Taxation of income of individuals from real estate INTERNATIONAL EXECUTIVE SERVICES TAX Mateusz Kobyliński, Director 17 February 2010

Taxation of income of Taxation of income of individuals from real estate individuals from real estate

INTERNATIONAL EXECUTIVE SERVICESINTERNATIONAL EXECUTIVE SERVICES

TAXTAX

Mateusz Kobyliński, DirectorMateusz Kobyliński, Director17 February 201017 February 2010

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2

Taxation of income from sale of real estateTaxation of income from sale of real estate

Taxation of Taxation of sale of real estatesale of real estate (not associated with (not associated with conducted business activity):conducted business activity):

3 taxation systems!3 taxation systems!

Acquisition Acquisition before end of 2006before end of 2006

Acquisition Acquisition between 1 January 2007 and 31 December between 1 January 2007 and 31 December 20082008

Acquisition Acquisition from 1 January 2009 onwardsfrom 1 January 2009 onwards



Acquisition Acquisition before end of 2006before end of 2006

10% tax on proceeds from sale10% tax on proceeds from sale Costs of transaction deductible (NOT costs of acquisition)Costs of transaction deductible (NOT costs of acquisition) reportable within 14 days of sale using form PIT-23reportable within 14 days of sale using form PIT-23

exemptions:exemptions:- sale of property acquired as gift or inheritancesale of property acquired as gift or inheritance- declaration of using funds to acquire other property in Poland within declaration of using funds to acquire other property in Poland within

2 years (statement!)2 years (statement!)



Acquisition Acquisition between 1 January 2007 and 31 December 2008between 1 January 2007 and 31 December 2008

19% tax on income (costs of acquisition and construction/renovation deductible)19% tax on income (costs of acquisition and construction/renovation deductible) reportable in annual tax return (PIT-36, PIT-36L or PIT-38)reportable in annual tax return (PIT-36, PIT-36L or PIT-38) ‘‘meldunek’ relief meldunek’ relief

‘‘meldunek’ (registration for permanent stay) for a period of at least 12 meldunek’ (registration for permanent stay) for a period of at least 12 months prior to salemonths prior to sale

filing of statement confirming meeting conditions for exemption within 14 filing of statement confirming meeting conditions for exemption within 14 days of saledays of sale

exemption applicable to both spousesexemption applicable to both spouses



Acquisition Acquisition from 1 January 2009 onwardsfrom 1 January 2009 onwards

19% tax on income (costs deductible)19% tax on income (costs deductible)

reportable in annual tax return (PIT-39)reportable in annual tax return (PIT-39)

exemptions:exemptions:- declaration of using funds to satisfy housing needs within declaration of using funds to satisfy housing needs within

2 years2 years



All 3 systems:All 3 systems:

Revenue/income is taxable only if property is sold within 5 Revenue/income is taxable only if property is sold within 5 years from the end of the year during which it was acquiredyears from the end of the year during which it was acquired



Housing needs (1) (from 2009):Housing needs (1) (from 2009):

expenses borne in association with acquiring, among others:expenses borne in association with acquiring, among others: another residential building or flat,another residential building or flat, land (share or rights to perpetual usufruct) connected with a residential land (share or rights to perpetual usufruct) connected with a residential

building or flatbuilding or flat co-operative rights to accommodation facility (spółdzielcze własnościowe co-operative rights to accommodation facility (spółdzielcze własnościowe

prawo)prawo) land for construction of accommodation facility (rights to perpetual usufruct land for construction of accommodation facility (rights to perpetual usufruct

of such land),of such land), construction/reconstruction of accommodation facilityconstruction/reconstruction of accommodation facility

located in an EU member state or other state within the EEA or Switzerlandlocated in an EU member state or other state within the EEA or Switzerland




expenses borne in connection with repayment of loans:expenses borne in connection with repayment of loans: for repayment of loans (refinancing mortgage loans) or for repayment of loans (refinancing mortgage loans) or loans for the repayment of loans for the repayment of loans for housing loans for the repayment of loans for the repayment of loans for housing

purposes purposes

taken out prior to the sale of the property, taken out prior to the sale of the property,

- in a bank or building society with its seat in an EU member state, a state within - in a bank or building society with its seat in an EU member state, a state within the EEA or Switzerland. the EEA or Switzerland.




- exemptions – article 21 items 28, 29 and 30 of the PIT Act- exemptions – article 21 items 28, 29 and 30 of the PIT Act

- if income is expended for housing needs outside Poland, there must - if income is expended for housing needs outside Poland, there must exist a legal basis provided for by a double tax treaty or other ratified exist a legal basis provided for by a double tax treaty or other ratified international agreement to which Poland is a party for obtaining by the international agreement to which Poland is a party for obtaining by the Polish tax authority tax information from the tax authority of the other Polish tax authority tax information from the tax authority of the other statestate

- not for recreation purposes! - not for recreation purposes!



PIT-39 (from 2009)PIT-39 (from 2009)

- new ADDITIONAL annual tax return declaration form- new ADDITIONAL annual tax return declaration form

- to be used only with respect to income from the sale of property acquired from - to be used only with respect to income from the sale of property acquired from 1 January 2009 onwards1 January 2009 onwards

Exempt income (from 2009)Exempt income (from 2009)

- proportional to the ratio of housing expenses to revenue from sale of property- proportional to the ratio of housing expenses to revenue from sale of property



Exempt income (from 2009)Exempt income (from 2009)

Example:Example:

revenue from sale of propertyrevenue from sale of property = 200 000= 200 000

associated costsassociated costs = 150 000= 150 000

----------------------------

income from saleincome from sale = 50 000= 50 000

subsequent housing expensessubsequent housing expenses = 180 000= 180 000



Exempt income (from 2009):Exempt income (from 2009):

income x expensesincome x expenses

exempt income = exempt income = ------------------------------------------------------

revenue from salerevenue from sale

thus:thus:

50 000 x 180 00050 000 x 180 000

exempt income = exempt income = -------------------------- = 45 000-------------------------- = 45 000

200 000200 000

taxable income = 5 000taxable income = 5 000


Mortgage interest reliefMortgage interest relief

Extension of mortgage interest relief (acquired rights):Extension of mortgage interest relief (acquired rights):

interest on refinancing loan i.e. loan taken out to repay a interest on refinancing loan i.e. loan taken out to repay a mortgage loanmortgage loan

interest on subsequent refinancing loan i.e. loan taken out interest on subsequent refinancing loan i.e. loan taken out to repay a mortgage loan or refinancing loanto repay a mortgage loan or refinancing loan

applies to loans taken out in banks or building societies in applies to loans taken out in banks or building societies in EU member states, the EEA or SwitzerlandEU member states, the EEA or Switzerland


New regulations on rentalNew regulations on rental

Types of rental (from a source of income perspective):Types of rental (from a source of income perspective):

rental conducted in the course of business activityrental conducted in the course of business activity

rental as a separate source of incomerental as a separate source of income



Occassional rentalOccassional rental – a legally defined category introduced – a legally defined category introduced on 28 January 2010 on the basis of the act on amending of on 28 January 2010 on the basis of the act on amending of the act of tenants’ protection rights (...)the act of tenants’ protection rights (...)



Article 19a section 1:Article 19a section 1:

An agreement for occassional rental is an agreement for the An agreement for occassional rental is an agreement for the rental of an accommodation facility serving to fulfil housing rental of an accommodation facility serving to fulfil housing needs, the owner of which, being an individual, does not needs, the owner of which, being an individual, does not carry on activity in the field of rental of property, concluded carry on activity in the field of rental of property, concluded for a defined period of not more than 10 years.for a defined period of not more than 10 years.



Article 19a section 2:Article 19a section 2:

Obligatory enclosures to agreement on occassional rental:Obligatory enclosures to agreement on occassional rental:

1) statement of the tenant, in the form of a notarial deed wherein the 1) statement of the tenant, in the form of a notarial deed wherein the tenant is obliged to vacate the accommodation facility and return it to tenant is obliged to vacate the accommodation facility and return it to the landlord within the deadline stated in the landlord’s request;the landlord within the deadline stated in the landlord’s request;

2) the tenant’s written indication of another accommodation facility 2) the tenant’s written indication of another accommodation facility wherein trhey may dwell if they are requested to vacate the rented wherein trhey may dwell if they are requested to vacate the rented property;property;

3) statement of the owner or holder of a legal title to the other property 3) statement of the owner or holder of a legal title to the other property expressing their permission for the tenant and individuals living with expressing their permission for the tenant and individuals living with them to dwell in the ‘other property’; upon the landlord’s request, the them to dwell in the ‘other property’; upon the landlord’s request, the signature should have a notary attestation. signature should have a notary attestation.

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1818© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated

with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved


Article 19b:Article 19b:

Additional conditions for ‘occassional rental’:Additional conditions for ‘occassional rental’:

The owner of the property reports the conclusion of an agreement for The owner of the property reports the conclusion of an agreement for occassional rental to the head of the tax office relevant for the place of occassional rental to the head of the tax office relevant for the place of residence of the owner within 14 days of commencing rental of the property.residence of the owner within 14 days of commencing rental of the property.

Upon request of the tenant, the owner is obliged to present proof of the Upon request of the tenant, the owner is obliged to present proof of the aforementioned reporting. aforementioned reporting.

Failure to meet the above obligations eliminates the possibility to apply the Failure to meet the above obligations eliminates the possibility to apply the rules for vacating of the property by the tenant upon the landlord’s request rules for vacating of the property by the tenant upon the landlord’s request (including articles 19c and 19d).(including articles 19c and 19d).

© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1919© 2010 KPMG Tax M.Michna sp.k. a Polish limited partnership and a member firm of the KPMG network of independent member firms affiliated

with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

New rules on rentalNew rules on rental

ImportantImportant amendment to the act on lump sum taxation of amendment to the act on lump sum taxation of certain types of income derived by individuals (applicable certain types of income derived by individuals (applicable from 1 January 2010):from 1 January 2010):

previously:previously: the lump sum tax on registered revenue is the lump sum tax on registered revenue is 8,5 percent of revenue mentioned in article 6 section 1a, 8,5 percent of revenue mentioned in article 6 section 1a, up to an amount being the equivalent of EUR 4000; the up to an amount being the equivalent of EUR 4000; the tax on the excess above this amount is 20 percent of tax on the excess above this amount is 20 percent of revenue.revenue.

presently:presently: the lump sum tax on registered revenue is 8,5 the lump sum tax on registered revenue is 8,5 percent of revenue mentioned in article 6 section 1a.percent of revenue mentioned in article 6 section 1a.


Need assistance?Need assistance?

Mateusz KobylińskiDirectorInternational Executive Services

email: [email protected] line: (+48 22) 528 11 91secretary: (+48 22) 528 11 99

KPMG Tax M.Michna sp.k.Chłodna 51, XVI floor00-867 WarsawPoland

Documents

Taxation of income of individuals from real estate INTERNATIONAL EXECUTIVE SERVICES TAX Mateusz Kobyliński, Director 17 February 2010