Accounting of real estate companies

Tax on Income from Buildings (Minimum Tax on Commercial Properties)

The regulations concerning tax on income from buildings, commonly known as the minimum tax on commercial properties, have been in effect since 2018. Nevertheless, some taxpayers still encounter difficulties in correctly determining the amount of such tax, especially the taxable base. Consequently, overpaid or underpaid tax amounts are regularly remitted to tax authorities each month, which, in case of an audit, may result in interest charges on tax arrears and fiscal liability for individuals responsible for the settlements.

Who is required to pay the tax on income from buildings?

As a rule, the tax on income from buildings applies to properties in which space is leased to other entities, including objects such as office buildings, shopping malls, or hotels. It's worth noting that according to Article 24b (1) of the Corporate Income Tax Act, income from a fixed asset in the form of a building located in Poland is subject to taxation. This includes properties that are owned or co- owned by the taxpayer and are leased, subleased, or used under other similar agreements.

How to calculate the amount of the tax on income from buildings?

The minimum tax is calculated monthly, and its amount is determined as 0.035% (0.42% annually) of the taxable base. The taxable base is defined as the sum of the initial values of owned buildings on the first day of each month, minus the amount of the one-time limit set at 10 million PLN. In practice, this means that no tax obligation arises when the total value of buildings owned by the taxpayer does not exceed PLN 10 million. However, it's important to note that if the value of individual buildings owned by the taxpayer is below the limit but the total value exceeds it, then this total will be subject to the minimum tax.

In this regard, it's also important to pay attention to the correct inclusion of fixed assets in the calculations. Errors may occur when categorizing capital expenditures on buildings that should be treated as independent fixed assets, potentially leading to an overestimation of the taxable base. It's also important to consider that the taxable base is determined based on the initial value of the building, taking into account all modernizations, improvements, and other activities affecting the building's value, but excluding depreciation allowances.

When calculating the taxable base, only the area that generates rental income or income from similar agreements should be taken into account. Therefore, taxpayers are also obligated to determine, on the first day of each month, the proportion in which the building has been made available for use in relation to the total usable area of the building.

Refund of tax on income from Buildings

The tax on income from buildings is referred to as the minimum tax because it can be offset against monthly advance payments for corporate income tax (CIT). In principle, this tax is neutral, meaning that if the income tax paid for a given year exceeds the tax due on income from buildings, the taxpayer will not bear any additional burden. However, if the annual tax return shows a tax loss or relatively low income, the taxpayer can apply for a refund of overpaid minimum tax. It's important to note that the tax authorities will conduct a verification process to ensure the correctness of the income tax calculations for the respective year before issuing a refund. The tax authorities will also verify the income and expenses reported in the return concerning transactions with related parties and any costs of debt financing related to the acquisition or production of real estate for related entities. It's worth remembering that a tax refund can be requested for tax periods up to 5 years in the past.

BPG Polska Audyt sp. z o.o. specializes in accounting and tax advisory services for real estate companies (office buildings, warehouses, shopping malls, photovoltaic farms ) owned by Polish and foreign investment funds. BPG is a member of the international KRESTON Global network.