Ministry of Finance modifies the changes to real estate tax (RET) to take effect on 1 January 2025
On 2 September 2024, a bill amending the Agricultural Tax Act, the Local Taxes and Fees Act, the Forest Tax Act and the Stamp Duty Act was included in the list of legislative and program work of the Council of Ministers. (“Draft 2.0”).
As we informed in July (source: https://pl.andersen.com/newsletter/zmiany-w-podatku-od-nieruchomosci/) the planned changes to the Act on Local Taxes and Charges of 12 January 1991 (consolidated text in JoL of 2023 item 70 as amended) follow from two judgments passed by the Constitutional Tribunal (“CT“): a judgment of 4 July 2023 (case SK 14/21) in which the CT held that the definition of “structure” was inconsistent with the Constitution, and of 18 October 2023 (case SK 23/19).
Major changes – Draft 2.0
- New definition of ‘building’
- According to the new definition, a building is to understood as a structure erected as a result of construction work, along with systems ensuring that it can be used for its intended purpose, permanently attached to the ground, separated from the outside by partitions, and having foundations and a roof.
- In view of the proposed definition of a building, it is important to note that a building must result from construction work, which is a positive development. Previously, structures erected in a place other than their intended location could have been considered buildings. Therefore, the new definition should be considered favorable from the viewpoint of taxpayers, as it limits the scope of taxation.
- On the other hand, relying on the premise of ‘permanent attachment to the ground’ carries certain risks. On the one hand, it may lead to a number of tax disputes (as in previous years), while on the other hand, it allows taxpayers to refer to the existing well-established tax practice in this respect.
- The scope of the definition does not cover facilities intended for the storage of materials in bulk, chunks, in liquid and gaseous form, where their capacity is the technical parameter determining their function, even if they have all the characteristics of a building included in the definition. Examples of such facilities include:
- silos (e.g. for oil, grain),
- elevators (e.g. for grain),
- bunkers (e.g. for the storage of fuels, gases and other chemical products).
- New definition of ‘structure’
- The definition of a structure has been established differently from the definition of a building – by listing individual facilities. A structure is a facility other than a building, as defined in Annex 4 to the Act, together with systems that make it possible for it to be used for its intended purpose.
- In addition, a structure will also be:
- a wind power plant, a nuclear power plant and a photovoltaic power plant, an energy storage facility, a boiler, an industrial furnace, a cableway, a ski lift and a ski jump – only insofar as their structural parts are concerned.
- site facility – a connection and installation facility, including facilities for treatment or collection of waste water and other technical facilities connected with a building or structure which directly enable it to be used for its intended purpose;
- a technical facility and a free-standing industrial plant – only as far as their structural parts are concerned;
- foundations for machines and technical facilities, as technically separate parts of objects constituting a functional whole
– erected as a result of construction work.
- From a practical perspective, it should be noted that the emphasis on the premise of “erection as a result of construction work” is a positive aspect, as it significantly restricts the scope of taxation, because facilities that could potentially be classified as structures, but were not erected as a result of construction work, will not be taxed.
- Building vs. structure
- In situations where facilities could be classified as both a building and a structure, the rule of priority for the tax classification as a building is retained.
- In practice, therefore, when classifying a facility for tax purposes, the taxpayer will firstly be obliged to assess whether the facility in question is a building and whether it does not fall under the statutory exclusion from the definition of a building, and only in the second step (in the event of a negative verification in the first step) will the taxpayer analyze whether the facility is a structure.
- The concept of technical and functional whole
- Compared to the earlier stage of the legislative work, the concept of the technical and functional whole has been abandoned, which should be seen in a positive light, as a return to the concept once existing under the Local Tax Act would, in practice, result in recurrence of many tax disputes and could at the same time lead to a significant increase in the tax burden.
Extension of the deadline for filing real estate tax returns for 2025.
Pursuant to Article 7 of Draft 2.0, taxpayers may file their real estate tax returns for 2025 by 31 March 2025, provided they meet the following requirements:
- they submit a written notice of exercising the entitlement;
- they make timely payments of each instalment of property tax for January, February and March 2025 in an amount corresponding to the average monthly amount of the tax due for 2024.
The foregoing is an entitlement of the taxpayer which requires the above-mentioned steps to be taken. If the taxpayer does not take this opportunity, he/she will be obliged to submit the return under the existing rules.
How does the Local Tax Act affect taxpayers?
- Draft 2.0 is the latest version of the bill (the first one was published on 14 June 2024). In this context, we draw your attention to the need to monitor the ongoing changes and “keep your finger on the pulse”.
- Compliance with the new regulations should be preceded with a comprehensive tax review, in particular classification of facilities as either structures or buildings.
- In addition, we recognize the need for introducing new procedures to define the method and systematic approach for future years in order to properly comply with real estate tax requirements.
Should you have any additional questions or concerns regarding the tax consequences of the planned changes, or the need to adapt your organization to file the 2025 real estate tax return, you are welcome to contact our team.
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