Private apartment rental by a VAT payer

Pursuant to the Act on Value Added Tax, the rental of real estate (flat, workshop, office) should generally be perceived as an economic activity, and thus - subject to VAT. The lease, however, will not always be subject to such taxation. The legislator provided for exceptions when this service is exempt from VAT.

When is the lease without VAT?

Not every private apartment rental will be subject to VAT. Art. 43 sec. 1 point 36 of the VAT Act clearly states that services in the field of renting or leasing real estate of a residential nature or part of real estate, for own account, exclusively for housing purposes, are exempt from tax.

Therefore, if a VAT payer rents a private apartment solely for residential purposes (which should be precisely specified in the rental agreement), he will be exempt from VAT.

Example 1.

The VAT taxpayer rents out a flat for housing purposes as part of a private rental. On January 1, 2014, the tenant registered a business in this apartment, consisting in the provision of repair services for household appliances. The tenant has not allocated any room in the apartment as a place to carry out his activities. Each room will continue to be for residential purposes only.

Question: How to tax a flat rent? How to properly construct a lease agreement (mark what part of the apartment is for housing purposes, and what part is for business purposes)?

The taxpayer should specify exactly what part of the apartment is used for business purposes in the lease agreement or annex to the contract. In the above-mentioned In the example, the main purpose of a tenancy is the housing purpose. Although the tenant has registered business activity in this apartment, he still uses it only for residential purposes. It could therefore be assumed that the taxpayer would not have to tax the lease with VAT. However, it should be remembered that the legislator in the provision exempting from VAT included the term “solely for housing purposes”. There is therefore a risk that the tax office will challenge the right to VAT exemption.

The best solution in this situation is to specify in the lease contract or annex which part of the apartment is used for housing purposes (and the VAT exemption applies to it), and which is used for business purposes (and taxed at the VAT rate of 23%).

When is the lease with VAT?

It seems that the most important issue to determine the right to VAT exemption is the purpose of the apartment only for housing purposes. However, this goal cannot always be clearly defined.

Example 2.

A natural person has rented an apartment to A s.c. company, which is a VAT taxpayer. The company has rented a flat to company B on the basis of a separate agreement. Company B uses the flat only for residential purposes.

Question: In this case, does the taxpayer rent an apartment for residential purposes and is entitled to VAT exemption?

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It is difficult to say whether the criterion for applying the exemption is whether the tenant is a private person or a legal entity. The residential function will be fulfilled only at the next stage of trading.

The Director of the Tax Chamber in Katowice, in an individual ruling of 18 July 2012 (reference number IBPP2 / 443-302 / 12 / BW), stated that a taxpayer renting a flat to business entities should tax this service at a VAT rate of 23% regardless of the purpose . In addition, the Director of the Chamber emphasized that in a situation where the landlord is a company using the apartment as part of its business activity, the goal will always be financial (economic).

On the other hand, the Director of the Tax Chamber in Warsaw of January 3, 2013 in an individual interpretation (reference number IPPP2 / 443-1008 / 12-4 / KG) indicated that in order to take advantage of the exemption for the rental service, the tenant must fulfill the housing purpose and not the purpose of his business. In the case he was considering, the taxpayer owned a building unrelated to his activity. He rented the building privately and adapted it for collective accommodation (boarding house). The taxpayer signed a rental agreement with a social therapy center.

The tax authority justified in the interpretation that the housing purpose in this case is not implemented, because the taxpayer will rent the building to a sociotherapy center, which will operate in the form of a 24-hour facility intended for young people.

Although the building will be used for residential purposes, in this case it does not decide on VAT exemption pursuant to Art. 43 sec. 1 point 36 of the VAT Act. The decisive factor here is the purpose of the lease, i.e. running a business in the rented building.

The main issue determining the exemption or taxation of rental with VAT is the purpose pursued by the person directly involved in the provision of services. Thus, a taxpayer who rents out a residential property for business purposes on his own account cannot benefit from the VAT exemption, and thus apply the 23% rate.

The rental of private premises must be in the VAT register

The taxpayer who accounts for VAT should report the rental of real estate for residential purposes to the tax office. Despite the fact that this activity is exempt from VAT, there is an obligation to include it in the tax records and VAT returns. This position was taken by the Director of the Tax Chamber in Łódź in the individual ruling of January 8, 2014 (IPTPP4 / 443-777 / 13-2 / UNR).

The tax authority had to resolve the problem of an active and registered VAT taxpayer who rents a private flat received in inheritance to natural persons for housing purposes. In addition, as part of its business activities, it rents two premises to business entities. These premises are located in a building that constitutes a fixed asset and is subject to depreciation. The taxpayer issues VAT invoices for these revenues. Renting a private apartment is subject to a flat-rate 8.5% income tax and is not related to the conducted business activity.

The taxpayer recognized that the income from renting a private apartment is a completely separate income, exempt from VAT and there is no need to indicate it in the VAT register (VAT declaration).

The director of the Tax Chamber stated that such a position was inappropriate, as the continuous use of private assets generating income should be considered an economic activity. Thus, include the income in the tax records and VAT returns.