A foreign company that has invested in an apartment in Poland before selling it must register as a taxpayer

For investment purposes, a foreign company based in the UK bought an apartment in Warsaw in October 2009. At that time it entered into an agreement to establish separate ownership of the apartment, but it had already incurred expenses related to the purchase of the apartment since May 2008. In March 2011, the company intends to sell the apartment. It was not rented out, nor did the company conduct any other taxable business activity in Poland. Will such a transaction be subject to VAT? Should the company settle income tax in Poland? What obligations are imposed on it?

In such a situation, the company must account for both income tax and VAT. The first step to be taken is to register with the tax office. It is therefore necessary to check the local jurisdiction of the tax office. This can be done in the Finance Minister's decree of August 22, 2005 (Journal of Laws No. 165, item 1371).
When registering for CIT purposes, the tax authorities require a letter in which the taxpayer explains why the company must account for this tax. Registration for VAT purposes is more complicated .

The sale is subject to VAT

The UK company is not entitled to the exemption under Article 43 (1) para. 10 of the VAT Act. The supply of buildings (structures or parts thereof) is exempt except when a period of less than 2 years has elapsed between the first settlement and the supply of the building, structure or part thereof.

First settlement is understood as putting into use, in the performance of taxable activities, to the first purchaser or user of buildings, structures or their parts, after their:

(a) construction or
(b) improvement, if the expenses incurred for the improvement, as defined by the ......documentation tax regulations, constituted at least 30 % of the initial value.

This means that first settlement takes place when the newly constructed building (structure or part thereof) is handed over to the first purchaser.

A UK company purchased a residential unit from a developer in October 2009 and intends to sell it in March 2011. There will not be a period of 2 years between the acquisition and the sale of the residential unit so it is necessary to tax this transaction.

On the sale of an apartment, tax liability will arise upon receipt of all or part of the payment, but no later than the 30th day, counting from the date of signing the sales contract in the form of a notarial deed. VAT should be paid to the tax office account by the 25th month following the month in which the tax obligation arose.
In the situation of a preliminary contract for the sale of a residential unit, tax liability arises upon receipt of a deposit or advance payment. VAT should be paid to the tax office account by the 25th month following the month in which the company receives the deposit or advance payment.

But input tax can be included

The question arises as to whether the company can deduct input VAT from invoices it received before registering for VAT purposes. These could be advance invoices related to the purchase of premises, energy invoices, invoices from notary offices, etc. It follows from the wording of Article 96(1) of the VAT Law that a taxpayer is required to register before the date on which the first activity subject to VAT is performed, i.e., in the situation described above, before the conclusion of the contract for the sale of the apartment. Thus, the foreign company was not required to register for VAT purposes earlier than immediately before the transaction of selling the apartment. At the same time, the VAT law does not deprive the company of the right to deduct VAT on purchases made prior to registration if the purchased goods and services will be used for taxable activities. Moreover, in accordance with the principle of VAT neutrality, a taxpayer has the right to deduct input tax paid on the purchase of goods and services related to business activities.
Since the sale of a residential unit by a foreign company will be subject to VAT and the purchase invoices associated with it, the foreign company is entitled to deduct input VAT. This is confirmed in interpretations by, for example, the Tax Chamber in Warsaw on December 28, 2009. (IPPP3/443-886/09-2/SM).
In practice, this means that the company must file VAT-7 returns for the months in which the right to deduct VAT arose. So if the first purchase invoice was received in May 2008, the VAT-7 form should be filed for that month.

Where is the CIT paid ?

The general rule from double taxation treaties is that income from the sale of real estate is taxed in the country where it is located. Thus, income from the sale of an apartment located in Warsaw will be taxed in Poland. On the income earned (i.e. the difference between the sales price and the costs previously incurred for the purchase and maintenance of the apartment), the foreign company is required to pay 19 percent tax. It must pay it by the 20th of the month following the month in which the notarial deed transferring ownership of the property was signed.
Before that, the parties may enter into a preliminary sales contract. Receipt of an advance or down payment under it does not trigger income tax. This is because, according to Article 12(4)(1) of the CIT Act, income does not include payments collected or accrued on account of deliveries of goods and services to be performed in subsequent reporting periods.
After paying the tax and before deregistering the company, the company should file a CIT-8 return.

Without accounting records

Tax regulations do not regulate in detail in what form the records should be kept (both for VAT and CIT purposes).
The Tax Chamber in Warsaw, in an interpretation dated January 13, 2009. (IPPB5/423-296/08-2/AJ) explained that "the Corporate Income Tax Act imposes an obligation on all taxpayers, and therefore also on taxpayers without a registered office or management in Poland, to keep proper records of economic events that enable reliable fulfillment of tax obligations." She confirmed that in the situation described in the question, the foreign company does not have to apply the Accounting Act. This is because its provisions apply only to foreign legal entities that have a place of management or registered office in Poland.

Deregistration of activities

After paying taxes, you must deregister your business by filing a declaration that you are no longer engaged in activities subject to VAT. To do this, you need to submit a VAT-Z form. In order to deregister the company as a CIT taxpayer, you need to send a letter to the tax office explaining that the transaction of selling the apartment was a one-time transaction and the company does not intend to continue its activities in Poland. This will prevent the need to continue filing VAT-7 returns and CIT-8 returns in subsequent accounting periods.

PROCEDURES
It's not easy to register for VAT

The following documents must be submitted when registering for VAT purposes:

• NIP-2 form,
• VAT-R form,
• The company's contract (articles of incorporation, deed, charter ),
• A current copy of the Commercial Register (in the company's country of incorporation),
• Current confirmation of VAT registration in the company's country of incorporation,
• an agreement with a bank confirming the opening of a bank account in Poland (or, alternatively, a statement that VAT is not being claimed),
• contract with the accounting office, or a statement by whom the documents will be provided during the inspection,
• power of attorney (originals) for a natural person permanently residing in Poland to register the company granted by persons (by name) representing the company in accordance with the commercial register, and a fee of PLN 17. for each authorized person,
• A detailed description of the company's activities in Poland,
• confirmation of payment of the registration fee to VAT-170 zl.