Tax on the lease of commercial premises - Polish Order and changes in 2022 and 2023

Tax on the lease of commercial premises - Polish Order and changes in 2022
Krzysztof Bardel|
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The Polish Order in 2022 and 2023 has introduced many changes and it seems that there will be even more confusion in tax regulations. The new regulations also affected the real estate rental sector, and because we represent a law firm specializing in matters relating to real estate lease agreements – therefore, we have prepared the following guide on the principles of taxation of lease agreements.

First of all, let's establish what the situation looked like before the introduction of the "Polish Order". For this purpose, we recommend reading our article "Commercial premises rental tax – what is worth knowing? It is also worth reading it because it describes in detail issues that would be pointless to repeat in this article, but which remain relevant at the same time. The legislator is constantly introducing modifications to the Polish Order, which may affect the content of the advice we provide in the text below. Although we try to respond on an ongoing basis and adapt it to the current legal status, we cannot guarantee that it is up to date. For the most up-to-date advice on all matters relating to real estate rental, please visit us initial consultation, at our law office or online.

As part of our practice Real Estate Law Firm We handle several dozen cases involving the rental of commercial premises each year. We provide professional advice by creating and negotiating lease agreements, as well as analyzing draft lease agreements sent by the other party. 

So let us, apart from inviting you to take advantage of our legal and business support in renting real estate, share below some of the knowledge our Team has gathered regarding the taxation of income from lease agreements.

Tax on the rental of commercial premises from 2022 – private lease or as part of a business activity?

Considerations regarding tax settlements in the field of lease should start with determining what type of lease we are dealing with. There are two options - private lease or business lease. In both cases, the settlement rules are slightly different.

Although the very issue of qualifying a given lease relationship to the category of private lease or lease conducted as part of an organized business activity is sometimes difficult, it is possible to outline some basic guidelines in this regard. We will deal with private rental when a given property is owned by a natural person. Renting it itself does not constitute an organized business activity within the meaning of the Personal Income Tax Act, and the proceeds from it are a "separate source of income". Lease as part of a business activity, on the other hand, occurs when the subject of the entrepreneur's activity is professional lease or when the rented property simply belongs to the company's assets or is included in the fixed assets used to conduct business activity.

However, these criteria remain unclear. The examples described above are a significant simplification. Its sole purpose is to outline the general taxonomy of how private lease differs from that conducted as part of a business activity. In practice, there are many borderline situations in which it is difficult to clearly determine the nature of a given lease relationship. In extreme situations, when the payer is unable to assess the above issue on his own or with our help, it may be necessary to request an appropriate interpretation from the tax authorities.

Resolving the above issue is crucial. The appropriate classification of a given relationship determines how the landlord will settle the tax on the lease of commercial premises.

Example 1

Mrs. Barbara bought a commercial premises on the ground floor of a newly built residential building. 
She runs a pharmacy on a daily basis and the funds collected allowed her to do this
such an investment. Does not run a business activity focused on the real estate market,
and the commercial premises were acquired as part of her own assets. If a lease agreement is concluded, this relationship will be
it was a private lease.

Example 2:

Mr. Artur runs a real estate company. A new one was built in his city 
a shopping mall in which Mr. Artur, acting under his company, purchased several commercial premises
intended for shops. In the event of conclusion of lease agreements, this relationship will be in the nature of
business.

The purpose and functions that the lease intends to fulfill in the landlord's intention are also important in this respect. It should be emphasized once again that the assessment of this issue always causes many problems. This is also due to the existence of different definitions in individual acts, which translates into various interpretations by tax office employees.

In principle, however, it seems that the interpretation of the provisions in this area tends towards a broader recognition of private leases. The Resolution of the Supreme Administrative Court, ref. no., is helpful in this regard. act II FPS 1/21 from May last year. Her dictum is:

Revenues from rental, sublease, lease, sublease and other contracts of a similar nature are included without limitation in the source of revenue listed in Art. 10 section 1 point 6 of the Act of July 26, 1991 on personal income tax, unless they constitute an asset of the property of a natural person which was introduced by him into the property related to the performance of business activities.

As follows from the above and the content of the resolution, the determining factor for the recognition of private or business lease is whether the property is in the private property of the lessor or in the property related to the business activity. This resolution should dispel certain doubts and consolidate the jurisprudence in this area. At the same time, it seems that there will still be situations when the Tax Offices will have doubts due to the scale and nature of the lease. Even if, according to the resolution, it should be treated as a private lease

Example:

Mr. Adam used his own property to buy four commercial premises in a local pavilion. He finished them off 
and then everyone rented it. The income he obtains in this way is not his only source
maintenance. He works in another industry and at the same time administers, supervises and maintains the mentioned ones
premises, deriving profits from their rental.

In this case, Adam's activity is close to professional in nature. He turned renting premises into his daily occupation and an additional source of income. His activities meet the conditions of "business activity" within the meaning of the provisions of the Act of March 6, 2018, Entrepreneurs' Law, because it is an organized gainful activity, performed on one's own behalf and on a continuous basis. At the same time, the premises belong to his own property, he does not run a formalized, registered business activity and does not include these premises in the assets related to such activity. From the point of view of the above-mentioned resolution, it should be assumed that Adam - in accordance with his will - conducts private rental. At the same time, despite this, his activities could be considered a business activity, which would lead to the definition of the lease conducted within it as subject to tax as a lease related to business activity.

In our opinion, the basic criterion differentiating private rental from business activity is the degree of its organization - the basic determinant of which is the number of activities performed constantly (e.g. once a month) by the lessor. It is easy to distinguish whether the activities related to servicing and executing concluded lease agreements take 1-2-4 hours a month, or whether they take 40 hours a month and require leaving work or employing an additional person for this purpose.

Therefore, there may be a situation where the courts will indeed follow the guidelines resulting from the resolution and the tax officers will stick to their position. Then some would assess the situation of the hero of the above example as a private lease, and others could consider it as a lease as part of a business activity, which would involve the obligation to register it and pay appropriate contributions - as well as slightly different taxation in the field of lease. For this reason, in borderline situations, the support of an experienced attorney - a legal advisor or a tax advisor - is often needed.

However, in the light of changing regulations, some benefits of private rental are disappearing.

Settlements under private lease

So far, it was possible to settle this issue in two ways:

  1. Tax scale 12% and 32%;
  2. Lump sum 8.5% and 12.5%.

After the introduction of the Polish Order, the regulations in this area have undergone some changes both in terms of settlements for 2022 and 2023. With subsequent changes, the first tax rate for payers settling on a tax scale basis has been changed - from 17% to 12%. People who so far settled on a tax scale basis could also settle in this way in 2022. From 2023, taxation of private rental will be based solely on a lump sum tax..

Rules for settling private leases according to a lump sum:

Everyone will have to settle the tax on the lease of commercial premises on this basis from 2023. This means that regardless of the possibilities that some taxpayers have - to settle the tax in 2022 under general rules, these rules should be taken into account. There are two thresholds in this regard:

  1. 8.5% – first tax threshold up to PLN 100,000.00;
  2. 12.5% – for the amount exceeding PLN 100,000.00 of revenue.

Please remember that in this case we are dealing with revenue as the basis for settlement, and not income as above. For this reason, it is not possible to deduct costs related to obtaining income. The expenditure made by the landlord therefore remains irrelevant. Refunds for bills remain controversial, but there are interpretations stating that if they are separated, then yes, payment of current fees can be made through the landlord's bank account. Of course, after meeting certain conditions.

Settlements within the framework of business activities

In the case of settling the lease as part of a business activity, there are three options:

  1. Tax scale 12% and 32% on income;
  2. Flat tax 19% on income;
  3. Lump sum of 8.5% and 12.5% on income.

A novelty introduced by the Polish Order is the obligation to pay health insurance contributions together with these taxes, which amount to:

  1. 9% for tax scale;
  2. 4.9% in the case of flat tax;
  3. A lump sum amount depending on the amount of income.

Income tax is not everything...

Apart from the fundamental issue of income tax, reference should also be made to VAT. This is also a tax on the rental of commercial premises that must be paid. What is important - in the case of service premises, it must be paid both in the case of private lease and that run as part of a business activity.

A VAT payer within the meaning of Art. 15 of the VAT Act may be both an entrepreneur/company conducting an organized business activity, paying rental tax as part of a business activity, but also a natural person who conducts a business activity within the meaning of Art. 15 section 2 of the VAT Act and is settled on a private lease basis. Such activities include all activities of producers, traders or service providers, including entities extracting natural resources and farmers, as well as the activities of freelancers. Economic activity includes in particular activities involving the use of goods or intangible assets on a continuous basis for profit-making purposes. In short - regardless of whether we agree with it or not, every lease of commercial premises is based on: VAT Act as a business activity.

Not everyone will pay…

Therefore, everyone who earns income from the rental of commercial premises will be obliged to pay this tax. However, you should remember about Article 113(1). 1 of the VAT Act, according to which taxpayers whose taxable sales value did not exceed PLN 200,000.00 in the previous tax year are exempt from paying this tax. This amount does not include the tax amount.

This means that if a natural person does not earn more than PLN 200,000.00 net per year from rent, then, as a general rule, he or she is not obliged to pay it.

The VAT scale for the lease of commercial premises is 23%. These services are not VAT exempt, which can sometimes be confusing. After all, it is quite common information that VAT exemption applies to services in the field of renting or leasing residential real estate or part of real estate, on one's own account, exclusively for residential purposes. However, this regulation does not cover the rental of commercial premises and you should always pay attention to this!

Since this article focuses on tax changes in the field of renting commercial premises, and those in the field of VAT remain unchanged, the considerations presented above are only marginal and indicate the problems. They are certainly not exhaustive!  

The most important changes

In terms of the changes being introduced, the thing that may have the greatest impact on the method of operation and the scale of profits made by landlords seems to be the narrowing of the possibilities of settling within the tax scale for private renting. This option was particularly attractive to people who incurred the costs associated with obtaining a profit. This includes, for example, renovations, loan installments, depreciation, etc. At that time, although the percentage of taxation under the rules was higher, it was deducted from a lower amount. With the changes, however, the possibility of lump-sum settlement of the amount of income in the case of private rental will remain. However, the introduced regulations make an economic approach to tax settlements more difficult and slightly narrow the scope for financial maneuver. This shows how important the advice of a professional attorney is.

At the same time, we cannot forget about the changed PIT rate and the payment of appropriate health insurance contributions in the case of settlements as part of a business activity.

The thing about tax regulations is that they are rarely clear and transparent. This article, although partially explaining what the commercial premises rental tax looks like, also shows what a challenge it will be for landlords to settle it appropriately, in accordance with the regulations and the least painful for the wallet. Choosing the most convenient payment method remains quite a challenge. Removing from the regulations the possibility of settling on a tax scale basis for private rentals further narrows the range of possibilities.

We offer assistance to interested landlords in preparing a lease agreement and, in the package, also in choosing a tax settlement method.

It is important to reliably assess whether we are dealing with a private lease or as part of a business activity, and then choose the method of taxation under which a given rental should be settled. There is no universal advice here - each case should be carefully and individually assessed, balancing the capabilities and needs of the tax payer. This payer is, of course, the landlord of the property.

Our activities cover a broad range of activities legal services for companies and business activities and individual clients. Above all, though We specialize comprehensively in all matters related to real estate rental. Please contact us, we will be happy to prepare a safe lease agreement for you - which will not only be safe from the tax point of view, but will also clearly divide the obligations of each party and thus help you avoid many unforeseen costs and conflicts. If the other party has already prepared the contract, we will help you make corrections to the project or contract template sent to you by the other party. 

In matters relating to preparation real estate lease agreements and in matters relating to the taxation of income from lease agreements, we encourage you to contact directly with ours Law Firm.

5/5 - (4 votes)

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The Polish Order in 2022 and 2023 has introduced many changes and it seems that there will be even more confusion in tax regulations. The new regulations also affected the real estate rental sector, and because we represent a law firm specializing in matters relating to real estate lease agreements – therefore, we have prepared the following guide on the principles of taxation of lease agreements.

First of all, let's establish what the situation looked like before the introduction of the "Polish Order". For this purpose, we recommend reading our article "Commercial premises rental tax – what is worth knowing? It is also worth reading it because it describes in detail issues that would be pointless to repeat in this article, but which remain relevant at the same time. The legislator is constantly introducing modifications to the Polish Order, which may affect the content of the advice we provide in the text below. Although we try to respond on an ongoing basis and adapt it to the current legal status, we cannot guarantee that it is up to date. For the most up-to-date advice on all matters relating to real estate rental, please visit us initial consultation, at our law office or online.

As part of our practice Real Estate Law Firm We handle several dozen cases involving the rental of commercial premises each year. We provide professional advice by creating and negotiating lease agreements, as well as analyzing draft lease agreements sent by the other party. 

So let us, apart from inviting you to take advantage of our legal and business support in renting real estate, share below some of the knowledge our Team has gathered regarding the taxation of income from lease agreements.

Tax on the rental of commercial premises from 2022 – private lease or as part of a business activity?

Considerations regarding tax settlements in the field of lease should start with determining what type of lease we are dealing with. There are two options - private lease or business lease. In both cases, the settlement rules are slightly different.

Although the very issue of qualifying a given lease relationship to the category of private lease or lease conducted as part of an organized business activity is sometimes difficult, it is possible to outline some basic guidelines in this regard. We will deal with private rental when a given property is owned by a natural person. Renting it itself does not constitute an organized business activity within the meaning of the Personal Income Tax Act, and the proceeds from it are a "separate source of income". Lease as part of a business activity, on the other hand, occurs when the subject of the entrepreneur's activity is professional lease or when the rented property simply belongs to the company's assets or is included in the fixed assets used to conduct business activity.

However, these criteria remain unclear. The examples described above are a significant simplification. Its sole purpose is to outline the general taxonomy of how private lease differs from that conducted as part of a business activity. In practice, there are many borderline situations in which it is difficult to clearly determine the nature of a given lease relationship. In extreme situations, when the payer is unable to assess the above issue on his own or with our help, it may be necessary to request an appropriate interpretation from the tax authorities.

Resolving the above issue is crucial. The appropriate classification of a given relationship determines how the landlord will settle the tax on the lease of commercial premises.

Example 1

Mrs. Barbara bought a commercial premises on the ground floor of a newly built residential building. 
She runs a pharmacy on a daily basis and the funds collected allowed her to do this
such an investment. Does not run a business activity focused on the real estate market,
and the commercial premises were acquired as part of her own assets. If a lease agreement is concluded, this relationship will be
it was a private lease.

Example 2:

Mr. Artur runs a real estate company. A new one was built in his city 
a shopping mall in which Mr. Artur, acting under his company, purchased several commercial premises
intended for shops. In the event of conclusion of lease agreements, this relationship will be in the nature of
business.

The purpose and functions that the lease intends to fulfill in the landlord's intention are also important in this respect. It should be emphasized once again that the assessment of this issue always causes many problems. This is also due to the existence of different definitions in individual acts, which translates into various interpretations by tax office employees.

In principle, however, it seems that the interpretation of the provisions in this area tends towards a broader recognition of private leases. The Resolution of the Supreme Administrative Court, ref. no., is helpful in this regard. act II FPS 1/21 from May last year. Her dictum is:

Revenues from rental, sublease, lease, sublease and other contracts of a similar nature are included without limitation in the source of revenue listed in Art. 10 section 1 point 6 of the Act of July 26, 1991 on personal income tax, unless they constitute an asset of the property of a natural person which was introduced by him into the property related to the performance of business activities.

As follows from the above and the content of the resolution, the determining factor for the recognition of private or business lease is whether the property is in the private property of the lessor or in the property related to the business activity. This resolution should dispel certain doubts and consolidate the jurisprudence in this area. At the same time, it seems that there will still be situations when the Tax Offices will have doubts due to the scale and nature of the lease. Even if, according to the resolution, it should be treated as a private lease

Example:

Mr. Adam used his own property to buy four commercial premises in a local pavilion. He finished them off 
and then everyone rented it. The income he obtains in this way is not his only source
maintenance. He works in another industry and at the same time administers, supervises and maintains the mentioned ones
premises, deriving profits from their rental.

In this case, Adam's activity is close to professional in nature. He turned renting premises into his daily occupation and an additional source of income. His activities meet the conditions of "business activity" within the meaning of the provisions of the Act of March 6, 2018, Entrepreneurs' Law, because it is an organized gainful activity, performed on one's own behalf and on a continuous basis. At the same time, the premises belong to his own property, he does not run a formalized, registered business activity and does not include these premises in the assets related to such activity. From the point of view of the above-mentioned resolution, it should be assumed that Adam - in accordance with his will - conducts private rental. At the same time, despite this, his activities could be considered a business activity, which would lead to the definition of the lease conducted within it as subject to tax as a lease related to business activity.

In our opinion, the basic criterion differentiating private rental from business activity is the degree of its organization - the basic determinant of which is the number of activities performed constantly (e.g. once a month) by the lessor. It is easy to distinguish whether the activities related to servicing and executing concluded lease agreements take 1-2-4 hours a month, or whether they take 40 hours a month and require leaving work or employing an additional person for this purpose.

Therefore, there may be a situation where the courts will indeed follow the guidelines resulting from the resolution and the tax officers will stick to their position. Then some would assess the situation of the hero of the above example as a private lease, and others could consider it as a lease as part of a business activity, which would involve the obligation to register it and pay appropriate contributions - as well as slightly different taxation in the field of lease. For this reason, in borderline situations, the support of an experienced attorney - a legal advisor or a tax advisor - is often needed.

However, in the light of changing regulations, some benefits of private rental are disappearing.

Settlements under private lease

So far, it was possible to settle this issue in two ways:

  1. Tax scale 12% and 32%;
  2. Lump sum 8.5% and 12.5%.

After the introduction of the Polish Order, the regulations in this area have undergone some changes both in terms of settlements for 2022 and 2023. With subsequent changes, the first tax rate for payers settling on a tax scale basis has been changed - from 17% to 12%. People who so far settled on a tax scale basis could also settle in this way in 2022. From 2023, taxation of private rental will be based solely on a lump sum tax..

Rules for settling private leases according to a lump sum:

Everyone will have to settle the tax on the lease of commercial premises on this basis from 2023. This means that regardless of the possibilities that some taxpayers have - to settle the tax in 2022 under general rules, these rules should be taken into account. There are two thresholds in this regard:

  1. 8.5% – first tax threshold up to PLN 100,000.00;
  2. 12.5% – for the amount exceeding PLN 100,000.00 of revenue.

Please remember that in this case we are dealing with revenue as the basis for settlement, and not income as above. For this reason, it is not possible to deduct costs related to obtaining income. The expenditure made by the landlord therefore remains irrelevant. Refunds for bills remain controversial, but there are interpretations stating that if they are separated, then yes, payment of current fees can be made through the landlord's bank account. Of course, after meeting certain conditions.

Settlements within the framework of business activities

In the case of settling the lease as part of a business activity, there are three options:

  1. Tax scale 12% and 32% on income;
  2. Flat tax 19% on income;
  3. Lump sum of 8.5% and 12.5% on income.

A novelty introduced by the Polish Order is the obligation to pay health insurance contributions together with these taxes, which amount to:

  1. 9% for tax scale;
  2. 4.9% in the case of flat tax;
  3. A lump sum amount depending on the amount of income.

Income tax is not everything...

Apart from the fundamental issue of income tax, reference should also be made to VAT. This is also a tax on the rental of commercial premises that must be paid. What is important - in the case of service premises, it must be paid both in the case of private lease and that run as part of a business activity.

A VAT payer within the meaning of Art. 15 of the VAT Act may be both an entrepreneur/company conducting an organized business activity, paying rental tax as part of a business activity, but also a natural person who conducts a business activity within the meaning of Art. 15 section 2 of the VAT Act and is settled on a private lease basis. Such activities include all activities of producers, traders or service providers, including entities extracting natural resources and farmers, as well as the activities of freelancers. Economic activity includes in particular activities involving the use of goods or intangible assets on a continuous basis for profit-making purposes. In short - regardless of whether we agree with it or not, every lease of commercial premises is based on: VAT Act as a business activity.

Not everyone will pay…

Therefore, everyone who earns income from the rental of commercial premises will be obliged to pay this tax. However, you should remember about Article 113(1). 1 of the VAT Act, according to which taxpayers whose taxable sales value did not exceed PLN 200,000.00 in the previous tax year are exempt from paying this tax. This amount does not include the tax amount.

This means that if a natural person does not earn more than PLN 200,000.00 net per year from rent, then, as a general rule, he or she is not obliged to pay it.

The VAT scale for the lease of commercial premises is 23%. These services are not VAT exempt, which can sometimes be confusing. After all, it is quite common information that VAT exemption applies to services in the field of renting or leasing residential real estate or part of real estate, on one's own account, exclusively for residential purposes. However, this regulation does not cover the rental of commercial premises and you should always pay attention to this!

Since this article focuses on tax changes in the field of renting commercial premises, and those in the field of VAT remain unchanged, the considerations presented above are only marginal and indicate the problems. They are certainly not exhaustive!  

The most important changes

In terms of the changes being introduced, the thing that may have the greatest impact on the method of operation and the scale of profits made by landlords seems to be the narrowing of the possibilities of settling within the tax scale for private renting. This option was particularly attractive to people who incurred the costs associated with obtaining a profit. This includes, for example, renovations, loan installments, depreciation, etc. At that time, although the percentage of taxation under the rules was higher, it was deducted from a lower amount. With the changes, however, the possibility of lump-sum settlement of the amount of income in the case of private rental will remain. However, the introduced regulations make an economic approach to tax settlements more difficult and slightly narrow the scope for financial maneuver. This shows how important the advice of a professional attorney is.

At the same time, we cannot forget about the changed PIT rate and the payment of appropriate health insurance contributions in the case of settlements as part of a business activity.

The thing about tax regulations is that they are rarely clear and transparent. This article, although partially explaining what the commercial premises rental tax looks like, also shows what a challenge it will be for landlords to settle it appropriately, in accordance with the regulations and the least painful for the wallet. Choosing the most convenient payment method remains quite a challenge. Removing from the regulations the possibility of settling on a tax scale basis for private rentals further narrows the range of possibilities.

We offer assistance to interested landlords in preparing a lease agreement and, in the package, also in choosing a tax settlement method.

It is important to reliably assess whether we are dealing with a private lease or as part of a business activity, and then choose the method of taxation under which a given rental should be settled. There is no universal advice here - each case should be carefully and individually assessed, balancing the capabilities and needs of the tax payer. This payer is, of course, the landlord of the property.

Our activities cover a broad range of activities legal services for companies and business activities and individual clients. Above all, though We specialize comprehensively in all matters related to real estate rental. Please contact us, we will be happy to prepare a safe lease agreement for you - which will not only be safe from the tax point of view, but will also clearly divide the obligations of each party and thus help you avoid many unforeseen costs and conflicts. If the other party has already prepared the contract, we will help you make corrections to the project or contract template sent to you by the other party. 

In matters relating to preparation real estate lease agreements and in matters relating to the taxation of income from lease agreements, we encourage you to contact directly with ours Law Firm.

5/5 - (4 votes)