Any Landlord planning to rent out their commercial property should consider in advance which tax settlement route they intend to take. Every scenario should be taken into account, as well as the exact intended use of the property for state authorities. As a Law Firm specialising in rental matters, we provide this short guide.

As a general rule, the most favourable form of taxation for commercial premises from the landlord’s point of view is the low-cost 8.5% flat-rate scheme. Bear in mind, however, that with the flat-rate scheme, tax is calculated on ‘income’, so renovation costs will never reduce this tax liability.

Tax on commercial property rental. How to choose the right form (Lump sum vs Scale)

Division of property in the context of commercial premises

The assets of every entrepreneur are divided into two groups. The first of these is company assets, which include all assets related to the business being conducted. The second group is private assets and is nothing more than assets for personal use. From a formal and administrative point of view, both these types constitute a single whole for a sole proprietor. However, considering the aspect of tax law when renting commercial premises – this division is of paramount, crucial importance.

Please note that, outside of a flat or house (associated with private property), Kowalski's private property can also be a typical "commercial premises" (e.g., a shop on the ground floor of a block of flats).

Income tax

Usually (but not always), the most favourable form of taxation for commercial premises from the landlord’s point of view is the flat-rate scheme. Under this system, provided a declaration is submitted to the Head of the Tax Office by the 20th day of the month following the first rental income, the rental income is taxed at a rate of just 8.5% (or 12.5% if the rent surplus exceeds 100,000 zł over the course of the year).

It is worth remembering that the tax is calculated on the full revenue. Any expenses for renovation or furnishing of the premises will not reduce the tax amount. If you are planning enormous capital expenditure in a newly purchased property, it would be better for you to Tax Scale, in which high costs of repayments, depreciation, adaptation and interest will reduce income tax to almost zero.

Extremely important: A lump-sum tax settlement can be applied only in the case of private rentalAdministrative courts and tax authorities very strongly help to realise this limit in the event of inspections. Renting falls within the scope of business activities (not private ones), for example, when:

• The premises were introduced into the company's fixed asset register.
• Company VAT was deducted from expenses for renovation or modernisation.
• The subject of your business is the professional, multi-site rental of premises.

VAT

Every company is subject to VAT mechanisms. Authorities may consider the rental of a given property to be entirely private for income tax purposes (lump-sum tax), while at the same time stating that it is subject to VAT in the context of the business being conducted. How to avoid VAT on a commercial property?

• You can do this solely based on the so-called subjective exemption: This assumes that if, as a business owner, you did not exceed sales of PLN 200,000 in the previous year, then your commercial rental is also exempt from VAT. In that case, you issue invoices to private individuals, for example.

Choosing the right form

When looking to rent commercial property, owners face three legal and tax structures:

1. Income under the private low-rate flat-rate scheme (PIT) and the addition of 23% VAT (standard VAT invoice) – a model often chosen by people whose main business generates a turnover in excess of 200,000 PLN.
2. Rental income on a private flat rate (PIT) and no VAT due to the income limit (you issue, for example, a tax-free invoice).
3. A tenancy officially classified as a ‘business’ tenancy (including both PIT returns with expenses linked to the business and 23% VAT invoices).