Sale of commercial real properties and VAT

The Ministry of Finances published tax explanations concerning application of VAT to disposal of commercial real properties.

The purpose of explanations was to specify the criteria allowing determination which transactions of commercial real properties are subject to VAT and which constitute disposals of the enterprise or its organised part (not subject to VAT).

In the opinion of the Minister of Finances, in the case of leased property the transaction should be considered a disposal of the enterprise or its organised part if all of the following criteria are met at the date of the transaction:

• the set of elements transferred to the purchaser allows continuing the commercial activities in the same form,
• the purchaser, in its activities, intends to continue the business conducted in the current scope by the seller.

In the opinion of the Ministry of Finances, in order to determine whether the transferred set of elements allows continuation of activities, is should be determined whether apart from transferring the standard elements typical for property transactions subject to VAT, the purchaser receives all of the following elements:

• rights and obligations under agreements which constituted the basis for providing the disposer with debt financing for performance, purchase, modernisation, adaptation or reconstruction of the transferred property, if the disposer used such financing and is a party to such agreements,
• agreement on real property management,
• assets management agreement,
• financial receivables connected with the transferred property.

The Ministry notes that while assessing whether a set of property elements contains the elements allowing continuation of business, it is not always required to transfer all of the above elements. In the opinion of the Ministry, it is necessary to have a minimum of resources allowing continuation of business in that enterprise.

While assessing whether the commercial property purchaser is going to continue the business previously conducted by the disposer, in the opinion of the authors of the explanations, all circumstances connected with the transaction should be taken into account at the moment of the transaction conclusion, in particular the purchaser taking actions confirming its intentions to continue the business previously conducted by the seller.

If you are interested in discussing what is the impact of the published explanations on your tax situation, you are welcome to contact us.