Renting a residential property qualifies as economic activity under the VAT provisions, regardless of whether a lessor (landlord) is a private person or an entrepreneur. However, it does not mean that the rental is taxed with VAT in every case.
Rental activity for VAT purposes can be classified as:
exempt - when a flat is rented exclusively for housing purposes of a tenant;
taxed at the 8% rate - when rental has the characteristics of accommodation services;
taxed at the 23% rate - when it is the rental for business purposes of a lessee (e.g. office, sublease);
exempt - due to an annual income not exceeding 200,000 PLN.
Rental for residential purposes
When an apartment is rented out for a longer period of time (months, years) to a private person who resides there, there are grounds for applying the VAT exemption.
For such rental to be exempt from taxation, three conditions must be met simultaneously:
a property has a residential character (an apartment / a house);
a lessor acts on their own account;
the rental is exclusively for residential / housing purposes.
As regards the last condition, to benefit from the VAT exemption a tenant should use the leased premises for fulfilling their own housing needs. The exemption can only apply when it is the tenant themselves, and not a third party, who uses the apartment for their residential purposes.
Therefore, the exemption cannot be applied when a lessor rents out a residential property not to individuals intending to reside there, but to a business entity that intends to sublease such residential property to third parties for their residential needs. Consequently, rental to intermediaries or business entities intending to sublease the property is taxed at the standard VAT rate of 23%. The above is confirmed by the general interpretation issued by the Ministry of Finance in October 18, 2021, ref. no. PT1.8101.1.2021.
If a taxpayer rents a residential property for short periods of time (days, weeks, seasonally) - mainly to tourists and seasonal workers - such rental activity cannot benefit from the above VAT exemption. In such a case, the reduced VAT rate of 8% applicable to accommodation services can be considered.
Accommodation services differ from regular rental with regard to the scope of services provided by a landlord. In simplified terms, they are essentially similar to hotel services. Accommodation services usually include providing a tenant with a fully equipped living space, along with kitchen equipment, fresh towels and cleaning services. Additionally, utility costs are included in the accommodation service price (are not charged separately based on actual consumption).
We typically encounter such kind of services when apartments are rented for short periods of time via platforms like Airbnb or Booking.
In practice we can also meet a business model in which the rental is entrusted to the professional business entity providing short-term accommodation services for tourists or seasonal workers. In this case, the rental to such entity cannot be treated as accommodation services and regular 23% VAT should be applied.
Exemption below PLN 200 000
In case of rental subject to 8% or 23% VAT taxation, a lessor may be entitled to benefit from the VAT exemption referring to the annual turnover threshold. Transactions made by a taxpayer whose total value of sales did not exceed PLN 200 000 in the previous year and will not exceed this threshold in the year concerned, are generally exempt from VAT (with some exceptions).
What’s important a lessor may waive the above right to VAT exemption if he plans to deduct VAT from the rental-related purchases (one cannot deduct input VAT from the purchases related to the VAT-exempt transactions).
Furthermore, it is important to note that the above VAT exemption cannot be applied to taxpayers that do not have a registered office of their business in Poland. As a result, a private person who is a foreign tax resident cannot benefit from the exemption in question.
VAT on utilities
VAT taxation of the utilities (electricity, heating, etc.) depends on how a lessor passes on the utility costs to a tenant.
Providing / reselling the utilities should be considered as a separate service taxed with the VAT rate applicable to those utilities (regardless of the VAT rate on rental) if:
a tenant pays the utility fees separately from the rent - the rental contract provides for such division and the utility costs are indicated as a separate item on the invoice;
the utility costs are calculated based on actual individual consumption (meter readings);
a tenant can choose the utility provider on his own.
If the costs of utilities are not separately charged but already included in the rent, then the supply of utilities should be taxed at the VAT rate applicable to the rental services (which, for example, in case of renting a residential property for housing purposes only, would be VAT exempt).