September 2023

Tax Exemption for Foreigners?

Major changes in the civil law activities tax on the purchase of residential real estate have entered into force. In addition to the (6%) tax on the purchase of a sixth (and each subsequent) flat/apartment located on the same land, legislators have also introduced an exemption from civil law activities tax for the purchase of the first apartment.

In practice, however, the application of the new provision may be problematic. One of the conditions for applying this exemption is that the taxpayer does not own any residential properties, both in Poland and outside Poland. Owning real estate outside of Poland excludes the exemption from civil law activities tax, but the practical reality of the situation may be different.

As of 31 August 2023, property buyers on the secondary market do not pay civil law activities tax if they have no other residential real estate. According to Poland’s Ministry of Finance, owning a house or flat outside of Poland is also excluded. This can be verified by the Tax Office through the exchange of tax information with other countries. However, in practice, verification may be difficult and it may be easier for foreigners in Poland to avoid tax.

Piotr Prokocki, tax advisor and Head of Tax at Penteris, concurs saying that in practice the ownership of real estate in another country may be difficult to verify.

“For Polish tax residents, the tax authorities can quite easily determine whether a person owns another residential property. However, being able to verify whether a foreigner qualifies for this exemption is much more complicated. The tax authorities would have to collect such information on a country-by-country basis. In practice, therefore, it may turn out to be easier for foreigners to take advantage of the exemption from the civil law activities tax,” says Piotr Prokocki.

Full article originally published 12.09.2023 in prawo.pl

For more details, contact our Head of Tax Piotr Prokocki.