“Flipping” operates exclusively in colloquial and journalistic language. Tax law provisions contain neither a definition of this concept nor a separate regime governing the taxation of rapid real estate turnover. This does not mean, however, that activities consisting in the acquisition of residential premises for the purpose of resale – often following prior refurbishment – are tax-neutral or subject to uniform classification.
The same activities may give rise to different consequences under PIT, CIT, VAT and PCC, and in each of these taxes the decisive factor is not the taxpayer’s declared intention, but an objective assessment of the entirety of the actions undertaken.
PIT: two regimes for the taxation of real estate disposals and the importance of income source classification
For PIT purposes, the starting point is the catalogue of sources of income set out in Article 10 of the PIT Act. In the case of the disposal of real estate (including residential premises), two distinct regimes are, in principle, relevant:
- disposal of real estate for consideration – Article 10(1)(8) of the PIT Act; and
- non-agricultural business activity – Article 10(1)(3) of the PIT Act.
This distinction determines: (i) the application of the mechanism excluding PIT on the disposal of real estate after the expiry of five years, (ii) the rules for recognising tax-deductible costs, (iii) the manner of ongoing settlements and reporting obligations, and (iv) the risks relating to the potential reclassification of real estate disposal transactions.
First – the five-year period and taxation of the transaction.
The rule set out in Article 10(1)(8) of the PIT Act links the emergence of a source of income to the disposal of real estate for consideration. At the same time, disposal after five calendar years, calculated from the end of the year in which the property was acquired or constructed, does not, as a rule, give rise to PIT. However, this mechanism operates exclusively where the disposal takes place outside business activity, as follows directly from the reservation contained in Article 10(1)(8) (“provided that the disposal does not take place in the performance of business activity”). The significance of this reservation and the need to distinguish between sources of income were analysed, inter alia, by the Supreme Administrative Court (NSA) in its judgment of 9 March 2016, ref. II FSK 1423/14. In that judgment, the NSA stated that:
“The reservation introduced into Article 10(1)(8) of the PIT Act, namely ‘provided that the disposal does not take place in the performance of business activity’, has the effect that, for the purposes of classifying income derived from the disposal of real estate either as income from the source governed by that provision or as income from non-agricultural business activity (Article 10(1)(3)), the decisive factor is whether such income results from an activity which may be attributed the characteristics of non-agricultural business activity within the meaning of Article 5a(6) of the PIT Act.”
Second – tax rates.
Where the disposal of a residential unit falls within Article 10(1)(8), the income (profit) is, as a rule, subject to taxation under Article 30e of the PIT Act (19% of the income), with the possibility of applying the housing exemption under the conditions set out in Article 21(1)(131) of the PIT Act. Where the disposal takes place within the framework of business activity (Article 10(1)(3) of the PIT Act), the rules applicable to the taxation of business activity apply (progressive rates, flat-rate taxation or – where the statutory conditions are met – lump-sum taxation), and the five-year regime under Article 10(1)(8) does not apply.
Third – costs.
In the case of the disposal of real estate outside business activity, tax-deductible costs are determined in accordance with Article 22(6c–6f of the PIT Act – in practice, these consist primarily of documented acquisition costs and capital expenditure increasing the value of the property. In the case of disposal within business activity, the reference point for determining tax costs is Article 22(1) of the PIT Act (the requirement of a connection with income and the proper timing of deduction).
Fourth – reporting obligations and the risk of adjustment.
Business activity entails the obligation to pay advance PIT instalments (Article 44 of the PIT Act) as well as record-keeping obligations (including – depending on the form – a tax revenue and expense ledger or accounting books as referred to in Article 24a of the PIT Act). Where it is determined that the taxpayer in fact conducted business activity, the risk includes the possibility of challenging historical settlements by reconstructing income in accordance with the rules applicable to business activity (including interest).
For a “flipper”, the key issue is whether the entirety of the activities meets the statutory characteristics of business activity – rather than the mere “speed” of disposal.
When Flipping Constitutes Business Activity – Criteria under Article 5a(6) of the PIT Act and Judicial Practice
Statutory Definition and Its Normative Meaning
Pursuant to Article 5a(6) of the PIT Act, business activity is profit-making activity carried out in one’s own name, in an organised and continuous manner, the income from which is not classified under other sources. In the context of trading in residential premises, the most significant elements are organisation and continuity. These concepts are not defined in the PIT Act – their content has been clarified through interpretative practice and case law.
In practice, tax authorities and administrative courts proceed on the assumption that the right of ownership includes the entitlement to dispose of assets in a rational manner. Even multi-stage preparation for sale (e.g. regularisation of the legal status, refurbishment of the premises, selection of the appropriate market timing) does not, in itself, determine the existence of business activity. Only where the boundary of ordinary asset management is exceeded – by conferring upon the activity the characteristics of a professional, repeatable profit-oriented undertaking – does this justify classification as non-agricultural business activity within the meaning of Article 10(1)(3) of the PIT Act. The systemic role of the reservation “provided that the disposal does not take place in the performance of business activity” was analysed, inter alia, by the Supreme Administrative Court (NSA) in its judgment of 9 March 2016, ref. II FSK 1423/14.
Judgment of the Supreme Administrative Court of 25 February 2025, case no. II FSK 823/22
The judgment of the Supreme Administrative Court of 25 February 2025, ref. II FSK 823/22, currently constitutes an important point of reference in the analysis of the tax consequences of flipping under PIT. The Court accepted the position that income derived from the disposal of residential premises – in circumstances indicating a repeatable and organised pattern of activity – should be classified as income from non-agricultural business activity.
In the reasoning of that judgment, the Supreme Administrative Court drew attention to a number of factual circumstances which, in the circumstances of the case, indicated the “professional” nature of the taxpayer’s activity. These included, in particular, the multiplicity of transactions carried out within a relatively short period, the acquisition of premises with a view to refurbishment and their rapid resale following completion of the works, the absence of a housing purpose, as well as the repeatability and planned nature of the actions undertaken.
From the perspective of tax practice, an important conclusion follows from this judgment: the boundary between the management of private assets and business activity is not determined on the basis of a single simple “measure” (such as the number of transactions), but is instead determined as a resultant of an assessment of the entire model of the taxpayer’s activity. The same number of disposals may, in one case, be regarded as an expression of private asset management and, in another, as business activity, depending on the degree of repeatability, professionalisation and the organised pursuit of a profit-making objective.
Counterpoint: Judgment of the Supreme Administrative Court of 15 May 2025, case no. II FSK 1083/22
For the sake of balance, it should be emphasised that not every repeated disposal of real estate is equated with business activity. In its judgment of 15 May 2025, ref. II FSK 1083/22, the Court opposed the classification of the mere pursuit of obtaining a favourable sale price as a premise for conducting non-agricultural business activity. The Court indicated that there are no rational grounds for assuming that the mere intention of the property owner to obtain the best possible price – even where certain preparatory actions preceding the disposal are undertaken – determines the classification of such a transaction as falling within the source of income from non-agricultural business activity referred to in Article 10(1)(3) of the PIT Act.
At the same time, the Supreme Administrative Court emphasised that the management of private assets may be said to exist where the taxpayer’s intention is merely to monetise part or all of the assets held, and the proceeds obtained from the disposal are not allocated to reinvestment in the acquisition of further assets of the same type, their preparation for disposal and further trading in them. Only such a sequence of events – involving reinvestment of funds, repeatability of operations and the alignment of actions with the objective of further trading – creates a cycle of organised and continuous activities which may be classified as business activity within the meaning of Article 5a(6) of the PIT Act.
The Court further emphasised that there is no normative basis for imposing on a taxpayer an obligation to dispose of assets without profit. Undertaking rational actions aimed at maximising the sale price – such as regularising the legal status of the property, improving its standard or selecting the timing of the transaction – falls within the scope of the exercise of ownership rights and cannot, in itself, constitute grounds for attributing to the taxpayer the status of an entrepreneur.
In this approach, the judgment forms part of a line of case law according to which the classification of the disposal of real estate as business activity is not determined by quantitative criteria or by the mere fact of achieving a profit, but rather by an assessment of the nature of the activities undertaken from a qualitative perspective. The judgment therefore performs the function of an important limitation against the automatic extension of the business activity regime, emphasising that the burden rests on the tax authorities to demonstrate the existence of elements of organisation and continuity of activities, rather than merely the economic outcome in the form of a positive financial result.
Individual Tax Rulings
In the practice of the application of tax law – particularly in factual situations of a borderline nature – individual rulings constitute an important point of reference.
For example, in the ruling of 7 May 2025, ref. 0112-KDSL1-2.4011.147.2025.3.PR, the Director of the National Revenue Information (DKIS) analysed the sale of real estate from the perspective of the management of private assets. The interpretative authority emphasised that recognising a given activity as business activity requires demonstrating that trading in real estate assumes a professional form, that is, one characterised by a professional and expert nature manifested in the organisation of the actions undertaken.
A similar line of reasoning was adopted in the ruling of 31 May 2024, ref. 0115-KDIT3.4011.329.2023.8.DP. In that case as well, the DKIS indicated that attributing the disposal of real estate to the source of income from non-agricultural business activity is justified only where the entirety of the taxpayer’s actions has a professional and organised character, and thus exceeds the framework of the ordinary exercise of ownership rights and the management of private assets.
An analysis of these rulings leads to the conclusion that the reasoning of the tax authorities consistently focuses on the same recurring assessment criteria. In particular, key importance is attributed to the intention and purpose of acquiring the property (whether the acquisition is made with a view to further resale), the scope and nature of preparatory actions (e.g. whether refurbishment constitutes an element of a trading process rather than an activity of a usage-related nature), as well as the repeatability of transactions and the scale and degree of organisation of the undertaking. Only the cumulative occurrence of these elements allows – in the view of the authorities – the classification of real estate trading as business activity within the meaning of the tax law provisions.
“Organisation” and “Continuity” – Their Interpretation in Flipping Practice
In the flipping model, the element of organisation is assessed on the basis of the entirety of the circumstances accompanying the transactions. Organisation is manifested, inter alia, in the application of a repeatable scheme of acquiring premises, the use of a consistent or similar model of financing transactions, ongoing cooperation with professional entities (such as real estate intermediaries or specialised renovation teams), as well as a planned approach to marketing activities. An important element of this assessment is also the manner of disposing of the funds obtained from sales, in particular their reinvestment in the acquisition of further real estate intended for subsequent trading.
The criterion of continuity should not be understood as requiring uninterrupted activity. In the approach adopted both in doctrine and in case law, it concerns the intention and actual implementation of repeatability of specific activities over time, even where there are intervals between individual transactions resulting from market or organisational conditions.
Consequences of Reclassification under PIT – Substantive Rather than Merely Formal Changes
If the tax authority considers that flipping constitutes business activity, the consequences of such classification extend far beyond a formal change in the manner of reporting income in a tax return and result in significant consequences for the taxpayer.
Firstly, the taxpayer loses the possibility of classifying the disposal under the source of income referred to in Article 10(1)(8) of the PIT Act, and thus the possibility of applying the five-year period after which the disposal of real estate is not subject to PIT is excluded.
Secondly, the mechanism for determining income and costs changes (in practice, disputes most often concern whether all expenses – including part of financing costs or “indirect costs” – meet the condition set out in Article 22(1) of the PIT Act). Thirdly, recognising flipping as business activity results in the emergence of obligations specific to that source of income, in particular the obligation to calculate and pay advance income tax during the tax year and to maintain tax records in the form required for business activity, in accordance with the provisions of the PIT Act. Fourthly, there arises a risk of reconstructing past settlements from the perspective of business activity – and thus also the risk of tax arrears together with default interest on those arrears, where the authority considers that the taxpayer acted “as an entrepreneur” but settled “as a private individual”.
CIT: Flipping within a Company – The Increasing Importance of Proper Classification and Cost Recognition
Unlike a PIT taxpayer, a CIT taxpayer, by its very nature, conducts activity in an organised manner, and the income it generates – including from the disposal of real estate – as a rule constitutes taxable income within the meaning of the CIT Act. The issue is therefore not whether business activity exists, but rather the correct tax treatment of the individual elements of the transactions.
Of key importance is, in particular, the classification of acquired residential units – either as trading stock (inventory) intended for further resale or as fixed assets, where they were used in operational activity, for example in rental. This classification determines further tax consequences, including the possibility of depreciation and the timing of cost recognition.
It is also important to determine the moment at which income arises and the rules for recognising tax costs, in accordance with Articles 12 and 15(1) of the CIT Act, in particular the distinction between direct and indirect costs. In the flipping model, direct costs typically include expenditure on the acquisition of the property, PCC, notarial costs and expenditure incurred in preparing the premises for sale, including refurbishment of a commercial nature. Where properties constitute trading stock, tax depreciation does not apply, and such costs are recognised in connection with the income from disposal.
A separate area of risk concerns the treatment of financing, including the application of limitations on the deductibility of debt financing costs, exclusions and the demonstration of the economic purpose of the expenditure incurred. In practice, disputes with tax authorities in the case of “flipper” companies do not concern whether the company conducts business activity, but whether specific expenses meet the criterion of rationality and have been properly documented. In such cases, the consistency of accounting, record-keeping and supporting documentation assumes particular importance, as in the real estate sector these elements often determine the direction of tax audits.
VAT: when a flipper becomes a VAT taxpayer
The assessment of taxpayer status for VAT purposes is autonomous in relation to the classification made for the purposes of income tax; however, in practice, the conclusions arising under both regimes often prove to be aligned. The starting point remains Article 15 of the VAT Act, which links taxpayer status to the independent pursuit of economic activity, in particular trading activity. However, for the proper interpretation of this concept, decisive importance is attached to the criteria developed in the case law of the Court of Justice of the European Union (CJEU).
In its judgment of 15 September 2011 in joined cases C-180/10 and C-181/10 (Słaby and Kuć), the CJEU clearly held that neither the number of transactions nor the mere subdivision of real estate is decisive. What determines whether a seller is to be regarded as a VAT taxpayer is whether that person undertakes active steps in the field of real estate transactions, engaging resources comparable to those used by entities professionally engaged in real estate trading.
A similar approach is adopted by the Supreme Administrative Court. The Court consistently emphasises that such factors as the number of transactions carried out, the period over which they are executed, or even the level of income generated do not, in themselves, determine VAT taxpayer status. Such circumstances may fall within the scope of the management of private assets, provided they are not accompanied by activities characteristic of professional trading (see judgment of the Supreme Administrative Court of 4 July 2023, ref. I FSK 427/23).
Against this background, it should be noted that, in the context of flipping, the risk of a VAT liability arises primarily where real estate turnover begins to assume the form of professional trading. In such cases, key practical issues arise, including, in particular, the obligation to register for VAT purposes, the determination of the VAT treatment of the supply of real estate (including the scope of any VAT exemptions or adjustments), as well as the assessment of the right to deduct input VAT on expenditure related to refurbishment or the preparation of premises for sale.
It is also worth noting that the interpretative practice of the tax authorities in the field of VAT continues to rely extensively on the concept of “private assets” and the criterion of the absence of active steps, referring directly to the standards developed in the case law of the CJEU. An example of this approach is the individual ruling of 7 April 2025 (ref. 0111-KDIB3-1.4012.24.2025.2.AB), in which the DKIS concluded that there was no obligation to account for VAT on the sale of subdivided plots treated as elements of private assets, basing its reasoning on the criteria developed in the case law of the CJEU.
PCC: a cost element in the flipping model
Tax on civil law transactions (PCC), in the flipping model, is often an underestimated element, as it typically arises at the stage of acquisition of the property rather than upon its disposal. From the perspective of the profitability of the project, it is of material importance, as it increases the entry cost of the investment.
The PCC mechanism is closely linked to VAT. Pursuant to Article 2(4) of the PCC Act, transactions subject to VAT are not subject to PCC. An exception applies, inter alia, where the sale of real estate is exempt from VAT – in such a case PCC applies at a rate of 2%.
Summary
Neither tax provisions nor case law support the conclusion that the rapid disposal of real estate or the execution of several transactions automatically constitutes business activity. At the same time, the practice of tax authorities demonstrates that a repeatable and planned model of real estate trading, involving the acquisition of premises with the intention of resale, their preparation for sale and the reinvestment of funds, may be classified as business activity where it exhibits the characteristics of organisation and continuity.
The line of case law – in particular the judgment of the Supreme Administrative Court of 15 May 2025, ref. II FSK 1083/22 – clearly shifts the focus of the assessment from quantitative criteria to a qualitative analysis of the taxpayer’s activities, requiring the tax authorities to demonstrate the professional and organised nature of the activity. Consequently, tax risk should be assessed not through the prism of the number of transactions or the speed of turnover, but on the basis of the entirety of the factual circumstances and their compliance with the statutory criteria of business activity.
The classification of flipping as business activity gives rise to simultaneous consequences under PIT, VAT, CIT and PCC, the scope and intensity of which depend on the form in which the activity is carried out and the specific transactional model. In this sense, the issue of flipping remains, above all, a matter of correct tax classification rather than a straightforward allocation of a given activity to a predefined tax regime.
Marta Zaręba
Senior Consultant
