If, similarly to many of our clients and business partners, you are struggling with getting familiar with tax aspects of build-to-rent projects (let it be pure PRS, PBSA, or any hybrid of them), see the below TOP3 list of tax issues to be analyzed.
#1 VAT, VAT, and VAT
Copying the popular real estate market saying that only location, location, and location matters, in the build-to-rent projects the role of location is taken over by VAT.
The first one is VAT on acquisition/construction of a project, which differs dependent on the statistical classification and legal status of the property being transferred.
Secondly, VAT on rental activity – when we still have a long-term residential lease under VAT exemption, and when a short-term accommodation service is subject to VAT? How to settle service charges under VAT, when they take over the VAT rate applicable to the main rental service? How to tax the rent if we lease the premises out to intermediaries? There are many related questions that definitely need to be flagged or at least initially answered in order to make your business model be running.
Thirdly, input VAT deduction vs VAT leakage and correction need to be assessed. This one is dependent on the way how you tax your rental activity under VAT law and requires monitoring for 10 years.
Watch our synthetic video on PRS/BTR:
#2 Tax depreciation
Once your project company gains the status of so-called ‘real estate company’ (RECo), tax depreciation may be tricky, if possible at all. The general rule is that residential buildings are deprived of the right of tax depreciation, whereas for commercial ones tax depreciation is limited and cannot be higher than the accounting one.
Our goal is to help you navigate the complex world of accounting, tax, and compliance, so you can focus on what you do best – running your business.
#3 Property tax
Property tax is also not the easiest one. The main axe of dispute between PRS owners and local municipalities is the use of premises. Whose perspective plays the crucial role – tenants’ and their use for residential purposes or the landlords’ and their use for running the business activity? As you can imagine, the residential purpose is taxed with lower rates, and business use – with higher ones (the difference goes up to ca. PLN 28 per sqm per year).
When entering into the PRS project, please make sure you are well and practically advised on these points: #1 VAT, #2 Tax depreciation, and #3 Property tax.
