MF: How to account for VAT on lease and tenancy

In one of the most recent general interpretations of tax law, the Ministry of Finance decided to address the issue of VAT settlement in the case of lease. This concerns situations, which frequently occur in practice, where an intermediary entity appears between the entity leasing the real estate (e.g. the owner or the entity having the right to dispose of the real estate on the basis of a title other than ownership) and the final beneficiary of the service – an individual living in the real estate. As an example of such a scheme the MF indicated a situation where the owner rents/leases the real estate to an entity conducting economic activity, which in turn rents/leases the real estate to other entities (for housing or other purposes). In such a scenario, doubts arise as to the nature of the letting/leasing performed by the owner of the real property to the entity conducting business activity – in the context of the condition for exemption under Article 43(1)(36) of the VAT Act, i.e. exclusively for residential purposes of such provision or performance of such activities for the benefit of social rental agencies.

– According to the general interpretation issued by the Minister of Finance, a service of lease or tenancy of real property (or a part thereof) of a residential nature (e.g. residential premises), provided by a VAT payer to a business entity (other than a social lease agency) which uses the leased real property for the purposes of its business activity, e.g. subleases the real property to other entities for residential purposes, is taxed at the standard (23%) VAT rate. The aforementioned tax exemption shall not apply here – discusses the MF’s document Andrzej Kapczuk, tax adviser, partner in Thedy & Partners.