A breakthrough judgment in the VAT case for flippers and companies
In the case in which the verdict was passed, it was a company that bought land with a service and hotel building, which due to poor technical condition was unused. The company first led to a change in the spatial development plan, and then rebuilt the building into a housing block. The reconstruction consisted of a complete change in functionality. Only external walls and load -bearing walls remained after the old building. Most of the company demolished and some added. As a result, a block of flats was created with apartments worth more than 8 times larger than the purchased land with an old building.
The company recognized apartments as commercial goods (and not its fixed assets) and planned to sell. However, there was a dispute about whether the company was to add VAT to the sold apartments.
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The company believed that as a result of the work the building was improved (expenses exceeded 30 % of the initial value of the building). When the first buyer or user of residential premises will be put into use, therefore the so -called first settlement (Article 2 (14) of the VAT Act). This means that the company will sell the apartment as part of the first settlement. As a consequence The sale of premises with an area of less than 150 sq m will be taxed with 8 % VAT, and the company may deduct VAT from expenses for goods and services acquired for the purposes of the reconstruction of real estate.
The director of the National Treasury Information did not agree with the company. In the issued individual interpretation, he decided that Real estate, such as residential or service premises, which do not constitute a fixed asset for the taxpayer, cannot be improved. The improvement can only apply to fixed assets.
According to the authority, it is necessary to approach the taxation of the sale of apartments located within the borders of old hotel buildings and differently to taxation of sales of added apartments.
In the first case, sales will be exempt from VAT (pursuant to Article 43 (1) (10) of the VAT Act), because in this case it cannot be considered that the first colonity occurred.
In the second case, so we have new premises, which means that their sale and only them will take place as part of the first settlement. The sale of these added apartments will therefore be taxed VAT (at the rate of 8 %).
The company disagreed with the position of the authority regarding the application of the VAT exemption from the sale of apartments, which arose after the reconstruction of the old building. This would mean for her a lack of right to deduct VAT from incurred expenses for reconstruction.
What position on VAT on the sale of apartments did administrative courts take?
The Provincial Administrative Court in Gliwice in the judgment of December 7, 2021 (reference number I SA/Gl 1058/21) agreed with the company's position. He ruled that in the case of VAT improvement is the same as a reconstruction. It does not matter whether the subject of delivery (here real estate) was introduced into fixed assets or are a commercial commodity. In both cases, reconstruction may occur. The court pointed out that in both residential buildings (both rebuilt old and in the addition) there would be a separation of residential premises and establishing separate ownership. So completely new properties will be created. According to the Court, they should be treated as new properties, so their sale will not be released from VAT in connection with the previous first settlement of the building. Sales will be subject to VAT at a rate of 8 percent.
The Supreme Administrative Court agreed with the court of first instance. In the judgment of June 3, 2025 (file reference number I FSK 505/22) confirmed that the improvement of income tax laws corresponds to the concept of reconstruction in VAT. In addition, according to the Supreme Administrative Court, definition first settlement from the VAT Act does not contain any exceptions or reservations, and consequently according to the Supreme Administrative Court It refers to all buildings, buildings and their parts, regardless of whether they constitute commercial goods or fixed assets. For the above reasons, the Supreme Administrative Court agreed with the company and recognized the delivery transactions as taxable VAT.
Why is the VAT judgment on the sale of improved real estate favorable to the company?
– In my opinion, the NSA aptly assessed the company's transaction. From an economic perspective, the reconstruction results in the practical creation of a new property. Status of residential premises on accounting and income tax as fixed assets or commercial goods It does not matter for the fact that the rebuilt building again becomes the subject of consumption – comments Marek Urbaniak, lawyer, senior consultant in Gekko Taxens Tax consulting.
The expert also points out that the EU Court of Justice also in its judgment of 16 November 2017 in case C— 308/16 (Kozuba Premium Selection sp. Z oo) decided that:
– The concept of “improvement” referred to in the Polish VAT Act should be interpreted in the same way as the concept of “reconstruction” contained in the VAT Directive,
– Polish regulations, which provide that the sale of the building is exempt from VAT if the total amount of expenses does not exceed the limit of 30 percent. Initial values are in line with the VAT Directive if the improvement is understood as a reconstruction.
According to Marek Urbaniak The judgment of the Supreme Administrative Court is therefore beneficial to the company. Of course, it will add 8 percent to the price of sold premises. VAT, but will be able to deduct input tax from incurred (probably considerable) expenses.
What about tax if the reconstruction of the apartment exceeds 30 percent?
Marek Urbaniak points out that previously there were situations of flipper who spent over 30 percent. initial values of the property i They received individual interpretations confirming their position that the delivery of a renovated apartment is released from VAT (e.g. interpretation No. 0113-KDIPT1-3.4012.13.2023.1.AG of March 3, 2023). In their opinion, VAT exemption and the use of PCC for sale – in the amount of 2 percent. – was more favorable than adding 8 percent. VAT.
Let us add that in such a situation the buyer pays 2 percent. PCC from the purchased apartment.
However, as Marek Urbaniak adds, If the buyer buys his first apartment (he is not and has never been the owner of a residential property) – Then he is also exempt from tax on civil law transactions (pursuant to Article 9 point 17 of the Act on tax on civil law transactions).
Exemption from VAT is then beneficial for Flipper (especially when there is no VAT from purchases that he could deduct), and the exemption from PCC for the buyer's first apartment.
Judgment of the Supreme Administrative Court of June 3, 2025, reference number act I FSK 505/22
Author: Łukasz Zalewski, journalist of the Business Insider Polska Law Department
