Private rental vs business activity – where is the line?

Entrepreneurs often wonder where their private assets end and where business assets begin. Unfortunately, Polish tax law does not make this distinction easy. As a result, private activities – such as renting out a property – may have a direct impact on business tax obligations.

Private rental – a common trap

Under PIT rules, rental income can be treated as private asset management and taxed with a lump sum. Many taxpayers assume this has no impact on their business operations. However, when it comes to VAT, the tax authority takes a different view.

The taxpayer’s case

One entrepreneur, who rented out a house privately (not within his business activity), asked whether such rental income should be included in the PLN 200,000 threshold for VAT exemption. He believed it should not. The tax authority disagreed.

Tax authority’s reasoning

The Director of the National Tax Information (KIS) explained that:

• although auxiliary activities can be excluded from the VAT exemption threshold, real estate rentals are treated differently,

• rental activity falls within the statutory definition of “business activity” for VAT purposes, (Article 15(2) of the VAT Act)

• in this case, the rental was not “auxiliary” but a separate source of income.

Therefore, private rental income should be counted towards the VAT exemption threshold.

What does this mean for businesses?

For entrepreneurs relying on VAT exemption, private rental income may accelerate the loss of this privilege. Exceeding the threshold forces VAT registration and full compliance with VAT reporting.

Legal basis:

Individual interpretation of the Director of the National Tax Information of 21 August 2025, reference no.: 0111-KDIB3-3.4012.463.2025.1.AM