities, cemeteries, monuments, as well as construction parts of technical devices (boilers, industrial furnaces, nuclear power plants, wind power plants, offshore wind turbines, and other devices), and foundations for machines and devices, as technically separate parts of objects that together form a functional whole.
In the case of the supply of a building or structure together with the land on which it is located, it is the building or structure that determines how the transaction is taxed for VAT purposes. This follows from Article 29a(8) of the VAT Act, pursuant to which, in the case of the supply of buildings or structures permanently attached to the land, or parts thereof, the taxable base does not separately identify the value of the land.
Supply of land with an unfinished building
In the case of the supply of land on which a construction project (aimed at erecting a building) has been commenced but not completed, the classification of such land for VAT purposes will depend on the stage of completion of the works in question. Land should be regarded as developed if the object situated on it is permanently attached to the ground and has the elements indicated in Article 3(2) of the Construction Law Act, i.e. construction partitions (separating it from space), foundations, and a roof.
This is confirmed, for example, by an individual tax ruling of 25 June 2024, ref. 0112-KDIL1-1.4012.256.2024.2.MG, in which the DNTI held that the supply of land on which there was a structure in the form of an unfinished kindergarten building in a shell, partially enclosed state (with foundations, walls, and a roof) constituted, for VAT purposes, the supply of a building and developed land.
A different classification was adopted, however, in an individual tax ruling of 6 February 2020, ref. 0111-KDIB3-1.4012.787.2019.2.KO. In that tax ruling, the DNTI found that the supply of land with a commenced construction project (involving the construction of a residential building), where the site had been prepared and foundation footings laid, constituted, for VAT purposes, the supply of undeveloped land.
A similar position was taken by the SAC in a judgment of 18 May 2017, ref. I FSK 1691/15, in which it held that the supply of land with developments in the form of footings and foundation walls for a residential building, as well as partially constructed utility connection approaches, also constituted, for VAT purposes, the supply of undeveloped land.
Supply of land with remnants of buildings or structures (ruins)
In the case of supplies of land on which remnants of buildings or structures (so-called ruins) are located, the rules for classifying such transactions for VAT purposes are similar to those applicable to construction projects that have been commenced but not completed. Here too, it is necessary to determine whether the existing object still meets the definition of a building within the meaning of Article 3(2) of the Construction Law Act, i.e., whether it is permanently attached to the ground, separated from space by structural partitions, and has foundations and a roof. If any of these elements is missing – for example, as a result of collapse or demolition of part of the object – then the object ceases to qualify as a building within the meaning of construction law, and the land on which it is located ceases to be regarded as developed land for VAT purposes (assuming no other buildings or structures meeting statutory criteria are present on it).
This position is confirmed, among others, in an individual tax ruling of 22 May 2024, ref. 0113-KDIPT1-2.4012.256.2024.1.KT, in which the DNTI stated that the supply of land with incomplete, unusable ruins, with collapsed roofs and partially demolished walls, constituted the supply of undeveloped land for VAT purposes.
A similar position was presented in an individual tax ruling of 27 November 2023, ref. 0113-KDIPT1-3.4012.598.2023.2.JM, in which the authority regarded as undeveloped land a plot on which there were only old foundations of a farm building, as well as a damaged concrete-ring well and a reinforced concrete pole without installations.
Compared to buildings, determining the moment when a given object loses the characteristics of a structure is more complex, due to the way the definition is formulated in construction law. The definition of a structure does not specify such elements as a roof or structural partitions (usually walls), whose absence is relatively easy to identify. Nevertheless, from an individual tax ruling of 6 May 2014, ref. ITPP2/443-211/14/PS, it can be inferred that poor technical condition of the object may cause it to lose the status of a structure for VAT purposes. In the tax ruling in question, the authority determined that the supply of land on which there were remnants of a swimming pool (part of its walls) constituted the supply of undeveloped land.
Supply of land with a building designated for demolition
In the case of the supply of land with a building designated for demolition, both the case law of administrative courts and individual tax ruling of the DNTI indicate that the focal point for classifying the transaction for VAT purposes is the actual commencement of demolition works.
For example, in an individual tax ruling of 11 December 2023, ref. 0114-KDIP1-3.4012.540.2023.2.KP, the DNTI stated that land should be regarded as developed, and the developments located on it had not lost their status as buildings, if as of the date of the supply of the property actual demolition works had not yet begun. The same position was taken by the SAC in a judgment of 19 June 2015, ref. I FSK 818/14.
Similarly, in an individual tax ruling of 10 August 2018, ref. 0114-KDIP1-2.4012.330.2018.2.RD, the DNTI analyzed a situation where, by the date of supply, only preparatory activities had been carried out, such as surveying the building, securing the site, and disconnecting utilities (water and electricity). The authority stated that these actions were not sufficient to determine that the object in question had lost its status as a building for VAT purposes. Consequently, the supply was classified as the supply of a building together with developed land.
Conversely, in individual tax rulings of 12 July 2024, ref. 0114-KDIP1-2.4012.220.2024.2.GK, and 20 January 2023, ref. 0111-KDIB3-3.4012.560.2022.2.PJ, the DNTI determined that since actual demolition works had already commenced as of the date of supply, the property should be treated as undeveloped land for VAT purposes.
Supply of land encroached upon by fragments of buildings belonging to neighbours (boundary encroachment)
In practice, there are cases where, as a result of boundary encroachment, part of a building belonging to one entity extends onto the land of another owner. Such a situation constitutes an exception to the general principle of civil law “superficies solo cedit”, under which whatever is permanently attached to the land is the property of the landowner. In the case at hand, this principle does not apply — the owner of the land onto which a fragment of a neighbour’s building extends does not automatically acquire ownership of that part of the building. As a rule, he does not hold either legal or economic control over that object.
Consequently, if the landowner decides to sell the land, the subject of the supply will not include the fragment of the neighbour’s building, since it does not belong to the seller (the seller will not hold economic ownership over this object). If no other buildings or structures meeting statutory criteria are located on the land, the subject of the supply will be the land itself, and the previously cited Article 29a(8) of the VAT Act (according to which, in the case of the supply of buildings or structures permanently attached to land, or parts of such buildings or structures, the value of the land is not separated from the taxable amount) will not apply.
In individual rulings, tax authorities usually assume that the mere fact that a part of a neighbours building encroaches on a plot of land is sufficient to consider the land as developed for VAT purposes, e.g. in individual rulings of: 27 July 2022, ref. 0113-KDIPT1-3.4012.291.2022.1.ALN; 9 July 2021, ref. 0111-KDIB3-2.4012.329.2021.2.MD; and 24 January 2020, ref. 0113-KDIPT1-3.4012.760.2019.1.OS. A similar approach is also reflected in certain judgments of the SAC, e.g. judgments of 16 July 2019, ref. I FSK 1049/17; 5 February 2019, ref. I FSK 44/17; and 30 May 2018, ref. I FSK 889/16.
However, some courts accept an approach according to which the supplied land should not be classified as developed if the part of a neighbours building has no functional or economic significance for the transaction — see SAC judgments of: 7 July 2022, ref. I FSK 1782/18; 8 October 2020, ref. I FSK 1735/17; 31 January 2019, ref. I FSK 1879/16; as well as the judgment of the Voivodship Administrative Court (VAC) in Wrocław of 12 August 2016, ref. I SA/Wr 539/16.
It is also worth noting the SAC judgment of 8 April 2021, ref. I FSK 560/18, in which the court did not classify the land but remanded the case for reconsideration. Nevertheless, the court indicated the criteria to be taken into account when classifying land (the subject of supply) for VAT purposes — primarily the factual state of affairs (i.e. whether buildings, structures, or parts thereof are located on the land). However, in certain cases, this may be disregarded for economic reasons (i.e. the land may be regarded as undeveloped if the objects located on it have no material significance for the transaction).
Supply of land on which technical infrastructure belonging to third parties is located
A second exception to the aforementioned superficies solo cedit principle arises where the subject of supply is land on which technical infrastructure belonging to a utility provider is located, e.g. electricity networks, transformer stations, water supply, sewerage, or sanitation systems etc. Here too, the landowner is not the owner of the utility infrastructure and therefore is not entitled to dispose of it along with the land. The subject of supply is therefore the land only.
Tax authorities and the courts have not adopted a uniform position on the VAT classification of such land. In some cases they state that the subject of the supply constituted undeveloped land. Examples include SAC judgments of 23 August 2024, ref. I FSK 1670/20, and 26 April 2022, ref. I FSK 49/22, as well as the DNTI’s individual tax rulings of 16 April 2025, ref. 0114-KDIP1-1.4012.151.2019.9.JO, and 8 April 2022, ref. 0114-KDIP1-1.4012.77.2022.2.RR. However, there are also judgments and individual tax rulings in which such land is treated as developed for VAT purposes — see, e.g., the judgment of the VAC in Kraków of 25 November 2020, ref. I SA/Kr 1149/20 (final), and the DNTI’s tax rulings of 19 May 2025, ref. 0114-KDIP4-3.4012.127.2025.3.APR; 2 April 2025, ref. 0113-KDIPT1-3.4012.172.2025.1.MJ; and 13 March 2025, ref. 0112-KDIL3.4012.15.2025.2.MBN.
Conclusion
The classification of the supply of land for VAT purposes requires a detailed analysis of the factual circumstances and a cautious approach.
With respect to supplies of land with unfinished construction projects, ruins, or buildings designated for demolition, judgments and tax rulings reveal certain regularities and established principles that may serve as useful practical guidance.
In turn, in the case of supplies of land encroached upon by buildings from neighbouring plots or on which technical infrastructure belonging to utility companies is located, their classification for VAT purposes is not clear-cut. The positions of the authorities and the courts are not consistent. For this reason, the possibility of a dispute with the tax authority should be taken into account.
