New tax introduced in 2018
Since 1 January 2018, owners of commercial real estate are obliged to pay new tax called Minimum Tax. It is an additional income tax obligation, separate from general income tax. According to the explanatory memorandum to the act that introduced the minimum tax, in many cases taxpayers do not show taxable income or show income in an amount inadequate to the scale and type of business. This may mean that the taxpayers take optimisation activities. From the point of view of the state budget, such a situation was unacceptable and involved taking steps to minimise such opportunities.
The tax rate is 0.035% per month of the initial value of a building, determined in accordance with the regulations on tax depreciation. Taxpayers are required to calculate the tax on so called “building” income every month and pay it to the tax office bank account by the 20th day of the month following the month for which the tax is due.
In 2018 the minimum tax used to be applied to explicitly enumerated commercial real estates, with an initial value exceeding PLN 10 million, such as office buildings, commercial and service facilities (shopping centers, department stores, independent shops and boutiques). Office buildings exclusively or mainly used for the taxpayer’s own purposes were exempt from minimum tax.
Since 2018 taxpayers can pay the minimum tax according to one of the below schemes:
- pay minimum tax on a monthly basis and deduct it from the monthly income tax advance (if taxpayers pay quarterly income tax advances, minimum tax paid for the months for a given quarter is deducted), or
- pay only monthly income tax advance (and no minimum tax), provided that the minimum tax is lower than the monthly advance, or
- pay both the minimum tax and monthly income tax advance.
Changes in 2019
On 1 January 2019, the modified regulations regarding this tax came into effect. Currently, the taxable amount is the sum of the initial values of all owned buildings subject to minimum tax, less the amount of PLN 10 million. Therefore, the tax does not occur if the total value of owned real estate is below PLN 10 million. In comparison to 2018, buildings that are subject to minimum tax should be simultaneously:
- subject to ownership or joint ownership of the taxpayer;
- handed over, in whole or in part, for paid use on the basis of a lease, tenancy, lease or other agreement of a similar nature; and
- located on the territory of Poland.
The above means that minimum tax covers all real estate intended to be rented excluding only residential buildings put into use under government or local government social housing schemes. However, buildings that are not rented, are not subject to minimum tax. What is more, if the building has been put into use in part, the revenue is determined in proportion to the share of the usable floor space put into use in the total usable area of the building. It is also worth mentioning that taxable income is not determined if the total share of the building’s usable space (based on the rental or lease agreement) of the building’s usable area does not exceed 5% of the usable floor space of such a building.
Nevertheless, among new rules the most important change is the possibility to apply for a refund of minimum tax paid during the year even in case of a tax loss disclosed in an annual tax return (starting from the annual tax reconciliation for 2018).
When is it possible to receive a refund of minimum tax?
- solution A – deduct it in an annual tax return (in case no tax loss is disclosed), or
- solution B – apply for a minimum tax refund if deduction in the annual tax return is not possible (in case of a low-income tax obligation or a tax loss).
In order to receive the minimum tax refund (solution B) the taxpayer has to submit and official application to an appropriate tax office. However, before granting a refund, tax authority will run a tax audit and verify whether the tax due / tax loss disclosed in the annual tax return is correct. In particular, the tax authority will verify the market conditions of:
- debt financing,
- interest incurred in connection with the purchase or construction of a building,
- other incomes and costs (e.g. costs of intangible services, other expenses related to tax optimization).
Such tax audit may potentially result in detection of irregularities and further tax consequences. Obviously, it is aimed to limit the extent of refund applications and discourage taxpayers paying minimum tax and simultaneously having tax losses. As the refund possibility is a new instrument, the practical approach of tax authorities is still unknown.
Advicero Tax Nexia (Poland)