The “Polish Deal” (“Polski Ład”) will directly affect the real estate market in Poland.
Limiting the possibility of tax depreciation of real estate in the so-called “real estate companies”, modification of the principles of taxation of residential leases and exclusion of tax depreciation of residential real estate – these are the most important changes from the Polish Deal that will have an impact on the real estate market.
The Act commonly referred to as, the so-called, “Polish Deal” will soon be debated by the Senate. However, it is already worth bringing closer the planned changes that have a direct impact on the real estate market. Many of them, especially those concerning the principles of settlements, including tax and accounting, will have a significant impact on the vast majority of entities – including companies and individuals – who own or use real estate based on other legal title.
Reduction of depreciation in the “real estate companies”
Polish Deal provides for a temporary limitation of the possibility of tax depreciation of real estate in the so-called “real estate companies”, which may significantly reduce the value of tax costs due to depreciation write-offs. If the proposed changes are maintained in their current form, it may turn out that tax depreciation of the property will not be possible at all, which in turn will have a direct negative impact on the return on investment.
Regulations on residential properties will change
According to the original announcements, in the version of the Act adopted by the Lower Chamber of the Polish Parliament (Sejm), regulations have been maintained, on the basis of which revenues from renting (subleasing) and leases will be taxed only with a lump sum on recorded revenues – if they are obtained outside business activity. In practice, unless these regulations change in the course of further work on the Act, it will not be possible to take into account the costs incurred in settlements with the tax office, and the amount received from the tenant (sub-tenant, lessee), will have to be subject to a tax of 8.5%, while on the surplus of revenues over PLN 100,000 per year, the tax will amount to 12.5%.
The scope and pace of the introduced changes will certainly not contribute to the consolidation of one of the basic principles of the so-called certainty of trading, and many problems resulting from their application will be the subject of complex interpretations and assessments of tax authorities and courts.
On the other hand, entrepreneurs involved in renting as part of their business, will still have the choice whether to tax the revenues generated in this respect with a lump sum, at 19% flat tax, or according to the scale (17% and 32%).
If the new regulations are adopted in their current form, the possibility of tax depreciation of buildings and residential premises will also be excluded. Expenses incurred for the acquisition of such real estate will constitute a tax deductible cost only at the time of their disposal.
It is worth adding that the amendments to the regulations introduced by the Sejm maintained the existing rules of taxation and depreciation of residential real estate by natural persons in 2022. This means that the described changes are to apply as of January 1, 2023.
What about the so-called certainty of trading?
If the discussed regulations are maintained in their current form, the possible postponement of their entry into force by 12 months will not change much in the situation of people and entities who, in the face of increasing inflation and the weakening of the zloty (Polish currency), have decided in recent years to invest their savings in real estate for rent, often using at least part of external financing. With recently falling rental rates and the generally worse situation in the rental market caused by the pandemic, the returns on these investments may be small or insufficient to cover costs related to them. The scope and pace of the introduced changes will certainly not contribute to the consolidation of one of the basic principles of the so-called certainty of trading, and many problems resulting from their application will be the subject of complex interpretations and assessments of tax authorities and courts.
Author: Halina Więckowska-Sulimierska, Legal Counsel