Navigating Poland’s Real Estate Laws for Foreign Investors

Did you know that Poland’s real estate market has emerged as a hotspot for international investors? With its dynamic growth and strategic location in Europe, Poland offers a unique opportunity for foreign investment in real estate. But what makes this market so appealing, and what are the legal intricacies involved?

Poland’s real estate market is bustling, characterized by a diverse range of opportunities – from commercial spaces in thriving urban areas to quaint residential properties in the countryside. The country’s growing economy, stable political climate, and increasing demand for properties make it an attractive destination for investors worldwide. But, navigating the legal landscape requires a nuanced understanding of Poland’s specific regulations and procedures.

But there’s more to explore beyond just the allure of the market. The real estate investment journey in Poland is layered with legal complexities and procedural nuances. In this article, we’ll delve into the intricacies of Poland’s real estate laws, offering a comprehensive guide for foreign investors to make informed decisions. So, let’s embark on this insightful journey into the realm of Polish real estate investment.

EU Nationals vs Non-EU Nationals: Ownership Restrictions and Eligibility

EU Nationals

Citizens and companies from the European Economic Area (EEA) countries, which include EU member states as well as Norway, Liechtenstein, Iceland, and Switzerland, enjoy relatively unrestricted access to the Polish real estate market. They can freely acquire any type of real estate, including land, without the need for a special permit​​​​.

Non-EU Nationals

Non-EU individuals and companies face more significant restrictions when it comes to real estate ownership in Poland. They are generally subject to limitations on acquiring agricultural land, forests, and properties located in border areas.

This is a part of the regulations implemented by Poland to protect its real estate market and ensure that land ownership remains primarily in the hands of Polish nationals​​. However, non-EU citizens can buy a property without a permit in specific cases, such as purchasing an independent flat (consisting of rooms, kitchen, bathroom, and possibly a basement and an attic) to meet basic housing needs, or a garage or a share in a unit intended for a garage​​. For other types of real estate, non-EU residents must apply for a permit to purchase real estate or shares of companies that own real estate in Poland.

Additional Regulatory Considerations

There is a screening procedure under the Polish Act aimed at protecting public order, public security, and/or public health. This Act, particularly its amendment, has been introduced to protect Polish strategic companies against “hostile” takeovers by entities from non-EU/EEA/OECD countries. This indicates that Poland is cautious about foreign investments that might affect its strategic sectors or national security, particularly from non-EU and non-EEA countries​

Restrictions on Types of Properties

In Poland, real estate ownership and investment are subject to various laws and restrictions, particularly concerning the types of properties and the nationality of the investor. Here’s a comprehensive overview based on the latest information:

Ownership (Freehold): This is the broadest property right available. However, it’s limited by legal provisions, the socioeconomic purpose of the right, and the rules of social coexistence​​.

Perpetual Usufruct: This applies to land owned by the State Treasury or a local government unit, which can be placed in perpetual usufruct for 40 to 99 years, subject to an annual fee. Buildings and structures on such land belong to the perpetual usufructuary, not the landowner. The right of perpetual usufruct is similar to ownership but has more limitations, especially in its transferability​​.

As of January 1, 2019, the perpetual usufruct of land developed for residential purposes was transformed into ownership. Similar solutions are proposed for commercial real estate, though these are more complex​​.

Limited Property Rights: These include mortgage, usufruct, easements appurtenant, and cooperative ownership right to residential premises. Their scope is narrower than other property rights​​.

Legal Restrictions on Foreign Investors

Foreigners, including non-EU citizens and entities seated outside Poland or controlled by such entities, face certain limitations in acquiring real estate in Poland. This acquisition requires the consent of the Minister of Internal Affairs under the Acquisitions of Real Estate by Foreigners Act. However, this consent is not required for foreigners from the European Economic Area (EEA) and Switzerland, or for acquiring residential premises​​​​.

Conditions for Non-EU/EEA/Swiss Nationals

Non-EU citizens can buy property in Poland without a permit in certain cases:

1. Independent flats, consisting of rooms, kitchen, bathroom, and possibly a basement and attic.
2. Garages or shares in units intended for garages.
3. Houses and detached buildings, but only for foreigners with a permanent residence permit or a long-term EU residence permit, who have lived in Poland for at least five years.
4. Real estate belonging to community property, under specific conditions​​.

Recent Legal Amendments

As of August 31, 2023, an amendment to the Act on real estate management allows perpetual usufructuaries to acquire ownership of real properties. This process, however, has several conditions and exceptions. For example, it does not apply automatically to commercial land and has exclusions for properties such as undeveloped land or properties located in ports and marinas​​.

The cost of transforming perpetual usufruct into ownership depends on various factors, including the owner of the property (State Treasury or local government entity), the annual percentage fee for perpetual usufruct, and the property’s value determined by a valuation survey​​.

Legal Procedures and Documentation

Required Documents

To purchase property in Poland, you’ll need to prepare a comprehensive set of documents. Here are the key requirements:

1. Identification and Tax Numbers: A valid passport or other identity document, along with a Tax Identification Number (NIP) or EU VAT number is required.
2. Proof of Address: This is necessary to establish your residence in Poland.
3. Purchase Agreement: The property sale must be formalized in a notarial deed, as per the Civil Code of Poland. This notarial deed should include a detailed description of the real estate and its factual and legal status.
4. Title Deed or Certificate of Ownership: This document proves the legal ownership of the property being sold.
5. Notarized Power of Attorney: If applicable, for instance, if someone is acting on your behalf in the property transaction.
6. Bank Statement: To demonstrate financial capability.
7. Land Survey and Building Permit: These are required in specific cases, especially for new constructions or modifications to existing structures.
8. Energy Certificate: As of April 28, 2023, a new requirement mandates the provision of an energy certificate, indicating the energy requirements of the building or flat. This applies to all properties, except for certain exceptions like buildings under conservation protection or industrial/commercial buildings not equipped with energy-consuming installations.
9. Additional Requirements for Foreign Buyers: If you’re a foreign national, the process may involve additional steps, such as obtaining a special permit, especially if the property is in a restricted area or exceeds certain size limits.
10. Other Relevant Documents: Depending on the specific circumstances of the property and the transaction, other documents might be required. These could relate to the state of the property as recorded in the land and mortgage register or other specific declarations related to the sale.

Each real estate transaction is unique, and the required documentation can vary based on the actual and legal situation of the property, as well as its status in the land and mortgage register

Financial Considerations and Tax Implications

When purchasing property in Poland, there are several financial considerations and tax implications to be aware of:

Financial Considerations and Upfront Costs

1. Real Estate Agent’s Fee: In Poland, real estate agents typically charge a fee ranging from 1% to 3% plus VAT of the property’s agreed price​​.
2. Civil Transaction Tax: This tax applies when you buy a property in the secondary market and is set at 2% of the property’s value. It is not payable when buying in the primary market​​.
3. Notary Fee: The final contract must be signed in the presence of a notary. The fee depends on the transaction’s value, with a legal maximum set according to a specific schedule​.
4. Land Registry/Transfer Fee: Costs include a PLN 60 fee for property registration and PLN 200 for transferring the title​.

Ongoing Costs

1. Utility Bills: These include charges for gas, electricity, and water, varying based on property size and usage​​.
2. Home Insurance: Generally depends on the property size and desired coverage, roughly costing about 0.1% of the property value annually​.
3. Service Charges: For those living in serviced apartments, there are regular service charges, the amount of which depends on the building​​.
4. Property Tax: This tax is based on the property’s location and size. For example, in Warsaw, it’s about 0.75 PLN per square meter annually​​.
5. Right of Perpetual Usufruct: This unique Polish concept is a form of title to land in cities. Owners pay annual fees set as a percentage of the land’s value, determined by the State Treasury or local authorities​​.

Tax Implications

1. Tax on Civil Law Transactions: A 2% tax on real estate sales agreements, paid on the market value of the property​​.
2. Rental Income Tax for Individuals: If annual rental revenue does not exceed PLN 100,000, an 8.5% tax rate applies. The surplus over PLN 100,000 is taxed at 12.5%. Different rates apply for business rental income​​.
3. Capital Gains Tax for Individuals: A flat tax rate of 19% is applied on capital gains from the sale of real estate within five years of purchase. Sales after five years are exempt from taxation​​.
4. Corporate Income Tax for Companies: Rental income and capital gains for companies are subject to corporate income tax at rates of 9% or 19%​​.
5. Real Property Company Tax: Applies to entities where at least 50% of the market value of assets is in Polish real estate or rights to such real estate, and the market value exceeds PLN 10 million​​.
6. Minimum Corporate Income Tax: A 10% tax rate based on the initial value of the real estate, applicable to companies and fiscal unities meeting certain conditions​​.
7. Income Tax on Revenue from Buildings (Minimum Tax): A 0.42% tax rate on the initial value of real estate for both individuals and companies​​.
8. Polish Local Taxes: These include taxes on the usable area of grounds and real estates, with maximum rates provided but subject to adjustments by individual municipalities​​.
9. Polish VAT & Transfer Taxes: VAT is generally at 23%, but residential estates up to 150 m² (flats) and 300 m² (buildings) are taxed at 8%. Transfer tax of 2% applies when VAT exemption is applicable​

Key Legal Frameworks Governing Foreign Real Estate Investment

The key legal frameworks governing foreign real estate investment in Poland are quite comprehensive and detailed. The main sources of real estate law in Poland include:

1. Civil Code: This serves as a foundational legal document governing various aspects of real estate, including ownership rights, transfers, and contracts.
2. Real Estate Management Act: This act is crucial for understanding the management and regulatory aspects of real estate in Poland.
3. Land and Mortgage Registers and Mortgage Act: This act covers the registration of land and mortgages, which is essential for the legal recognition of real estate transactions.
4. Construction Law Act and Spatial Planning and Development Act: These acts govern the construction and development of real estate, including zoning laws and building regulations​​.

Specific to foreign investment, the Acquisitions of Real Estate by Foreigners Act plays a significant role. This act mandates that the acquisition of real estate in Poland by foreigners (including non-EEA citizens, companies, and entities outside Poland or controlled by foreign entities) requires the consent of the Minister of Internal Affairs. However, there are exceptions, notably for EEA and Swiss nationals and for the acquisition of residential premises​​.

Regarding taxes applicable to real estate transactions:

• Asset deals: These could be classified as a sale of an enterprise, a sale of an organized part of an enterprise (OPE), or a sale of assets not constituting an enterprise/OPE. The first two are taxed with civil law activities tax (CLAT) and not subject to VAT, while the latter is generally subject to VAT.
• Share deals: These are subject to a 1% CLAT on the market value of shares. The CLAT obligation is the responsibility of the buyer​​.

Additionally, foreign direct investments in Poland, particularly those in strategic sectors, are regulated under the Act on the Control of Certain Investments. This Act mandates a screening procedure for investments, especially in strategic sectors like energy, telecommunications, and defense. It applies to foreign investors defined as:

• Natural persons not having EU, EEA, or OECD citizenship.
• Companies not registered in the EU, EEA, or OECD for at least two years before filing.

The Act requires approval for transactions involving significant participation or the acquisition of a dominant position in Polish entities operating in strategic sectors. Transactions that meet certain conditions, including monetary thresholds, are subject to mandatory notification. Failure to notify can result in severe penalties, including financial fines and invalidation of the transaction​

The Role of the Ministry of Interior in Real Estate Acquisitions

The Ministry of Interior plays a significant role in supervising and regulating real estate transactions involving foreign nationals, ensuring compliance with Polish laws, and safeguarding national interests in real estate matters.. Here are the key functions and regulations concerning this process:

1. Issuance of Permits for Foreign Nationals: The Ministry of Interior is responsible for the administrative proceedings related to issuing permits for foreign nationals who wish to acquire real estate in Poland. This process involves determining whether the real estate can be considered arable land, based on documents submitted with the application for a permit​​.
2. Acquisition of Shares or Stocks: Foreigners who wish to acquire shares or stocks in a commercial company based in Poland, especially if the company owns or has perpetual use of real estate in the territory, require a permit from the Minister of Interior. This applies to any legal transaction concerning shares or stocks that would result in the foreign entity owning or using real estate in Poland​​.
3. General Permit Requirement for Foreigners: As a general rule, foreigners need a permit from the Minister of Internal Affairs to acquire real estate located in Poland. This requirement is in line with Polish regulations and is part of the country’s legal framework concerning foreign investment in real estate​​.
4. Special Consideration for Border Areas: If foreigners intend to purchase real estate located in the so-called border belt of Poland, a permit is also necessary. The Act of March 24th, 1920, as amended, regulates this, requiring a permit from the Minister of the Interior for such acquisitions by foreigners​​.
5. Oversight of Real Estate Transactions Involving Foreigners: The Ministry of Interior must be informed about and given detailed knowledge of the acquisition of real estate by foreigners in Poland. This is to ensure that all such transactions comply with the country’s legal requirements and regulations​​.

Conclusion: Successfully Investing in Poland’s Real Estate

Investing in Poland’s real estate market can be a rewarding venture for foreign investors. However, it requires a thorough understanding of the legal landscape, financial considerations, and market dynamics. By following this comprehensive guide, investors can navigate the complexities of Polish real estate laws and make informed investment decisions.