Short-term rental — how to settle the tax?

For owners of flats in large cities — such as Katowice — or in tourist resorts, short-term rental is a real gold mine. By renting out a flat "by the day" for a few months we can earn more than in a whole year! And of course — we will have to share our profits with the tax authorities. On what terms is income from short-term rental taxed?

I rent out a flat by the day — is that already a business?

For those who would like to do short-term rental without setting up their own company and the costs that go with it, we have bad news — renting "by the day" is, under Polish law, a business activity. After all, it meets all the criteria — it is organised (or at least should be!) and continuous, even if we run it only seasonally. So we are unlikely to avoid registering short-term rental as a for-profit business activity!

Of course, exceptions can be found. Renting a flat to tourists for a few weeks during the summer holidays, for example, can be considered private rental, that is, rental not connected with a for-profit business. Assuming, of course, that we are talking about occasional rental here! However, even with this form of rental, many owners decide to run it as a business. Why? To be sure they will not get into trouble with the tax authorities. After all, the line between private rental and rental as part of a business is very blurred!

We will also be taxed on business terms if our rental is of a mixed nature — for example, if during the holiday season we rent out our premises by the day, and for the rest of the year on a long-term agreement.

Taxation of rental — what rates apply to us?

So we know that by running "by the day" rental we become, in effect, entrepreneurs. The same settlement rules therefore apply to us as to any other company. At present we can choose one of three forms of taxation: the lump-sum tax on recorded revenue (ryczałt), the tax scale (skala podatkowa) and the flat tax (podatek liniowy). Each of them means, of course, a different rate and method of calculating the tax:

• lump sum on recorded revenue - 8.5% on revenue up to 100,000 PLN and 12.5% on revenue exceeding that amount; in this case we cannot deduct the costs of running the rental!
• tax scale - 12% for income below 120,000 PLN and 32% on the excess; we are taxed on the amount reduced by business costs;
• flat tax - 19% of total income; again, net of business costs.

Is any of these forms of taxation more profitable than the others? That is an individual matter, depending not only on our rental profits but also on the amount of the health insurance contribution or on joint filing with a spouse.

And what about VAT?

When running short-term rental we must not forget that… VAT applies to us too! Its rate in this case is 8%. And, importantly, we cannot take advantage of the exemption from paying it — as owners of flats let long-term do. The exception is when our rental income does not exceed 200,000 PLN in the tax year.