Handing over the plot to the partners - VAT taxation

Running a business in the form of companies is extremely popular in Poland. Companies accumulate large assets during their activities. In practice, these are very often real estate. The assets are transferred to the partners. Check what the transfer of the plot to the partners on the basis of VAT looks like.

Free transfer - VAT

Pursuant to Art. 5 sec. 1 point 1 of the act on tax on goods and services - hereinafter referred to as the VAT act - taxable goods and services tax is subject to the paid delivery of goods and the paid provision of services within the territory of the country. Goods are understood as things and their parts, as well as all forms of energy. Thus, the plot is a commodity within the meaning of the VAT Act. Recall that the delivery of the goods referred to in the above regulation is understood as the transfer of the right to dispose of the goods as the owner. In addition, the supply of goods also includes the delivery by the taxpayer of goods belonging to his enterprise free of charge, in particular:

• the transfer or consumption of goods for personal purposes of the taxpayer or its employees, including former employees, partners, shareholders, shareholders, members of cooperatives and their household members, members of governing bodies of legal persons, members of the association;

• any other donation, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the acquisition, import or production of these goods or their component parts.

Thus, the transfer of the plot of land may result in the necessity of VAT taxation.

Handing over the plot to the partners - VAT taxation

We will use examples to illustrate the problem.

Example 1.

The general partnership purchased a construction plot in 2018. It was subject to VAT. The company deducted VAT from the purchase. A car repair shop with a car wash was to be built on the plot. Despite the plans, due to the bad financial situation, the company abandoned the construction works. In 2020, the partners decided to transfer the plot to one of the partners. Should a plot of land be handed over, it should be subject to VAT?

The taxpayer was entitled to deduct the input tax on the purchase of an undeveloped plot of land, its planned free transfer to a partner will fulfill the conditions resulting from the VAT Act, recognizing the above-mentioned activity for the paid delivery of goods. Therefore, this activity - in the light of the aforementioned act - will be subject to taxation.

Thus, the company must tax the transfer of the plot.

Example 2.

The partners contributed additional payments to the limited liability company. for the purchase of a plot of land for economic purposes. The company purchased the real estate, but did not achieve its investment objectives on it due to the change in the spatial development plan of this area by the commune. Importantly, the taxpayer has settled the VAT. Currently, the company has decided to refund the subsidies. As she did not have enough cash, one of the partners will receive the previously purchased construction plot. Should the transfer of the plot be taxed in this case?

In this case, the company has to make VAT taxation of the transfer of the plot. It does not matter here that the surcharge is refunded as a result of the transfer.

VAT exemption - transfer of the plot to the shareholders

Pursuant to Art. 43 sec. 1 point 9 of the VAT Act, the supply of undeveloped land other than construction land is exempt from tax.

The above means that the exemption applies to a delivery the subject of which is undeveloped land and at the same time intended for other than construction purposes. Therefore, the tax exemption will benefit from the supply of agricultural, forest, etc.

Based on Article. 2 point 33 of the VAT Act, building land is understood as land intended for development in accordance with the local spatial development plan, and in the absence of such a plan - in accordance with the decision on building conditions and land development, referred to in the provisions on planning and spatial development.

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Zoning

The purpose of a specific land should be assessed only on the basis of the existing spatial development plan and issued decisions on land development conditions.

Pursuant to Art. 3 sec. 1 of the Act of 27 March 2003 on spatial planning and development, shaping and conducting spatial policy in the commune, including the adoption of a study of the conditions and directions of spatial development of the commune and local spatial development plans, with the exception of internal sea waters, territorial sea and the exclusive zone economic and closed areas, belongs to the tasks of the commune.

According to Art. 4 sec. 1 of the Spatial Planning and Development Act, the determination of the intended use of the land, the placement of public-purpose investments and the determination of land development methods and conditions are provided in the local spatial development plan.

In the absence of a local spatial development plan - pursuant to Art. 4 sec. 2 of the Spatial Planning and Development Act - the methods of land development and land development conditions are specified by means of a decision on land development and land development conditions, whereby:

1. the location of a public purpose investment is determined by way of a decision on the location of a public purpose investment;

2. the method of land development and development conditions for other investments are determined by means of a decision on development conditions.

Acts of local law determine the purpose of the real estate. Local spatial development plan as a source of local law, and in its absence, a decision on development conditions as an individual act of administrative law.

Example 3.

The company purchased two hectares of land. It was an agricultural land. The purchase was exempt from VAT. The company tried to convert the land and build production halls on it. The efforts, however, did not bring any results. Therefore, the company decided to transfer the plots to the partner. Should the transfer of the plot be taxed in this case as well?

In this case, it should be recognized that the company, when transferring the land, does not have to tax it. The taxpayer was not entitled to deduct input tax. Importantly, the taxpayer transferred agricultural land, thus not subject to taxation.

In summary, the taxpayer must always check that when transferring a plot of land, he has to tax it. As a rule, it is very important to establish whether construction land has been transferred. In this case, the land should be taxed. In a situation where we transfer undeveloped land that is not a building plot, we do not have to tax it.