Warsaw, 24 May 2019
Short overview of Polish real estate law
1. Property law
Property law in Poland constitutes complex statutory provisions concerning either movable or real property. Polish law defines all in rem interest in land and no new interests may be created. The Polish legal system recognises only the following in rem interests in real property:
1.1. Ownership is the broadest right in property, enjoying full constitutional protection.
1.2. Perpetual usufruct may only be created on land belonging to the State Treasury or local communities. The right of perpetual usufruct confers a right to use, manage and administer the real property for a specific period of time (40 or 99 years). Perpetual usufructee pays an annual fee to the owner.
1.3. Usufruct grants its holder the right to use and collect income from the property in compliance with a notarised usufruct contract.
1.4. Easements: ground easements and personal easements.
1.5. Co-operative right to premises and detached houses. One of the various kinds of co-operatives is the housing co-operative, of which the main purpose is to meet the housing needs of its members. Each member of the Housing co-operative is obliged to bear a portion of the investments of the co-operative and thus make contributions in cash. A co-operative establish limited rights in rem in their favour – a co-operative right to residential premises.
1.6. A mortgage is a security of pecuniary claims on real property, which:
- ranks ahead of unsecured debts in terms of the mortgager’s right to be paid off, and:
- is effective with respect to every current owner of real property.
The following categories of mortgage may be distinguished: (i) ordinary “contractual” mortgage, (ii) ceiling mortgage (hipoteka kaucyjna), securing a pecuniary claim resulting from an existing relationship but whose exact amount is not yet known, (iii) joint mortgage (hipoteka łączna) – one mortgage encumbering several properties, which may be either statutory – in the case of a division of the property, or contractual, (iv) forced, or “compulsory” mortgage (hipoteka przymusowa) – securing a possible claim under an interim injunction or a claim under an enforcement title and (v) mortgage on a mortgaged receivable.
1.2. Foreign ownership of real estate
The 1920 Act on the Acquisition of Real Estate by Foreigners provides for restrictions on the acquisition of real estate by foreign nationals or companies. Based on this Act, prior to acquiring land in Poland, a foreigner is obliged to obtain a permit issued by the minister competent for internal affairs (“MIA”) in the form of an administrative decision. A property sale agreement executed without his permit is null and void.
Due to Poland’s accession to the EU, the Act was changed to include wide exemptions to the requirement to obtain an MIA Permit. According to the Accession Treaty (which prevails over national legislation) entrepreneurs from the European Economic Area (“EEA”) cannot be prevented from purchasing real estate in Poland, apart from certain types of protected properties mentioned in the Treaty (agricultural land, forests and “second houses”).
1.3. Land registration system
There are two (2) types of land register in Poland:
- Land and Mortgage Registers (księgi wieczyste, also referred to as “KW”), which describes the legal status of real property. The local courts hold these, but information on the status of entries may also be obtained through the computerised Central Information System.
- Land Registers (ewidencja, rejestr gruntów), which describe, among other things, the physical position, area, designation and occupier of the land. Local governors (starosta) hold these. The Land Registers are used for reference only and are not conclusive in all circumstances. The information in the Land Registers is binding only for the purposes of type of use, tax assessment and classification of land in the Land and Mortgage Register.
2. Landlord and Tenant law
Polish law recognises two forms of lease: lease (najem) and tenancy (dzierżawa). The essential difference between them is that a lease (najem) has a maximum term of ten (10) years, and a tenancy (dzierżawa), thirty (30) years. Moreover, a tenancy gives a tenant not only the right to use the subject of the agreement but also a right to collect the benefits from the subject of the agreement. Both are purely contractual in nature, and do not create limited rights in rem. A typical use for a lease would be a short lease of an apartment or premises. A tenancy would typically be used for a lease of farmland, or premises for a commercial use. A lease agreement may be established for a definite or an indefinite period of time. The statutory allowed maximum fixed term is ten (10) years. A lease agreement concluded for a definite period of time, after the lapse of ten (10) years, automatically transforms into an agreement concluded for an indefinite period of time, which may be freely terminated by notice by either party.
3. Regulatory law in the context of the property development process
3.1 Zoning and Planning Law regulates the zoning situation in Poland, which came into force in 2003 (“Zoning Law”). Pursuant to the above act, all zoning plans adopted before 1 January 1995 expired on 1 January 2004. A small area around 20% now covers zoning plans in Poland. The zoning plan is voted on by the community council and constitutes the most important zoning tool.
3.2. Planning. If the site is not covered by a zoning plan, a planning permit must be obtained before submitting the building permit documentation. The law makes a distinction between planning permits for public developments and those for private schemes. “Private” planning permits are much more difficult to obtain.
3.3 Building permits may be obtained if the project complies with the zoning plan. If there is no zoning plan then a building permit may be obtained if it complies with the planning permit. In this latter case, the building permit application must be submitted within the validity period of the planning permit. In order to obtain a building permit, the developer needs to hold a legal title to the site (not necessarily freehold – it can be another right allowing for construction). As with a planning permit, a building permit may be transferred on a third party, provided that it holds a title to the site.
3.4 The use of the completed building or structure may be commenced upon notifying the relevant authority (i.e. construction supervisory), subject to cases specified in the Building Code.
4. Basic tax regulations concerning acquisition of real estate
4.1. CIT. The corporate income tax (CIT) rate is 19%. A company that has its seat or management board on the territory of Poland is subject to the CIT on its whole income. With regard to a foreign company, it is subject only to its income earned in the territory of Poland. Tax losses may be carried forward over the next five years, however, only 50% may be deducted during any given year.
4.2. VAT. In general, the Polish Act on VAT is in-line with the Community VAT law. The basic rate is 23%, however there are also 7% and 3% rates.
In order to deduct input VAT from output VAT, the output VAT must constitute the result of a VAT-able sale of the given company, with certain exceptions. Generally, as far as VAT refunds are concerned, the tax office should make it within 25/60 or 180 days.
If a EU-based trader is obliged to be registered for VAT purposes in Poland, it has to register itself directly. There is no need to appoint a tax representative. If a trader from outside EU is obliged to be registered for VAT purposes in Poland, it has to appoint a tax representative and then register itself. A tax representative is obliged to fulfil the obligations of the represented entity regarding the calculation and payment of the VAT, appropriate evidence and documentation and other activities. A tax representative is liable jointly and severally with the foreign entity.
4.3. Legal Actions Tax. There are a large number of agreements that are subject to Legal Actions Tax, if not subject to VAT. These include sale agreements, loan agreements, donations, assignment of rights etc.
Depending on the type of agreement, the Legal Actions Tax rate varies in most cases between 0,5% – 2%.
4.4. PIT. Personal Income Tax (PIT) and social charges. The employer is obliged to withhold from the employee’s salary: the advance income tax payments, social insurance contributions (including retirement, pension, sickness and accident insurance), contributions to the Labour Fund and Guaranteed Employee’s Benefits Fund. The deductions depending on the amount of the employee’s remuneration and the degree of risk attributed to his post. The majority of the social security contributions are deducted from remuneration monthly, until the total annual remuneration exceeds approximately EUR 22,000 in that calendar year.
Management contracts and freelance agreements are subject to social insurance contributions and monthly advance income tax payments of 19% of remuneration. The annual income tax rates are, however, 19, 30 or 40% of the income, depending on the level of gross annual income.
4.5 Land taxes. Land, buildings and building structures are subject to land tax. The tax is payable by owners, perpetual usufructees, and lessees of public properties. The tax is based on surface area in the case of land, and on the useable area in the case of buildings. The rate of the tax is defined by a city council but there is a statutory cap.
5. Establishing a business
Developers usually operate through a limited liability company (spółka z ograniczoną odpowiedzialnością, abbreviated to sp. z o.o.) or, far less frequently, through a joint stock company (spółka akcyjna, abbreviated to S.A.). The Sp. z o.o. is the Polish equivalent of an English private limited liability company, a French société à responsabilité limitée (sarl), or a German Gesellschaft mit beschränkter Haftung (GmbH). The S.A. is the equivalent of an English public limited company (plc), a French société anonyme (SA), or a German Aktiengesellschaft (AG). Both types of companies are separate legal entities that come into full existence upon registration and are operated by their governing bodies. the Sp. z o.o. and S.A. are subject to the CIT on its whole income.
Developers can also operate through partnerships. Partnerships are based on a co-operation agreement between two or more individuals or companies. It is not possible to have a partnership with a single partner. Partnerships are separate entities from their partners, but are not legal entities, as compared to the Sp. z o.o. and S.A. Partnerships (i.e. entities with no separate legal personality) are tax transparent, which means that the income tax is levied at the level of the partners. However, a partnership of the foreign partners in Poland will usually constitute a permanent establishment of the partners, thus the income of the partnership will be taxable in Poland.