2025-09-28
When is land really „undeveloped” for VAT?
Is a plot of land with a building scheduled for demolition considered ‘undeveloped land’? Under the Polish VAT Act, the sale of undeveloped land is exempt from VAT as long as it does not have the status of ‘building land’. Otherwise, such sale might be subject to 23% VAT. In contrast, the VAT on a sale of a developed plot of land is determined based on the history of the buildings/structures. In general: older buildings = VAT-exemption. A recurring question, however, is how to classify land where there are buildings or structures in poor condition that are intended to be demolished. Can such a property still be treated as “developed” for VAT purposes? The question might seem irrelevant, yet there is another layer to it. According to Polish tax law, if the sale of immovable property (plot, building) is not subject to VAT at all or is VAT-exempt, the buyer must pay a 2% tax on civil law transactions (Podatek od czynnosci cywilnoprawnych, also known as PCC). Thus, many B2B-sales aim at having the transaction taxed with VAT (deductible) to avoid PCC (non-deductible).
Is a plot of land with a building scheduled for demolition considered ‘undeveloped land’?
Under the Polish VAT Act, the sale of undeveloped land is exempt from VAT as long as it does not have the status of ‘building land’. Otherwise, such sale might be subject to 23% VAT. In contrast, the VAT on a sale of a developed plot of land is determined based on the history of the buildings/structures. In general: older buildings = VAT-exemption.
A recurring question, however, is how to classify land where there are buildings or structures in poor condition that are intended to be demolished. Can such a property still be treated as “developed” for VAT purposes?
The question might seem irrelevant, yet there is another layer to it. According to Polish tax law, if the sale of immovable property (plot, building) is not subject to VAT at all or is VAT-exempt, the buyer must pay a 2% tax on civil law transactions (Podatek od czynnosci cywilnoprawnych, also known as PCC). Thus, many B2B-sales aim at having the transaction taxed with VAT (deductible) to avoid PCC (non-deductible).
Polish court rulings
The Supreme Administrative Court (NSA) has consistently held that holding a demolition permit is not enough to treat the land as ‘undeveloped’. Until demolition work has actually begun, the property remains ‘developed’. This was confirmed, for example, in a judgment of 19 June 2015 (case no. I FSK 818/14). Therefore, only the actual commencement of demolition can change the VAT treatment.
Tax authority practice
The Polish tax authorities share this view. In an individual ruling of 6 October 2021 (ref. 0111-KDIB3-3.4012.405.2021.2.JSU), they stressed that even buildings that are unfit for use and destined solely for demolition still make the land ‘developed’ – until they are removed. A later ruling from 22 July 2024 (ref. 0111-KDIB3-3.4012.153.2024.3.PJ) confirmed that merely obtaining project documentation and demolition permits does not change the status of the land if no demolition work has started before the sale.
EU perspective
The European court (CJEU), in its fundamental judgment of 19 November 2009 (C-461/08, Don Bosco Onroerend Goed BV), added an important nuance. It held that if the seller undertakes demolition and works start before the transaction, the said buildings may be disregarded for VAT and the supply must be treated as the sale of undeveloped land.
Key takeaways
Demolition started before the sale → sale treated as the sale of ‘undeveloped’ land.
Only a demolition permit, no works prior to the sale → still considered ‘developed’ land.
In short: under Polish VAT law, what matters is the timing of the demolition work. Neither the poor technical condition of the buildings nor the plans for their demolish are decisive. If you wish to avoid paying PCC on a B2B-purchase, sometimes the best solution might be to pay (and later deduct) VAT on the purchase of ‘undeveloped’ land.
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