Your own “M” abroad. One mistake can cost a fortune

Spain, Portugal, Croatia, the French Riviera and Cyprus have been attracting Polish investors looking for holiday apartments for several years. The trend is getting stronger, and more exotic locations, such as Thailand, are also starting to join popular destinations.

However, purchasing property abroad may raise important tax questions. One of them concerns the possibility of avoiding 19%. tax on the sale of an apartment in Poland.

Croatia offers relief, but not because of the sun

Many investors are convinced that purchasing real estate in Croatia allows you to avoid tax after selling the apartment in Poland. This is true, but the reason is completely different than you might think.

– Purchasing an apartment in Croatia may indeed allow you to avoid tax after selling real estate in Poland, but not because it is Croatia, but because it is a European Union country. This is a key nuance that is easy to miss, notes Piotr Juszczyk, Chief Tax Advisor at inFakt, in an interview with “Wprost”.

What is of key importance here is the so-called housing relief. According to the applicable regulations, a person who sells a property within five years of its purchase must pay a 19% interest rate. tax on earned income. However, there is an exception.

The tax office allows you to buy an apartment outside Poland

The tax can be avoided if the funds obtained from the sale are used for your own housing purposes within three years from the end of the year in which the property was sold. This is indicated in Art. 21 section 1 point 131 of the Personal Income Tax Act. Importantly, the regulations do not limit this possibility only to Poland.

– The good news is, yes. The Act explicitly allows for the implementation of housing purposes not only in Poland, but also in another EU, EEA or Switzerland country. A house or apartment on the Adriatic Sea fits into this catalog without any problems. Moreover, the tax office accepts a situation in which a taxpayer uses such a property only for part of the year, for example working remotely or living there seasonally. What is decisive is the actual intention to meet one’s housing needs, not the number of months in the calendar – explains Piotr Juszczyk.

This means that your own apartment in Spain, Portugal or Croatia may be considered a housing goal, even if the owner spends only part of the year there.

Not every foreign property offers relief

However, the inFakt expert points out that the regulations have their limitations. Not every foreign investment will allow you to benefit from tax exemption.

– However, there are limits to this benefit. Firstly, the exemption works proportionally – if we spend only part of the income on the purchase, we will tax the rest of the income. Secondly, the property is to be used for housing and not for rent or recreation, and the declaration of investment purpose excludes relief. Thirdly, and most importantly, the preference ends at the borders of the EEA. Living in Montenegro, Turkey or the Dominican Republic, although tempting in price, will not entitle you to a discount. Therefore, before such a transaction, it is worth calculating the consequences and – in the case of higher amounts – securing yourself with an individual interpretation and reliable documentation of expenses – suggests Juszczyk.

In practice, this means that increasingly popular investment directions outside Europe may not bring the expected tax benefits.

Exotic destinations are tempting, but you should be careful

Today, Poles are looking more and more boldly not only at southern Europe, but also at Asian markets. Phuket in Thailand is beginning to enjoy particular interest, where real estate prices can be attractive compared to popular resorts in Europe.

However, from the point of view of taxes, this “attractiveness” – both in terms of price, location and investment – is not everything. It is crucial to check whether the purchase of the property meets the conditions for housing relief. Otherwise, the tax office may demand the tax due, and the savings will turn out to be much smaller than initially expected.