GFD’s long-awaited information on application of VAT to immovable assets

The biggest impact of the legislation effective from 1 July 2025 lies in new tax exemption rules upon the sale of real estate and in the classification of land as building land.

The VAT Act now distinguishes between the first supply of selected real estate and its subsequent supply. The selected real estate is defined as a structure permanently attached to the land and a plot of land that forms a functional unit with this structure. The GFD’s information specifies in more detail the parameters of structures permanently attached to the land (including their dismantling and relocation) and also covers increasingly popular mobile homes.

Attention is drawn to the functional unit the purpose of which is to respect the indivisibility of the building and the land adjacent to it, or the land that serves to operate the building, fulfil its function or is used together with it. As an example of a functional unit the GFD’s information provides a situation where the owner of the land sells the land to the owner of the building located on that land, or a situation where a tripartite agreement results in the transfer of the building and the land from different entities to a single buyer. From a VAT perspective, the tax treatment of the sale of such land is the same as the tax treatment of the sale of the relevant building with which it forms a functional unit. Conversely, where the land and the building have the same owner, the concept of principal and ancillary supply is applied as a primary rule, rather than assessing whether the parameters of a functional unit have been met.

The first supply of the selected real estate effected within 23 months of its completion or substantial change is taxable. Any subsequent transfer is exempt from VAT regardless of the time interval. The same applies to substantial changes to the building. Conversely, until the selected immovable asset is considered completed, each individual supply is taxable, not just the first supply.

When selling land, it is essential to first correctly determine whether the land forms a functional unit with a building, which may not be obvious in some cases. The GFD’s information refers to a situation where the foundations for a future building are located on a plot of land. Here, the stage to which the building is constructed will be assessed, e.g., a mere foundation slab is not considered a structure firmly attached to the land for VAT purposes. A special case is the sale of land with a building intended for demolition where a number of other factors must be considered.

As before, the supply of land (not forming a functional unit with a building) is exempt from VAT, with the exception of the supply of building land.

The law now explicitly states that building land is considered to be land that can be built on based on zoning documentation or building authority’s decision of the (buildable land) and land on which (or in the vicinity of which) work is being carried out with a view to construction – e.g., utility network connections or access roads are being built (land designated for building). It is therefore by no means limited to land with a building permit: it is sufficient that there is a realistic intention to build, supported by steps taken with the authorities or actual work.

However, the GFD’s information further confirms that unlike the legislation in force until 30 June 2025, the decisive factor for assessing land is its nature at the time of supply. The mere submission of a proposal to amend the zoning plan is not decisive from a VAT treatment perspective.

Given the scope of the GFD’s information and the importance of this issue, we will also address this topic in the next issue of the Tax and Legal Update.