Under amendments to the Personal Income Tax Act and the Corporate Income Tax Act, there is a definition of “real estate company” from the beginning of this year. What are the benefits of defining the company’s name? What conditions must be met to receive this designation?
According to the aforementioned regulations, a real estate company means an entity other than a natural person, obliged to prepare a balance sheet based on accounting regulations. It must meet additional conditions.
1. 50% of market value for start-up entities
As of the first day of the tax year (and if the real estate company is not a taxpayer of income tax – as of the first day of the financial year) at least 50% of the market value of the assets – directly or indirectly – must be the market value of the real estate located in the territory of the Republic of Poland. An alternative is the value of the rights to such real estate (the first premise).
The market value of such real estate should exceed PLN 10 million or the equivalent of this amount (determined according to the average exchange rate of foreign currencies published by the National Bank of Poland) on the last business day preceding the first day of the tax year (second condition).
2. 50% of balance sheet value in case of already existing entities
Must be 50% of the balance sheet value of the assets on the last day of the year preceding the tax year. In turn, when the real estate company is not a taxpayer of income tax – falls on the last day of the year preceding the tax year. The mentioned balance sheet value concerns directly or indirectly the real estates located in the territory of the Republic of Poland – or the rights to such real estates (the first premise).
Another option is to exceed the amount of PLN 10 million of the carrying amount or its equivalent (the second prerequisite). The amount, as above, is determined on the last day. If a real estate company is not a taxpayer of income tax – revenues recognized in the net financial result – from lease, sublease, tenancy, subtenancy, leasing, and other contracts of similar nature or transfer of ownership, the subject of which is real estate or rights to real estate and from shares in other real estate companies are calculated. These revenues should constitute at least 60% of total tax revenues or revenues recognized in the net financial result, respectively (the third condition). Then the company will be called a real estate company.
Portfolio depth is the most important determinant
The above determinants show that the legislator, introducing the term “real estate company”, made the status of such an entity dependent on the value of the real estate it owns and on the structure of its assets.
To calculate both values there are two ways to determine them depending on whether the entity starts its activity in a given fiscal (financial) year or is an already existing entity.
The first option applies when an entity is just starting up. To examine whether the condition of appropriate value of property and assets is met, their market value on the first day of the tax (financial) year should be determined.
The second version refers to the case of entities existing longer than a year. Then it is necessary to refer to the balance sheet value of the property and assets as of the last working day before the end of the previous tax (financial) year.
As a consequence of the introduction of the above-described regulations, real estate companies may be not only companies as defined in the Commercial Companies Code but also, among others, investment funds, trusts (as forms of capital concentration), or foundations.
A limited liability company (we assume that it is a real estate development company) has been formed to carry out a real estate development project. It owns land worth 13 million PLN, on which it intends to build a construction investment (a multi-apartment building). The company will carry out the investment in the years 2021-2024. In the following year, i.e. in 2025, it will sell all the residential units and then be liquidated. Will it be considered a real estate company?
No, because it does not meet one of the conditions – they need to generate a certain category of income. In 2021-2024, the company did not generate revenue. It did not earn revenue until 2025. According to the definition of a real estate company existing for more than one year, you should analyze the data at the end of 2024. (the last day of the year preceding the tax year), so in this example, the day before 2025. In 2024, the partnership had not yet recorded revenue, and in 2025 – was ultimately liquidated. Therefore, the company in question will not be a real estate company within the meaning of the CIT and PIT Act.