The Ministry of Finance sent for consultations a draft regulation, which introduces an exemption from VAT for services in the field of renting or leasing real estate of a residential nature, provided to local government units and their associations, single-person local government companies under provided that they will be transferred for housing purposes.
Consultations on the amendment to the regulation on tax exemptions on goods and services and the conditions for applying these exemptions – according to the information on the website of the Government Legislation Center – are to last until Thursday.
The current scope of the exemption for renting real estate for residential purposes, as defined in the Value Added Tax Act, applies only to activities conducted in this area by social rental agencies. On the other hand, the exemption does not cover all real estate rental or lease activities undertaken by local government units or their associations as part of their local housing policy.
In the case of lease made to entities other than those specified in this provision of the VAT Act, it is taxed at a tax rate of 23% and in the absence of the right to deduct input tax, it should be expected that the economic burden of VAT will be shifted to the final tenant.
In practice, this increases the cost of renting residential premises for tenants who use these premises to satisfy their housing needs and makes it difficult for local government units to conduct an effective housing policy, reads the justification.
The draft provides for the introduction of a tax exemption for services in the field of renting or leasing real estate of a residential nature or part of real estate, for own account, provided to:
a) local government units and their associations,
b) local government organizational units,
c) sole proprietorships of local government
– solely for the purpose of renting or leasing such real estate to natural persons for their own housing purposes.
The planned result of the proposed changes coming into force is to reduce the final burden on tenants of real estate rented for residential purposes, it was also stated.
Source: MoF and ISBnews
