The mere ownership of real estate by an entrepreneur does not determine the real estate tax rate. This is the outcome of important judgments issued in 2021 – first, by the Constitutional Tribunal (TK) in February (ref. no SK 39/19) and then by the Supreme Administrative Court (NSA) in March (ref. no III FSK 895/21 – III FSK 899/21).
One of the most important factors determining the applicable rate of the real estate tax (RET) is how the real estate is actually used. If the real estate is used for business purposes, RET rate may significantly differ from a RET rate payable by owners of real estate not used for business.
In the case analysed by TK, an entrepreneur (individual, running sole practice) owned real estate which was not used by him for business purposes. Despite this, the municipal authorities set the tax at a higher rate, which, despite the taxpayer’s appeals, was subsequently upheld by the state authorities and Administrative Court.
TK ruled that it is unconstitutional to qualify every real estate owned by an entrepreneur as being used for business despite the fact of how it is actually used.
On 4 March 2021 NSA issued a judgment similar to the referred TK judgment. Following TK’s interpretation, NSA ruled that actual use of real estate (for business or non-business) should determine the appropriate RET rate. This judgment is significant as it was issued in the factual situation concerning a legal person (TK decided the case in which the entrepreneur was a natural person). It resolved doubts which arose after the February TK’s judgment in the context of whether the taxpayer-friendly approach presented by TK might be also applied to legal persons.
Given the above, RET rate should be based on how real estate is actually used – for business or not. Real estate rich companies should review their portfolios and determine whether they have any real estate not used for business. This applies to real estate which is not used for business by taxpayers’ decision or it objectively cannot be used for business e.g. due to zoning plan restrictions. The quoted judgments provided taxpayers with an opportunity to review their real estate portfolios and possibly apply lower RET rates.
Head of Tax, Board Member
Tax Manager – Attorney-at-law
Junior Tax Consultant