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An amended definition of the first occupation in the VAT Act making it easier to obtain an exemption when selling a real estate


On 4 July 2019, the Sejm (the lower house of the Polish parliament) adopted an act amending the act on tax on goods and services and some other acts (VAT Act, Journal of Laws, item 1520). The introduced regulations encompass, among other things, simplified conditions for VAT exemption concerning the supply of real estate.

The amendment, aiming at allaying interpretation doubts concerning the first occupation, came into force on September 1, 2019.


In the light of current regulations, the first occupation is defined as “handing over for use to the first acquirer or user in the course of taxable activities, concerning buildings, structures or other parts after their construction or improvement, if the expenses incurred on such improvement within the meaning of income tax regulations, exceeded 30 per cent of the initial value”.


Clarification of the term ‘first occupation’ may be of paramount importance in the case of entities which after erecting (improving) a building used it for some time for their own needs and then decided to sell it. So far, the topic has given rise to many questions, as commissioning had to take place “in the performance of taxable activities”. Reporting the building in the fixed assets register was problematic, due to the fact that  it was not obvious whether the building was occupied and entitled the company to exempt its sale from value-added tax. After a long period of discrepancy between the Polish law and VAT Directive, the legislator has decided to close the misunderstanding and adjust domestic regulations to the case law of the EU Court of Justice and administrative courts.


The most prominent example of such a discrepancy was a high-profile case between Kozuba Premium Selection Sp. z o.o. and Director of Tax Chamber in Warsaw (C-308/16), which concerned VAT on the sale of a building that had previously been used by its owner for its own needs. In the course of the proceedings, the tax authorities questioned the method of settlement adopted by the company. On 16 November 2017 the CJEU in its judgment confirmed that the Polish VAT Act, in so far as it defined the concept of the first occupation, was inconsistent with the EU directive. It was a turning point, although it was a mere introduction to the planned legislative changes. From then on, the recognition of the first occupation of a site has only required that it should begin to be used (not necessarily by a third party). In the light of the ruling, Kozuba Premium Selection sp. z o.o., after erecting a building and starting its use, was allowed to make its delivery after two years using the exemption pursuant to Art. 43.1.10 of the VAT Act.


Given the above changes, one can hope that as a result of the tie being cut between the concept of first occupation and the requirement of performance of taxable activities, the situation of taxpayers in the disputed issues will be simpler. However, it should be mentioned that the VAT exemption for the supply of buildings and structures need not always be the most advantageous solution for the parties to a transaction. For a purchaser entitled to deduct input-tax it may be more profitable to waive the exemption. That is why it is so important to consider the specific benefits to the taxpayer of the tax settlements in question. 


Natalia Szymocha, Tax Consultant, ATA Tax Sp. z o.o.

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