Tax authorities push for higher RET on unsold residential properties

Many believed that the long-standing disputes over the correct property tax rate for residential units owned by businesses would be resolved following the resolution issued by the Supreme Administrative Court (NSA) in a panel of seven judges[1]. The Court clearly stated that when a residential unit is used to meet the housing needs of a tenant, the preferential tax rate should apply. It does not matter whether the unit is rented by an individual from a business entity. This issue particularly affects apartments offered by the Private Rented Sector (PRS) as well as units provided by employers to employees delegated to work away from their permanent place of residence.

According to the NSA, the preferential property tax rate should be applied especially when a building simultaneously meets the following conditions:

• has been classified as residential in the land and building register;
• is used to satisfy residential needs;
• is not physically occupied for conducting business activity.

Are there any exceptions to the preferential rate?

In the aforementioned resolution, the NSA rightly pointed out that if a residential property is rented for a short period (e.g. a few days), it cannot be said to meet residential needs. In such cases, we should refer to short-term stays, which are quite common, especially in tourist destinations, and which have more in common with hotel services than with meeting housing needs.

Another example highlighted by the Court where the preferential rate should not apply is when businesses hold vacant residential units for investment purposes. The NSA cited investment funds that acquire apartments solely as a long-term investment vehicle, anticipating price appreciation, without renting them out to individuals.

When should developers apply the highest RET rate to their units?

In recent weeks, some real estate developers have received demands to file amended tax returns for the years 2020–2025 and to pay overdue property taxes. Tax authorities argue that, based on the NSA’s resolution, developers should have applied the highest real estate tax rate to the usable area of apartments that remained unsold at the time of building completion. The rationale is that if an apartment is built and offered for sale but remains unoccupied, it does not serve a residential function and thus does not qualify for the preferential tax rate.

This interpretation misrepresents the conclusions of the NSA resolution. The Court explicitly questioned the eligibility of the preferential rate only for vacant apartments acquired solely as a long-term investment. This is fundamentally different from the situation of developers actively seeking to sell newly constructed units. Developers are not interested in holding apartments long-term but rather in selling them quickly to recover invested capital. Temporary difficulties in selling apartments due to lower demand should not lead to the imposition of the highest RET rates. For years, a well-established practice has been that, upon building completion, land is taxed at the rate applicable to other types of land, and buildings from the following year based on residential tax rates.

Should other business owners of residential units also be cautious?

The actions taken by tax authorities are becoming increasingly widespread and affect developers in many cities. However, other business owners who rent residential units to individuals — and thus are entitled to preferential tax treatment — should also remain vigilant. Under this fiscally aggressive interpretation, apartments that have been vacated by previous tenants and are either undergoing renovation or awaiting new tenants may also be deemed ineligible for the preferential rate. The tax authorities may treat them as vacant until a new tenant moves in. In MDDP’s view, this approach lacks legal basis. Nonetheless, it is expected that authorities will continue to pursue measures aimed at increasing tax revenues from businesses.

It is also worth noting that not all proceedings related to the application of the preferential residential property tax rate, initiated before the issuance of the taxpayer-friendly NSA resolution, have been concluded.

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If you have received a request for clarification or need assistance in settling your property tax, please contact MDDP experts.

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[1] Resolution of the Supreme Administrative Court of 21 October 2024, ref. no. III FPS 2/24.