Legislative amendments will bring significant changes for commercial property owners and managers due to the introduction of new definitions of buildings and structures. Cushman & Wakefield experts recommend starting audits promptly to fully understand which tax changes will apply to each property. This will allow for adequate cost budgeting as the new regulations are likely to raise tax rates for many businesses – some may see annual costs increase by several hundred thousand zlotys.
Why are the changes happening?
An amendment to the Real Estate Tax Act has been mandated by the Constitutional Tribunal’s ruling and is expected to be passed by the end of November 2024, taking effect on 1 January 2025. The Ministry of Finance has announced that the proposed version 3.0 is the final draft, which will be submitted to the Polish Sejm in October this year. This suggests that the proposed regulations will indeed come into effect at the beginning of 2025.
“The planned changes will present a significant challenge for the Polish commercial property market, which comprises over 60 million sqm in office, warehouse and retail buildings. Each property will require a detailed audit of its installations and facilities and the results of such audits will need to be taken into account in future budgets. The amendments to property tax regulations will also impact tenants who will need additional information to navigate these changes. The entire market now faces a considerable workload, with unfortunately little time remaining to adjust budget strategies,” comments Zuzanna Paciorkiewicz, Head of Asset Services CEE, Cushman & Wakefield.
The new definitions of a building and a structure
The planned new act will redefine the term “building”. Under the new definition, a facility will no longer be considered a building if its primary technical parameter determining its use is its capacity and if it is used or intended for the storage of bulk, fragmented, liquid or gaseous materials.
“As a result of the redefinition of what constitutes a building, many warehouse facilities previously classified as buildings will be categorised as structures. This change is likely to result in a substantial increase in taxation, as taxes will be paid on the value of a facility rather than its usable area,” says Wojciech Pławiak, Attorney at Law, Tax Adviser, Litigato.
However, a key change in the new draft is the redefinition of structures and building facilities, with five distinct categories of facilities classified as structures.
Schedule 4 to the new act, which contains a list of structures, has undergone significant changes in successive versions of the bill. The definitions of some items were broadened and new items were added, including supporting constructions, standalone industrial installations permanently affixed to the ground, weighbridges, as well as kiosks and pavilions. In some cases, only the structural components of these constructions will be subject to taxation.
“Classifying containerised and prefabricated facilities will pose a significant challenge. One thing is certain: they will be subject to taxation; the only question is how they will be taxed. The broad definition of the affixation to the ground included in the bill suggests that if a facility has foundations, even those resting on concrete blocks, it meets the definition of a building. While a facility may be included in the list of structures, its classification may present difficulties and lead to challenges in determining the right tax category,” says Wojciech Pławiak.
Technical installations and facilities: What is changing?
Taxation of building installations and facilities is expected to be an important issue for the commercial property sector. Under the new regulations, installations essential to the operation of a building will not be subject to separate taxation. However, all other technical facilities, such as distribution boards, transformers and air-conditioning systems, which previously were exempt from taxation may now be considered taxable.
“It should be emphasised that technical facilities will now be taxed either fully or based on structural components. A key consideration will be reassessing how a technical facility was taxed under the previous legal framework and determining how this taxation needs to change or continue as a result of the new regulations in light of the current definition of a building facility. The new regulations are likely to significantly expand the definition of technical facilities, including those within buildings that were previously exempt from property tax,” notes Wojciech Pławiak.
New challenges for property owners: warehouses, car parks and advertising systems
The upcoming changes will also impact owners of large warehouse facilities. High-bay storage warehouses are likely to be classified as structures and their taxation will depend on their capacity and primary use. Car parks that have been considered part of buildings or exempt from taxation altogether may be classified under the new law as structures if they are located outside buildings. The same will apply to supporting constructions such as canopies, walls or advertising systems which are often placed in front of retail properties.
Is an audit the only option?
Copying this year’s tax return in 2025 is not an option, as differences are likely to be significant and most commercial property owners should brace themselves for higher costs.
“We are now in the budgeting phase, where taxation is an exceptionally hot and challenging topic. Property audits are, therefore, essential for determining accurate tax amounts. For instance, an audit of one property has revealed areas in a property tax return requiring corrections which we are now processing. The tax difference in this specific case may exceed PLN 200,000. The good news is that an audit may also uncover inflated tax payments and tax corrections may be filed retroactively for up to five years, potentially leading to cost optimisation,” explains Paulina Bauer, Head of Retail Asset Services, Cushman & Wakefield.
Taking into account the need for in-depth property analyses and audits, the Ministry of Finance has, in the new draft legislation, allowed property tax returns to be exceptionally filed until the end of March 2025 rather than the end of January 2025.
“However, it is inadvisable to wait until the last minute, as audit costs are likely to begin to rise due to heightened demand. In addition, property owners and managers should inform tenants about the service charge amounts for 2025 before the end of this year or at the beginning of next year. Property tax changes will also result in higher costs for commercial tenants who should have enough time to prepare for these increases,” concludes Paulina Bauer.
