The supply of agricultural land is a complex VAT issue that requires a detailed analysis of both Polish and EU rules. The key to settling VAT correctly on the sale of agricultural land is understanding the exemption mechanism in the VAT Act and the conditions for applying it. It should not be confused with exemptions that depend on the taxpayer's status, such as the VAT exemption for accounting offices.
Businesses trading in land must remember that not every transaction involving agricultural land is automatically exempt from tax. What matters is the designation of the land in planning documents and whether it is actually built on. Applying the rules incorrectly may have serious financial consequences in the event of a tax audit.
The VAT exemption for the supply of agricultural land is not absolute and requires specific legal conditions to be met. The legal basis for the exemption is Article 43(1)(9) of the VAT Act, which covers land not built on other than building land
Legal basis for the VAT exemption for agricultural land
The fundamental provision governing the taxation of supplies of agricultural land is Article 43(1)(9) of the VAT Act. Under this provision, the supply of land not built on other than building land is exempt from tax. This provision transposes an EU directive and must be interpreted in line with the case law of the Court of Justice of the European Union (CJEU). CJEU case law also shapes other issues, for instance unjust enrichment and VAT liability.
The definition of building land in Article 2(33) of the VAT Act is key to applying the exemption. Building land means land designated for development in the local zoning plan (miejscowy plan zagospodarowania przestrzennego) or, where there is no such plan, in a decision on development conditions (decyzja o warunkach zabudowy i zagospodarowania terenu).
The definition of building land is based solely on planning documents issued by the competent public authorities. The actual use of the land does not affect its classification as building land under the VAT rules
The spatial planning system in Poland is based on the Act of 27 March 2003 on spatial planning and development. Under Article 3(1) of this Act, shaping and pursuing spatial policy in the municipality, including adopting municipal spatial planning acts (among others the general municipal plan, which since the 2023 reform replaces the study of conditions and directions of spatial development, and local zoning plans), is an own task of the municipality (gmina). We handle VAT on property sales and JPK files for clients as part of our accounting services.
The local zoning plan is the basic planning instrument which, under Article 4(1) of the Act on spatial planning and development, sets the designation of land, the location of public-purpose investments, and the ways of developing land and the conditions for building on it.
Where there is no local zoning plan, the way land is developed and the conditions for building on it are set by a decision on development conditions (Article 4(2) of the Act on spatial planning and development), and it is this decision that then determines whether the land counts as building land for VAT purposes. These decisions are individual administrative acts and concern specific properties
Interpreting the concept of building land in case law
A proper interpretation of the concept of building land requires reference to the case law of the Court of Justice of the European Union. In its judgment of 28 March 1996 in case C-468/93 Gemeente Emmen, the Court explained that building land means any unimproved or improved land defined by the Member States as land designated for development.
This judgment is fundamental for Polish tax practice because it indicates that whether land counts as building land depends on its formal designation set by the competent authorities of the Member State, not on its actual state of development or the technical possibility of building on it.
Polish administrative courts consistently apply this interpretation, stressing that the assessment of land must be based solely on the planning documents in force. In its judgment of 23 January 2024 (I SA/Gd 990/23), the WSA (Voivodeship Administrative Court) in Gdańsk stressed that building land is land designated for building purposes in the local zoning plan, with the primary, dominant designation indicated in the plan being decisive.
The practical consequence of this approach is that agricultural land covered by a local zoning plan designating it for single-family housing will be treated as building land, even if it is still actually used for farming
Analysis of practical cases of applying the exemption
In an individual tax ruling (KIS) of 12 November 2024 (no. 0113-KDIPT1-3.4012.650.2024.2.AG), the Director of National Tax Information (Dyrektor Krajowej Informacji Skarbowej) presented a practical example of applying the VAT rules to the sale of agricultural land. In the case analysed, the agricultural plot acquired was covered by a zoning plan with the code MZ-MJ, meaning farmstead development and single-family housing.
The tax authority clearly stated that the plot meets the definition of building land within the meaning of Article 2(33) of the VAT Act, and consequently the sale of such a plot cannot be exempt from tax. The transaction is therefore taxed at the standard rate of 23% VAT.
This example illustrates the key principle that the formal designation of land in planning documents takes precedence over its actual agricultural character. Even if the land is actually used for farming, being classified as agricultural land in the land and buildings register while also being covered by a zoning plan designating it for development disqualifies it from the tax exemption.
Businesses planning to sell agricultural land should always check the current designation of the property in the local zoning plan before deciding how to settle VAT
The procedure for verifying the designation of land includes the following steps:
- Checking at the municipal office whether a local zoning plan applies to the property
- Analysing the plan's provisions on the primary and permitted designation of the specific plot
- Where there is no local plan - checking any decisions on development conditions issued
- Assessing whether the designation is for building or other purposes (agricultural, forestry, recreational)
- Deciding which VAT rate to apply based on the findings
Definition of land not built on in tax practice
The second condition for applying the VAT exemption, alongside the land not being building land, is that the land is not built on. This concept is not expressly defined in the VAT Act, which requires reference to the interpretation of the administrative courts.
In its judgment of 23 August 2024 (I FSK 1670/20), the NSA (Supreme Administrative Court) set out detailed criteria for assessing whether land is not built on. The court indicated that land can be regarded as built on where the existing development has a primary, dominant significance for that land. By contrast, development is irrelevant if it is supplementary to the primary designation of the land.
This distinction is of key practical importance, because agricultural land often has various auxiliary structures on it, such as wells, pumping stations or sections of utility networks. The presence of such structures does not automatically disqualify the land from being classed as not built on.
Administrative courts allow the economic aspect of the transaction to be taken into account when assessing whether land is not built on. The key is to determine whether the structures on the land are significant for its value and economic character
In its judgment of 8 April 2021 (I FSK 560/18), the NSA further explained that the assessment of whether land is not built on must take into account primarily the actual state of affairs, but in certain cases the economic nature of the transaction and the significance of the existing structures for determining the character of the land must be taken into account.
The practical application of these criteria can be presented in a comparison table:
| Type of development | Effect on the character of the land | Exemption under Article 43(1)(9) | Justification |
|---|---|---|---|
| Low-pressure gas pipeline | No effect | Yes | Infrastructure, economically insignificant |
| Residential house | Dominant significance | No (exemption under point 10 or 10a possible) | Supply of a building together with the land |
| Deep well | No effect | Yes | Auxiliary structure for the farm |
| Warehouse | Dominant significance | No (exemption under point 10 or 10a possible) | Supply of a building together with the land |
Practical examples of applying the rules
Analysing practical cases helps to understand better how the VAT exemption works for sales of agricultural land. Consider a sp. z o.o. (limited liability company) selling agricultural land that is not building land, with part of a low-pressure gas pipeline running through it.
In this case, although there is development in the factual sense, it cannot be considered dominant on the land. Administrative courts have repeatedly stressed that the possibility of building any structure on a given site does not in itself determine that the area is classified as land designated for development. Consequently, the company is entitled to apply the exemption on the sale.
The key element of the assessment is determining whether the infrastructure on the land is dominant or merely auxiliary to the primary agricultural designation. Linear infrastructure usually does not change the character of the land
Another situation requiring analysis is the sale of agricultural land with livestock buildings related to agricultural production. In such a case, you need to assess which part of the property is built on with buildings and which remains land not built on.
Buildings directly related to agricultural production, such as cowsheds, barns, silos or buildings for agricultural machinery, are nevertheless buildings. Their supply together with the land beneath them (the value of the land is not separated from the taxable amount – Article 29a(8) of the VAT Act) is assessed under the exemptions in Article 43(1)(10) and (10a), not point 9.
Practical example: A farmer sells a 10-hectare agricultural plot with a 200 m² barn and a deep well. The plot is not covered by a local zoning plan, and no decision on development conditions has been issued for any part of it. In this case the sale may, as a rule, be VAT-exempt: the land is not building land (Article 43(1)(9)), and the supply of the barn together with the land beneath it is exempt under Article 43(1)(10) if at least 2 years have passed since its first occupation.
Tax consequences of applying the rules incorrectly
Applying the VAT exemption incorrectly to the sale of land may have serious financial consequences for taxpayers. The bodies of the National Revenue Administration (KAS) check whether the rules on taxing real estate are applied correctly, particularly in the context of a dynamically developing property market.
If the tax authority finds that the sale of land should have been taxed at 23% VAT and the taxpayer applied the exemption, the authority will determine the tax liability in the correct amount, and the arrears will have to be paid with late-payment interest. In addition, an additional tax liability of up to 30% of the understated amount may be imposed (Article 112b of the VAT Act), and criminal tax liability may also arise.
Situations where taxpayers do not check the current planning status of the properties they sell are particularly problematic. Changes to local zoning plans may affect the tax status of land, turning exempt land into taxable building land.
Taxpayers should monitor changes in planning documents concerning the properties they own, because the exemption depends on the status on the date of supply. The adoption of a new zoning plan may change the tax status of land from the date the plan enters into force
If in doubt about how the rules apply, the procedure includes the following steps:
- Applying for an individual tax ruling to the Director of National Tax Information
- Describing the facts and the legal situation of the transaction in detail
- Providing documents confirming the character and designation of the property
- Waiting for the ruling before carrying out the transaction (as a rule up to 3 months – Article 14d § 1 of the Tax Ordinance Act (Ordynacja podatkowa))
- Following the ruling issued – following it cannot harm the applicant (Article 14k § 1 of the Tax Ordinance Act)
Tax planning when selling agricultural land
Effective tax planning when selling agricultural land requires a comprehensive analysis of both the current legal status of the property and expected changes in planning documents. Businesses trading in real estate should take long-term tax strategies into account.
An important element of planning is analysing the possibility of influencing the designation of land by taking part in planning procedures run by municipalities. Participating in public consultations on draft zoning plans may allow you to present arguments for keeping certain areas agricultural.
Owners of agricultural land have the right to take part in procedures for adopting local zoning plans. Active involvement in the planning process may influence the final designation of land
Another aspect of tax planning is optimising the timing of the sale in relation to changes in tax rules or planning documents. Monitoring planning work carried out by municipalities allows you to decide to sell before the land may be turned into building land.
It is also worth considering structuring transactions in a way that makes the most of the available tax exemptions. This may include dividing larger properties into parts with different designations or phasing sales over time.
