Probably everybody knows already that we are in for changes in the real estate tax framework. They will be revolutionary. The key consequence is that what has so far been classified as buildings (budynki) or structures (budowle) will have to be reclassified. Preparations have already started and businesses are reviewing their assets.

The amendments are scheduled to take effect as of 1 January 2025. Time to prepare is running short. Yet the Finance Ministry has published what is already the third draft of the amendment proposal (Draft 3.0 of 30 September 2024).

 

Changes introduced by Draft 3.0

Draft 3.0 emerged as a result of public consultations of the previous version, called Draft 2.0. While for Draft 2.0 the Finance Ministry accepted a majority of comments from taxpayers, nearly all of the comments taken into account in Draft 3.0 come basically from local authorities only.

Comparing to Draft 2.0, most changes in Draft 3.0 are mere refinements. Still, some uncertainties remain.

Some of the changes in Draft 3.0 are listed below:

  • The definition of structure now contains a proviso that a structure is a a built object listed in the law that has been erected through construction work, including where it is part of an object not mentioned in the law.

This definition may give rise to overinterpretation and, hence, to a significantly expanded scope of the tax. The reason is that it is not clear what kind of an object not mentioned in the law is meant. Is it just a built object? Or any other object, including moveable property? The term “part” is unclear, too. There is no knowing what relation must exist between an object mentioned in the law and one not mentioned in the law for the former to be treated as part of the latter.

 

  • A refinement to the effect that construction work means any work involving construction (budowa), restoration (odbudowa), extension (rozbudowa), upward extension (nadbudowa), or assembly (montaż), to which the Construction Law Act applies.

The new definition seems to be more precise than in the previous version. To recall,  the previous version defined construction work to mean construction work as defined in the Construction Law Act of 7 July 1994.

Still, there continues to be plenty of room for interpretation with regard to specific types of construction work. Take “assembly” as an example. Defining assembly as a type of construction work can in practice lead to disputes with tax authorities. Not least because the new definition does not resolve whether assembly also includes simple activities enabling the development to function as intended.

 

  • A refinement to the effect that a building service facility (urządzenie budowlane) is a connection, installation facility or other technical facility which is directly associated with a given building or structure and necessary for such building or structure to be used as intended.

The qualification that the association must be direct can help limit the potential for extending the scope of the tax. However, it seems disputes with tax authorities may arise over the issue of when those facilities are necessary for the building or structure to be used as intended.

 

  • Excluded from the definition of built objects are in particular the following small objects:
  1. used for religious worship, such as shrines, wayside crosses and figures;
  2. garden architectural features, such as garden figures and statutes, fountains, bridges, arbours, masonry barbecues, ponds;
  3. objects used for everyday leisure or maintenance, such as dumpster enclosures, umbrella roofs for prams or bicycles, playground features.

The addition of “in particular” means that the list of objects that are not built objects for real estate tax purposes has become open-ended. While this is favourable for taxpayers as it expands the number of items what may potentially be excluded from taxation, it also contains the potential for being an additional bone of contention with tax authorities.

 

What to expect?

 

For the amending legislation to become effective in 2025, it must be enacted and published by the end of November 2024. But it has not even been transmitted to the Parliament yet.

 

Thus, we should expect Draft 3.0 to reach the Parliament without any further amendments. While the Parliament may make some changes in the proposal, due to time constraints any such changes should not be essential.

 

For those reasons we think preparations for the new law should be started when the draft is submitted to the Parliament, at the latest.