SALE OF LAND PROPERTY AS A NATURAL PERSON AND VAT LIABILITY

The sale of land property by a natural person may seem like a relatively simple transaction. In reality, however, from a tax law perspective, it can give rise to significant obligations, including the obligation to calculate and pay value added tax. In particular, this obligation depends on whether the transaction is considered to be a business activity within the meaning of the VAT Law.

According to Article 15(2) of the VAT Law, economic activity includes all activities of producers, traders, service providers, as well as natural resource extraction entities and farmers, as well as activities of freelancers. In particular, it includes activities involving the use of goods or intangible assets on a continuous basis for profit-making purposes.

In the context of the sale of landed property, the interpretation of the concept of business is of particular importance. It is important whether the sale is a one-time event or part of an organized activity that is carried out continuously for profit. If the sale of real estate by an individual takes place sporadically and without activities indicating an intention to continue such transactions in the future, the transaction can be considered not to be related to business activity, and therefore not subject to VAT. If, on the other hand, an individual sells real estate in an organized manner, using means and tools typical of entrepreneurs, there is a high probability that the tax authorities will consider that person to be a VAT taxpayer.

An example would be a situation in which several plot owners decide to jointly sell real estate to a developer, and they take various measures to increase the attractiveness and value of the land being sold, such as changing the location of a drainage ditch or applying for a change of land use. In the opinion of the tax authorities, such actions go beyond the framework of ordinary management of private property and are characteristic of the conduct of business activities, as confirmed, for example, in the individual interpretation of the Director of National Tax Information dated July 25, 2024, with the reference 0113-KDIPT1-3.4012.410.2024.1.MWJ.

Significantly, even if the sellers are not formally registered as entrepreneurs, their activities may be considered to be conducting business for VAT purposes. In such a situation, the sale of landed property is subject to VAT at the rate of 23%, if the subject of the sale is construction land in accordance with the local zoning plan.

It is also worth noting the issue of tax on civil law transactions. According to the PCC Act, civil law transactions are subject to this tax only if they are not subject to VAT or are not exempt from this tax. Thus, if a given real estate transaction is subject to VAT, it is not subject to PCC at the same time. If the PCC tax has already been paid, and the transaction is later found to be subject to VAT, the buyer is entitled to claim a refund of the PCC paid.

The sale of land property by a natural person may give rise to VAT liability if the actions taken by the seller indicate an organized business activity. It is crucial to understand that not only formal registration as a businessman, but also the nature and scale of the activities undertaken can lead to an individual being considered a VAT taxpayer. Therefore, those planning to sell real estate should carefully analyze their activities and consult a tax advisor to avoid unforeseen tax liabilities.

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