Polish Supreme Administrative Court Clarifies VAT Election Requirements for Property Sales

Summary

Merely stating in a notarial deed that a property sale is subject to VAT does not necessarily constitute an effective waiver of the applicable VAT exemption.
Both parties must make a clear and consistent declaration electing to tax the transaction and satisfy the statutory conditions for opting out of the exemption.
An ineffective election may result in the sale remaining VAT-exempt and could jeopardize the purchaser’s deduction of VAT incorrectly charged by the seller.

Extended article

The Polish Supreme Administrative Court has reportedly ruled that merely indicating in a notarial deed that a property sale is subject to VAT does not automatically amount to an effective waiver of the VAT exemption.

Certain supplies of buildings, structures or parts thereof may qualify for a VAT exemption under the Polish VAT Act. Subject to the applicable conditions, the parties may jointly elect to tax the transaction instead. The election must satisfy the formal and substantive requirements prescribed by the legislation.

A joint election may generally be included in the notarial deed documenting the property transaction. However, the notarial deed must contain more than a statement that VAT applies or a calculation of the sale price including VAT. It must demonstrate that both parties have made a consistent and consensual declaration choosing taxation of the transaction.

The distinction is important because the VAT treatment cannot be determined solely by the seller charging VAT or by the parties describing the consideration as a VAT-inclusive amount. The document should clearly establish that both parties:

are eligible to opt for taxation;
agree to waive the applicable VAT exemption;
choose to subject the identified property transaction to VAT; and
make the election at the time and in the form required by the VAT Act.

The timing of the election is also relevant. Previous Polish case law has emphasized that the statutory requirements must be satisfied before the relevant supply or advance payment. A general intention to tax the transaction does not replace compliance with the formal conditions. [txb.pl]

If the election is ineffective, the transaction may remain VAT-exempt despite the wording used in the contract. This can create a significant risk for the purchaser because VAT charged without a proper legal basis may not be deductible. The parties may also have to correct the invoice, purchase price settlement and the associated VAT reporting.

Property transaction documents should therefore contain an explicit joint declaration rather than relying only on wording stating that the transaction “is subject to VAT.” The parties should also confirm their VAT status, the precise property covered by the election and whether the declaration is made before any advance payment or completion of the supply.

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