Income from real estate

What’s going to change?

The Polish Deal includes changes, which significantly impact the real estate market. The most important issues cover:

Pursuant to the introduced changes, only depreciation write-offs of fixed assets classified as group 1 of the Classification of Fixed Assets (i.e. buildings, premises, co-operative right to commercial premises and co-operative ownership right to premises), which do not exceed depreciation or amortisation write-offs recognised for accounting purposes (i.e. those charged to the financial result of a given entity), will be tax deductible costs for real estate companies.

In other words, a literal interpretation of the rules may lead to a situation in which a real estate company, which does not currently recognise depreciation for the accounting purposes, will not be able to recognise it for the tax purposes either. This kind of restriction could have a significant impact on the financial position of real estate companies, in which depreciation is one of the main tax deductible items.

As of 1 January 2023 possibility of tax depreciation of residential properties will be excluded. Until that day, tax payers will be allowed to treat the depreciation write-offs on such assets as tax deductible but only with respect to residential properties acquired or constructed by the end of 2021.

It should be noted that the new provisions concern both CIT and PIT taxpayers and do not in fact provide for any grandfathering rules (except for the one mentioned above). This means that in practice as of 1 January 2023 residential properties will not be subject to tax depreciation irrespective when they were constructed or acquired.

As a result of the changes, PIT taxpayers will settle income derived from so-called private rental through the so-called lump sum taxation (i.e. without deduction of related tax deductible costs). The new rules of taxation of rental will be mandatory as of 2023.

It will not be possible to tax income from private rental with 19% flat rate tax or progressive PIT rate (17% and 32%). Consequently, rental income will be taxed with lump sum tax at 8.5% up to the value of PLN 100,000 (c.a EUR 21k) and 12.5% on the excess over PLN 100,000 per year.

What does it mean?

New provisions for real estate market require taxpayers to manage a number of uncertainties:

Will tax depreciation of a building by real estate companies be tax effective at all?
Does the current method of accounting recognition of a building (investment asset vs. fixed asset) permanently determine the tax consequences in the future?
Are there actions that can be taken to retain the right to existing depreciation deductions? If so, how might they affect the company’s financial position? Is it necessary to involve the auditors? How can they influence discussions with financing entities (banks)?
What impact might following the International Financial Reporting Standards (IFRS) versus National Accounting Standards (NAS) have on tax depreciation write-offs in the future?
Are there perhaps tax instruments that, even in the new circumstances, will allow higher than standard tax depreciation write-offs for buildings?
How to benefit from the interim period in 2022 to properly prepare for the depreciation limitations and the new residential rental rules since 2023?

Deprecation of real estate

How can we help you?

Within our scope of services we can:

analyse the tax situation of the entity in order to identify the possibilities of retaining the right to tax depreciation also since 2022
ensure cooperation with auditors and lawyers to find solutions adapted to the realities of a given company and jointly prepare an assessment of the effects of changes or the process of compliance with the new rules
prepare an opinion or an application for securing opinion from tax authorities to get additional comfort on the chosen tax solution
support the change process in such a way as to improve both the reliability of the settlements and the persons responsible for them (tax managers, chief accountants, management)

Meet Crido Real Estate Team

Our Crido Real Estate Team is created by several dozen experienced advisors, led by Paweł Toński – a tax advisor with over 20-years of experience, who advised a key players at the real estate market.
The Team has been awarded with multiple industry awards, including the most prestigious one – an Eurobild Award as a leading tax expert in the sector.
Our Team is also actively engaged in works of Polish Chamber of Commercial Real Estate, which set-up was orchestrated by Paweł Toński, being also a Chair of the Chamber.
We support the real estate business in all tax aspects: from M&A processes through identifying the most effective and safe approach within on-going tax advisory.

I consent to the processing of my personal data in the form of a telephone number for marketing purposes and presentation of the commercial offer of Crido Group Companies as personal data controllers (the current list of Crido Group Companies can be found here). I acknowledge that the consent may be revoked at any time and confirm that I have read the Privacy Policy.

I agree to receive to the e-mail address indicated by me marketing information sent by the Companies from the Crido group as personal data administrators (current list of companies from the Crido group can be found here). I understand that consent may be revoked at any time and confirm that I have read the Privacy Policy.

Limitations on tax depreciation in real estate companies (CIT)

Exclusion of tax depreciation of residential property (PIT/CIT)

Changes in the taxation of private rental (PIT)