VAT Taxation on rental of residential property. Warsaw, April 16, 2020
Rental of residential properties may be subject to three different VAT taxation regimes:
(b) the 23% VAT rate and
(c) the 8% VAT rate (so-called accommodation related services).
I. General comments
The purpose of the services provided is decisive for determining the applicable VAT rate.
The tenant’s actual use of the property should also be consistent with the intended purpose of the services.
For example, a short stay of a tourist or a businessman should be treated as non-residential stay.
Non-residential stay is typically offered by hotels, guesthouses, rooms offered for short-term rent.
The residential purpose excludes temporary stay and vice versa.
The residential purpose is related to satisfying the tenant’s vital needs.
In other words, the rental services can be exempted from VAT (e.g. renting an apartment) depending on whether the rented property satisfies the vital needs, regardless of the duration of the rental period.
II. Rental services exempted from VAT
Only a rental of real property for residential purposes is VAT-exempt.
In addition, rental services must be provided by the landlord acting on his own account.
The possibility of taking advantage of the VAT-exemption is therefore conditional upon the fulfilment of both objective and subjective criteria.
The property must be of a residential character (objective criterion) and the purpose of the rental agreement must be to satisfy the customer’s residential needs (subjective criterion).
The possibility of benefiting from a VAT exemption is therefore conditional and depends on meeting the specific requirements:
– the residential nature of the rented property and
– the purpose for which the property is used must also be residential.
As a consequence, the VAT-exemption does not apply to a rental of residential property for non-residential purposes.
The availability of the VAT exemption does not depend on the type and/or legal form of the service provider or the entity purchasing such services.
If the tenant is not a tourist, spa visitor, business traveler etc., but his/her intention is to permanently reside in a given place, then the provider of the rental services will qualify for the VAT-exemption.
Real property rental services are VAT-exempted provided that all the conditions regarding (a) the parties, (b) the object and (c) the purpose of the specific contract, are met.
Therefore, the VAT taxpayer will be able to take advantage of the VAT exemption if the lease agreement contains, inter alia, provisions clearly stipulating that it concerns residential premises and the premises may be used by the tenant only for his personal residential purposes.
III. Rental services taxed at the 23% VAT rate
A rental of residential premises by a person who does not personally provide accommodation services but provides such services, for example, to a company conducting business activities involving the provision of short-term accommodation services, is taxed at the rate of 23%.
In addition, any rental of residential property for business purposes is taxed at the rate of 23% VAT (e.g. office, company headquarters).
IV. Services taxed at the 8% VAT rate
In accordance with art. 41 section 2 of the VAT Act, the so-called accommodation-related services are subject to the 8% VAT rate.
The accommodation-related services include, among other things:
(a) accommodation and associated services provided by hotels, motels, boarding houses, wellness centers and other hotel facilities
(b) temporary or long-term accommodation in student hostels, boarding schools and dormitories, workers hotels, apartment houses.
The differences between a typical rental and the accommodation-related services include:
(1) the availability of auxiliary services (laundry and basic equipment for the rented premises are usually provided in addition to the accommodation services);
(2) the period of stay in the premises (usually shorter for accommodation-related services).
Where the taxpayer:
– runs a business of short-term rental of apartments for tourists and people traveling for business purposes,
– the apartments are not his /her property, but he/she manages them on the basis of separate contracts concluded with their owners,
– prepares offers and accepts reservations via online booking portals,
– responds to customers’ inquiries,
– makes sure the apartments are available to guests on time,
– provides fresh towels, linen and refreshments,
– is responsible for keeping apartments clean,
– is responsible for minor repairs, etc.
thus enabling the visitors to conveniently use the premises, then the VAT exemption will not apply.
However, such services as described above are subject to the 8% VAT rate.
The taxation regime for rental of real property depends on the objective purpose and manner of using the property by the tenant, as well as the subjective intentions of the parties to the lease agreement.
Warsaw, April 16, 2020