A contract of lease is a type of contract that appears very frequently in legal transactions. Moreover, its structure is similar in different legal systems. Basically it comes down to that one person gives the other a thing for use in return to a consideration, that is to a so-called rent. However – as it usually happens in law – the devil’s in the detail. And there are a few of such details regarding lease of premises in Poland that we would like to point out to below. Benefits resulting from an occasional lease contract
One of characteristic features of residential premises lease contract in Poland is an extended protection of “tenants” ‘ rights, that is both of lessees of premises and of persons that use premises on the basis of any other legal title than that of the ownership right. Obstructions that Polish act on the protection of tenants’ rights imposes on the owners of premises consist mainly in that they limit a possibility of a unilateral termination of a contract of lease by the owner. By and large, he can only do it in situations that are indicated in the act (for example when the tenant uses the premises in a manner contrary to the contract or at variance with its purpose or when he is in a significant qualified delay in payment of his rent). Moreover, the owner cannot set the amount of the rent which is to be due to him at his free will; he can put it up not more often that every six months (save for payments which are not dependent on the owner) and within limits set by the act. Add a ban of a so-called sidewalk eviction to that and you’ll see that a position of the owner as a party to a lease contract is not quite an interesting one, while unreliable tenants enjoy the protection of law even if they destroy the premises and persistently evade paying their rent.
What proved to be the light at the end of the tunnel for the home owners that appeared at the end of January is a so-called contract of the occasional lease in whose case the protection of tenants’ rights is practically almost totally excluded (more on the matter is to be found here). This is for the fact that the parties to such a contract are not bound by provisions that limit the owner’s entitlement to terminate the contract of lease unilaterally, nor by those that burden him with prolonged periods of notice, limitations on a possibility of raising the rent or with a ban of the sidewalk eviction.
There’s nothing to be had for nothing, though… Making use of the above-mentioned preferences depends on a fulfillment of certain requirements and upon completion of additional documents, including attaching to a contract a declaration of a lessee (made in a notarial deed form) on a submission to carrying out a duty to vacate the premises. Finally, the most important thing – a condition that allows to consider a given lease an occasional one is a notification that the contract has been concluded, to be made to a head of a tax office within 14 days from the day of the beginning of lease.
And it is not until here where you can see what really was the goal of the legislation change introduced this year. It was to curb a so-called grey zone, that is leases without contract, not subject to taxation. Increasing a protection of owners at the expense of the tenants’ rights is designed to encourage the former to regularize contracts of lease and to satisfy tax obligations. And by no means do those obligations apply only to Polish citizens.
Revenue from lease or a few words about taxes
Agreements on elimination of double taxation stipulated between Poland and a country where an investor has his place of residence will decide whether foreign investors who bought apartments in Poland, and who allot them for lease are obliged to tax their revenue arising on that account. However, usually the provisions of those agreements provide that the income obtained by investors from the immovable property located in Poland (and therefore also from the premises which are separate properties) may be taxed in Poland. At the same time, the lease revenue is counted amongst revenue of such a kind.
When it comes to income tax, a taxpayer in Poland can in principle choose from among two options (at this point I’m leaving aside a 19% flat rate tax from which individuals who carry out an economic activity may benefit from). A basic approach is to apply tax according to the so-called tax scale. The tax in such a case amounts to 18% of income if in a given tax year the income does not exceed 85,528.00 PLN. If the income is higher, the surplus is taxed at 32% rate.
What seems to be a pretty good alternative is the choice of flat-rate income tax, whose rate in case of revenue obtained from lease currently amounts to 8.5%.
A preferential rate of a flat-rate tax – apart from a contract of occasional lease – provides for an additional incentive for owners of premises to leave the grey area and have the lease revenue taxed (both changes were indeed introduced by the very same amending act). Previously, a flat-rate tax had not been that favourable to lessors because the rate of 8.5% was applied only to revenue up to the amount being an equivalent to EUR 4,000 (that is 13 510 PLN in 2009). Polish Taxman demanded a tax calculated according to a 20% rate on a surplus. It was enough then that the monthly rent was higher than 1125 PLN, and a lessor would begin to pay taxes at a higher rate. Therefore, there’s no denying that an introduction of one lower rate of a flat-rate tax was another important change for the better from owners’ point of view, brought by the 2010.
Of course, a choice of tax forms must be carefully thought through. Where an owner of premises has high allowable expenses to deduct, a flat-rate taxation may turn out to be less favourable than the scale taxation. If he chooses a flat-rate taxation, he will not be able to deduct such costs.
Apartment for employee
Finally, a few words about the tax obligations connected with leasing residential premises by employers for their employees (e.g., for those posted to work in Poland). On such an occasion does Polish Taxman demand a tax to be paid as well, classifying benefits of such a kind incurred by businesses as employment revenue. It is important to an employer in so far as he is obliged, as a payer of premiums, to calculate a tax due from that revenue correctly and to collect an appropriate advance on its account.
To do it correctly, he should remember of a tax exemption that may apply in the case. We’re talking here about an exemption from taxation of a value of benefits incurred by the company on account of employees’ accommodation in staff hotels and – up to an amount not exceeding PLN 500,00 per month per employee – in private lodgings leased for the purpose of collective housing.
One can benefit from the exemption if an employee lives outside the place where he works and if he does not enjoy the increased allowable expenses on that account. However, the value of a benefit exceeding PLN 500,00 is subject to taxation as an employment revenue of an employee.
Of course, the matters discussed above are a mere drop in the ocean of legal solutions, which you should pay attention to when signing a lease agreement of a property located in Poland. It is worth to think about it in advance not only to calculate gains in real terms, but also to avoid misunderstandings and problems with potential tenants.
