The real estate company in Polish tax law

In 2021, the definition of a real estate company was introduced into Polish tax regulations. The main rationale for its introduction was to facilitate and streamline the process of collecting taxes on income from the sale of shares in real estate companies by non-residents.

The tax legislation imposes certain obligations on real estate companies (“ReCo”) in terms of tax collection, the appointment of a tax representative, the reporting of ownership structure, and places restrictions on the recognition of tax depreciation for real estate.

Definition of a real estate company

The tax legislation provides two definitions of a real estate company, i.e. a definition for a start-up entity and a separate one for an existing company. In both cases, a real estate company is an entity other than an individual that is required to prepare a balance sheet under the accounting regulations.

Start-up entity

An entity (other than a natural person, obliged to draw up a balance sheet) in which, as at the first day of the tax year, and where the real estate company is not a taxpayer of income tax – as at the first day of the financial year, at least 50% of the market value of the assets, directly or indirectly, was the market value of real estate located in the territory of the Republic of Poland or rights to such real estate and the market value of such real estate exceeded PLN 10 million or the equivalent amount.

Existing entity

An entity (other than an individual, obliged to draw up a balance sheet) in which, as at the last day of the year preceding the tax year, and where the real estate company is not a taxpayer of income tax – as at the last day of the year preceding the financial year, at least 50% of the balance sheet value of the assets, directly or indirectly, was constituted by the balance sheet value of real estate located on the territory of Poland or rights to such real estate, and the balance sheet value of such real estate exceeded PLN 10 million or the equivalent amount, and in the year preceding the tax year or the financial year respectively – tax revenue, or, if the real estate company is not a taxpayer of income tax, revenue recognised in net profit, from lease, sublease, rental, subtenancy, leasing and other contracts of a similar nature or from transfer of ownership, the subject of which is real estate or rights to real estate, and from interests in other real estate companies, constituted at least 60% of total tax revenue or revenue recognised in net profit.

Definition of a real estate company:

Criteria	Start-up entity	Existing entity
Moment of verification	Balance sheet as at the first day of the fiscal (financial) year	Balance sheet as at the last day of the year preceding the tax (financial) year
Share of real estate in assets	At least 50% of the market value of the assets, directly or indirectly, was the market value of real estate located in the territory of the Republic of Poland or rights to such real estate, and	At least 50% of the carrying amount of the assets directly or indirectly represented the carrying amount of real estate located in the territory of the Republic of Poland or rights to such real estate, and
Minimum property value	The market value of these properties exceeded PLN 10 million or the equivalent.	The carrying amount of these properties exceeded PLN 10 million or the equivalent, and
Share of property income in total income	n/a	In the year preceding the tax (financial) year, tax revenue from leases, subleases, leases and other contracts of a similar nature or from the transfer of ownership, the subject of which is real estate or rights to real estate, and from interests in other real estate companies, accounted for at least 60% of total revenue.

Limitation of depreciation

Real estate companies  

With the introduction of the definition of a real estate company in the tax legislation from 1 January 2022, regulations limiting tax depreciation expenses have emerged. As part of the introduction of a series of tax changes referred to as the Polish Deal, the legislator decided that, in the case of real estate companies, depreciation write-offs on fixed assets classified as non-residential and residential buildings, as well as premises (group 1 of Polish Classification of Fixed Assets) may not be higher in a tax year than those made in accordance with accounting regulations, charged in a given tax year to the entity’s financial result. 

In practice, these provisions have excluded depreciation of buildings for tax purposes in the case of real estate companies that value buildings according to the fair value model and thus do not depreciate them for balance sheet purposes. At the same time, it is important to note the emerging judgments of administrative courts that question the absence of tax depreciation in real estate companies using the fair value model valuation. 

Residential buildings   

In addition, from 1 January 2022, a restriction has been introduced whereby residential buildings and dwellings that are separate property are not subject to tax depreciation. This exclusion applies to all taxpayers, not just real estate companies.  

Under the transitional provisions, taxpayers were allowed, until no later than 31 December 2022, to recognise as deductible expenses depreciation on tangible and intangible assets that are residential buildings acquired or constructed before 1 January 2022.

The real estate company as a tax remitter

Under the new regulations, the obligation to account for tax on income from the disposal of shares in real estate companies has been transferred from the seller to the real estate company. 

Currently, a real estate company acts as a tax remitter when its shares (stocks), total rights and obligations, titles or rights of a similar nature are disposed of if: 

The advance tax payment is 19% of the transaction income or, if the real estate company does not know the amount of the transaction, 19% of the market value of the real estate company’s shares. The taxpayer is required to remit the amount of the advance tax to the tax remitter (the real estate company) before the date of its statutory payment. 

Tax representative 

A real estate company without a registered office or management in the territory of the Republic of Poland is obliged to appoint a tax representative. The tax representative shall perform the duties of a tax remitter in the name and on behalf of the real estate company. The tax representative shall be jointly and severally liable with the real estate company for the tax liability that the tax representative settles in the name and on behalf of the real estate company.

The obligation to appoint a tax representative does not apply to real estate companies that are subject to income tax in a Member State of the European Union or in another country of the European Economic Area on all their income, regardless of where it is earned.  

If the obligation to appoint a tax representative is not fulfilled, the real estate company is subject to a fine of up to PLN 1 million. 

Reporting on ownership structure 

An obligation has been imposed on real estate companies and their direct and indirect shareholders to provide the Head of Polish Tax Administration with information on entities holding directly or indirectly shares, titles, total rights and obligations and similar rights in such a real estate company. 

Entity	Real estate companies	Taxpayers holding, directly or indirectly, 5% or more of shares or rights of a similar nature in a real estate company
Scope of data	Information about the entities holding, directly or indirectly, shares or other rights of a similar nature in this real estate company, together with the number of such rights held by each of them	Information on the number of shares, total rights and obligations, participation titles or rights of a similar nature held, directly or indirectly, in the real estate company
Moment of verification	As at the last day of the tax year of the real estate company or, if the real estate company is not a taxpayer of income tax, as at the last day of its financial year
Deadline	By the end of the third month following the end of the real estate company’s tax year, or, if the real estate company is not an income taxpayer, by the end of the third month following the end of the real estate company’s tax year, by means of electronic communication.

Public disclosure

Real estate companies are among the entities for which the Finance Minister makes individual taxpayer data public. The data made available comes from the tax return and includes: 

• the business name and tax identification number of the taxable person, 
• indication of the tax year, 
• information on the amount of: 
  • revenue generated, 
  • deductible costs incurred, 
  • income made or loss incurred, 
  • tax bases,  
  • the amount of tax due.   

These data are made available each year by 30 September in the Public Information Bulletin on the website of the office serving the minister. 

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