The ownership of the real estate may be transferred by conclusion of several types of agreement, e.g.:

The agreement obliging to transfer the ownership of real estate must be executed in the form of notarial deed. The ownership of a real estate cannot be transferred conditionally or with a reservation of a time limit.

The common practice is to conclude preliminary agreement prior to conclusion of the main agreement. Legal consequences of such agreement will differ depending on its content and the form in which it was concluded. If preliminary agreement was concluded in form required for the main agreement (in this case notarial deed) entitled party may pursue conclusion of the agreement in court even if the other party refuses to fulfil its obligation. However, if preliminary agreement does not fulfil formal requirements, entitled party may only demand payment of compensation for the damage caused by the lack of conclusion of the agreement.

The ownership of the real estate may be also acquired by so-called usucapion (acquisitive prescription). In the event of adverse possession of a real estate (i.e. occupation without legal title), possessor of real estate acquires ownership of this real estate after specified period. The period depends on good faith of the possessor and amounts to 20 years – in case of good faith – or 30 years – in case of bad faith – of uninterrupted possession of the real estate.

Due diligence

The majority of real estate in Poland are disclosed in land and mortgage registers. The registers are held by district courts and are public. They may be viewed free of charge on the website of Ministry of Justice.

Prior to conclusion of the agreement the purchaser should verify the legal condition of real estate he/she intends to buy in land and mortgage register. To check the real estate’s register the purchaser will need its registry number. The purchaser should in particular check the information about the owners of the real estate and any possible rights of third persons in relation to the real estate, e.g.: mortgage.

Polish law guarantees the authenticity of the information disclosed in the land and mortgage register. It means that in case of acquisition of the ownership or other right ad rem to a real estate from the person disclosed in land and mortgage register as the owner, the acquisition is valid even if this person was not in fact the owner of the real estate. However, such protection does not apply to the purchaser who knew about the inconsistency of the register or could have easily learnt about such inconsistency.

If the real estate is not registered in land and mortgage register, the purchaser should check land and building records. These records do not contain information as detailed as the land and mortgage register. Nevertheless, they include all basic information, such as real estate’s owners, their addresses of residence or seats, cadastral value of the property etc.

Conclusion of the agreement

The agreement which transfers the ownership of a real estate has to be executed in the form of notarial deed or else it will be invalid.

Notary fee for preparation of a notarial deed depends on the value of sold real estate. However, the fee cannot exceed PLN 10,000.

The notary will also calculate due civil law transaction tax. The tax is paid to the notary at the conclusion of the agreement. The notary is obliged to transfer it to the relevant tax office.

Obligations after the purchase

After the conclusion of the agreement the purchaser of the real estate should file a motion for update information disclosed in land and mortgage register. The motion should be filed in the relevant district court. The court fee amounts to PLN 200. There is also a possibility to ask the notary to do it for us.

In the event of lack of land and mortgage register, the purchaser may establish such register for the purchased real estate. This also requires a motion to the district court with jurisdiction over the location of the property. The court fee in such case amounts to PLN 60.

The purchaser of real estate should also inform relevant municipal office about the change of the owner of the real estate in order to provide information about new payer of the property tax.

As mentioned above, real estate can be sold either through a direct sale of the property (an asset deal or enterprise deal) or indirectly through sale of shares in the company owning the property (a share deal). These three types of transactions have different tax implications under the Polish tax regulations.

Asset deal

The revenues derived from the sale of real estate are subject to the standard taxation rules of Polish corporate income tax. Taxable revenues are reduced by the net book value of the property. Thus, effectively, only the “capital gain” is taxed at the rate of 19%. If the sales price differs substantially and without a justified reason from the market value of the real estate, the revenue may be assessed by the tax authorities according to the market value. This price adjustment may be applied to transactions between related and unrelated entities.

Costs incurred by the buyer for the acquisition of real estate: purchase price, transaction costs including advisory, civil law transaction tax – if applicable, financial costs accrued till the purchase, etc., are to be allocated to the initial value of the real estate and are recognized as tax deductible costs through depreciation write-offs or upon sale. As the value of the land is not subject to depreciation.

VAT on the sale of real estate

The supply of buildings, infrastructure, or parts of buildings or infrastructure is generally VAT exempt, except for:

• the supply of a building, infrastructure or part of a building or infrastructure in the course of its first occupation or prior to it; and
• the supply of a building, infrastructure or part of a building or infrastructure made within two years of the first occupation;

in which cases the supply of buildings, infrastructure or parts of buildings or infrastructure are generally subject to VAT.

“First occupation” is understood as handing over a building, infrastructure or part of a building or infrastructure within the context of the performance of VAT-able activities (subject to VAT or VAT exempt) to the first acquirer or user, after the:

• initial completion; or
• improvement (if the expenses incurred for the improvement constituted at least 30% of the initial value).

of that building, infrastructure or part of a building or infrastructure.

Taxpayers may choose not to apply the exemption and charge VAT if:

• buyer and seller are VAT registered; and
• before the day of supply they submit the appropriate joint statement to the tax office of the purchaser or include relevant statement in sales agreement.

The supply of buildings, infrastructure or parts of buildings or infrastructure which should be subject to VAT (i.e. supply in the course of first occupation or within two years of the first occupation) must be VAT exempt (no option to tax allowed) if:

• the seller was not entitled to deduct input VAT; and
• the seller did not incur improvement expenses on which he had right to deduct VAT, or such expenses did not exceed 30% of the initial value of the building, infrastructure or part of a building or infrastructure.

The VAT treatment of transfer of land or perpetual usufruct (RPU) over in general the VAT treatment of the buildings developed on the land.

However, if an RPU is acquired for the first time from the State or local authority, the transfer is always subject to 23% VAT, even though the buildings developed on the land may be exempt from VAT.

The supply of ownership title / RPU to undeveloped land qualified as land for development purposes is subject to 23% VAT (supply of agricultural land exempt from VAT).

Supply of residential buildings and separate apartments is subject to a reduced 8% VAT, except for part of residential buildings whose usable floor space exceeds 300 m2 and apartments whose usable floor space exceeds 150 m2. In such a case the part exceeding the thresholds is subject to a 23% VAT rate.

TCLT

If the supply of real estate is VAT exempt, it is subject to civil law transaction tax payable by the buyer. The applicable rate is 2% of the market value of the real estate. This tax is levied on the total value of the building, infrastructure, or parts thereof, and the land / RPU.

Recoverability of input VAT by the buyer

Input VAT is recoverable if the company performs or intends to perform activities in the future which are subject to VAT (e.g. lease of the commercial real estate). Input VAT will not be recoverable if the company performs or intends to perform activities in the future which are VAT exempt. If this is the case, the input VAT will increase the initial tax basis of the real estate.

If business activities are partly exempt, any input VAT which cannot be matched directly either to VAT-able sales or VAT exempt sales may be recovered according to the proportion of the net value of the taxed supplies to the total value of all supplies (a so called pro rata recovery). During a calendar year, the proportion is calculated based on the volume of supplies made in the previous year. At the year end, the amount of deductions is adjusted to the actual percentage calculated for the whole year. In the case of real estate subject to depreciation for tax purposes, the percentage of input VAT which may be deducted is subject to adjustments over the period of 10 years. Taxpayers also need to take into account so called preliminary pro-rata that limits input VAT recovery on purchases, if linked both with the business of the taxpayer and other activities not related with business operations.

Declaring input VAT for recovery

The right to recover input VAT arises in the period when the tax point with respect to the acquired goods or services arose (i.e. in the month in which the services were rendered, or the goods were acquired by the purchaser). It cannot be, however, recovered earlier than in the period in which the taxpayer receives the respective invoice (prepayment invoices do not fall under this rule: they must be paid in order for input VAT to be reclaimable).

Direct refund of input VAT

A direct refund of any surplus input VAT should be made within 60 days of the submission of the application for the refund provided that in the period for which the refund is claimed the taxpayer performed VAT-able supply.

This deadline can be shortened to 25 days at a taxpayer’s request when a number of conditions are met, such as providing bank payment proofs for invoices, invoices paid in cash amount to less than PLN 15,000 in total.

In the case where VAT-able supplies are not made in the period for which the refund is claimed. The period for the refund is extended to 180 days, unless a form of security is provided (in which case the refund must be made within 60 days).

Enterprise deal

The revenues derived from the sale of an enterprise are subject to the standard taxation rules of Polish corporate income tax. Thus, effectively, only the “capital gain” is taxed at the rate of 19%.

Verification of status of enterprise deal or organized part hereof

Enterprise is an organized complex of material and non-material components designed for carrying on an economic activity.

Organized part of an enterprise are material and non-material components organizationally and financially separated in an existing enterprise, including liabilities, being designed for the fulfilment of specific economic tasks, which at the same time could constitute an independent enterprise carrying out these tasks on its own..

According to clarifications of the Ministry of Finance on VAT consequences upon sale of commercial real estates, if beside typical items sold together with a real estate, rights and obligations from debt financing agreements, property management agreement, asset management agreement and agreements on financial nature are transferred as well as the intention of the purchaser is to continue the business activity of the seller and such continuation is possible via purchased items such sale will constitute an enterprise deal transaction.

VAT on the sale of enterprise or organized part of hereof

Sale of the enterprise or organized part of an enterprise is out of VAT scope.

TCLT

Purchase of enterprise or organized part of the enterprise is subject to civil law transaction tax payable by the buyer. The applicable rate is 2% of the market value of the real estate, movables, etc. Other property rights may be subject to 1% TCLT rate (if separated in the sales agreement).

Share deal

A capital gain on the sale of shares is subject to Polish corporate income tax at the standard rate of 19%.

If the selling party is a foreign shareholder, the applicable tax treaty influences the tax implications of such a transaction.

Significant part of Polish tax treaties (e.g. with Spain, France, Denmark, Sweden, Germany, Luxembourg) provide that a sale of shares in a company holding mainly real estate assets should be regarded as a sale of real estate. Consequently, income earned on the sale of shares in the Polish company will be taxed in Poland (the so called real estate clause).

The sale of shares in the Polish company is subject to a 1% civil law transaction tax (on the fair market value of shares) payable by the buyer. This is irrespective of where the transaction takes place or where the parties to the transaction are tax residents. A share transaction is not subject to Polish VAT. However, where a share transaction is treated as being made in the course of business activity (rather than as a one– off transaction), it may be classified as a VAT exempt financial service. However, it will still be subject to civil law transaction tax.

Costs which must be incurred in order to acquire shares (e.g. purchase price and notary fees) may be recognized as tax deductible costs upon the sale of shares.

Other costs indirectly connected with acquisition of shares such as financing costs may be recognized as tax deductible costs when incurred (in certain cases recognition over time may occur).