How real estate due diligence affects tax amounts – changes in property tax
On 1 January 2025, an amendment to the Act on Local Taxes and Fees came into force, introducing significant changes to the definitions of buildings and structures. These changes have a direct impact on the scope of property taxation, which in turn affects the results of due diligence analyses conducted prior to property transactions. The purpose of this article is to discuss the impact of the new regulations on the due diligence process and the tax consequences of these changes.
The amendment affects not only transaction processes, but above all the situation of property owners, including entrepreneurs, legal persons and other entities with significant property portfolios, in particular industrial properties such as production halls, warehouses and logistics complexes. The changes introduced require a re-examination of the legal and technical nature of the properties owned, as the new definitions may result in a change in the tax base and, consequently, a significant increase or decrease in tax burdens.
From a due diligence perspective, these changes require an even more thorough examination of the legal and factual status of the property, including an analysis of administrative decisions, project documentation and the current use of the facilities. Both buyers and property owners must take into account the need to adjust their tax strategy and the potential need to update the data disclosed in public records. Proper due diligence in light of the new regulations is therefore crucial to securing the interests of the parties to the transaction and minimising tax risks.
New definitions of buildings and structures 2025
The amendment to the Act on Local Taxes and Fees introduced revised definitions of buildings and structures, which are crucial for determining the subject of property tax.
Building
According to the new definition, a building is a structure erected as a result of construction works, permanently connected to the ground, with foundations and a roof. An important element is the exclusion from this definition of structures whose basic technical parameter is capacity, such as silos, tanks or warehouses for bulk materials . This means that these structures will no longer be classified as buildings, but as structures, which has significant tax implications.
Structure
The new definition of a structure covers a wide range of objects, including technical infrastructure (e.g. retention reservoirs), internal roads, fences and elements of transmission networks. A provision has also been introduced covering construction equipment, i.e. connections and installation equipment, including equipment used for sewage treatment or collection, and other technical equipment directly related to a building or structure, necessary for their intended use.
Impact of changes in property tax on the due diligence process
As part of the pre-transaction analysis, it is now necessary to determine even more precisely which elements of the property are subject to property tax and to what extent. The new regulations require a detailed verification of the status of individual facilities located on the property, including in particular industrial or specialised facilities such as production halls, warehouses, technological installations and infrastructure structures.
In practice, this means that the due diligence process should include not only a standard examination of the legal status of the property, but also a detailed technical and functional analysis of the buildings. It is crucial to obtain and evaluate design documentation, building permits, occupancy permits, and the classification of facilities in light of the new regulations. In specific cases, it may be necessary to engage construction or property appraisers in order to properly classify individual assets.
These changes also affect the assessment of risks related to a possible increase in tax liabilities in the future. A change in the classification of a property from a building to a structure or vice versa may result in a significant change in the amount of property tax, which in turn affects property valuation and investment decisions. From the buyer’s perspective, it is therefore important to take tax risk into account in the process of negotiating the terms of the transaction, including provisions regarding the seller’s liability for any tax liabilities disclosed after the closing of the transaction.
The conclusion from the above is that it is necessary to extend the scope of due diligence and increase the diligence in analysing the tax consequences of real estate acquisition in light of the amendment to the regulations. Adapting due diligence standards to the changed regulatory environment is now a prerequisite for the proper assessment of transaction risks and the protection of the parties’ interests.
Real estate due diligence and tax risks
Changes in property tax in 2025 highlight the growing importance of the tax component in the due diligence process. In the past, property tax issues were often treated as marginal compared to legal or technical issues. Today, however, they can significantly influence the decision to purchase a property or its valuation.
Due diligence should therefore include a detailed analysis of:
- current tax returns and the method of taxation of individual assets,
- potential risks associated with incorrect classification of properties,
- changes in taxation resulting from amendments,
- history of correspondence with tax authorities, including decisions and documentation from tax audits.
It is also worth remembering that if irregularities are detected on the part of the seller, the buyer may be obliged to pay outstanding taxes, interest and even incur criminal tax penalties if the tax base has been understated.
Property tax and change of ownership – due diligence for investors
In light of 2025, a change of property ownership must be assessed not only in the context of the transfer of property rights, but also in terms of the potential tax consequences that may be borne by the buyer. The amendment to the Act has increased the interest of tax authorities in checking the correctness of property taxation. In particular, tax authorities may reclassify existing buildings, which may result in an adjustment of the tax base.
For these reasons, tax analysis as part of due diligence should include not only verification of current tax returns and assessment decisions, but also an assessment of the risk of a change in the tax classification of the property in the future, including the impact of the authorities’ new approach to the understanding of the concept of a building and a structure. The lack of a detailed analysis in this area may lead to the materialisation of financial risks that will significantly affect the profitability of the investment or necessitate renegotiation of the terms of the transaction.
Tax risks when purchasing real estate – the importance of historical analysis
The current approach of the tax authorities may lead to a different classification of existing properties, which directly translates into the amount of tax liability. This is particularly important in the case of commercial and industrial properties, where a change in the tax base may lead to a significant increase in tax burdens.
In light of the new regulations, investors should not rely solely on the seller’s previous tax settlements. Each property should be individually verified in terms of current definitions and possible changes in classification in order to estimate the real level of future tax liabilities. Incorrect assessment of tax consequences may lead to a significant reduction in the profitability of an investment and, in extreme cases, to its loss of profitability.
A detailed analysis of the property’s tax history should also be an integral part of the due diligence process. This includes verification of tax returns and declarations from the last five years, assessment decisions, any adjustments and any disputes with the tax authorities. Failure to conduct a thorough analysis in this regard creates the risk of assuming liability for tax arrears arising prior to the acquisition, regardless of the new owner’s fault.
Under the current legal framework, a comprehensive tax audit of the property is essential for the proper assessment of investment risks and effective protection of the purchaser’s interests.
Tax liability – how to protect yourself
In practice, it is not enough to simply disclose the risks. It is necessary to effectively limit them contractually by:
- introducing security mechanisms, such as withholding part of the price (escrow) until the expiry of the limitation period,
- indemnity clauses in the event of arrears being disclosed after the transaction.
The lack of appropriate mechanisms in the sales agreement means that the buyer assumes the full tax risk.
Interdisciplinary due diligence – the only appropriate standard
In the current market reality, comprehensive real estate due diligence requires close cooperation between legal advisors specialising in real estate taxes, transaction lawyers and lawyers dealing with construction law. Only the full involvement of experts in these fields enables to correctly identify legal, tax and technical risks and to reliably assess the compliance of the investment with applicable construction law regulations.
The role of a construction lawyer in the due diligence process is crucial. It includes verifying the validity of building and occupancy permits, checking the compliance of the investment with the local zoning plan or decisions on building conditions, as well as assessing the risks associated with possible unauthorised construction or non-compliance of the existing condition with the design documentation. In addition, a construction lawyer should pay attention to the obligations arising from the regulations on the maintenance of buildings, such as mandatory technical inspections and periodic reviews.
Oversights in these areas may result not only in administrative sanctions, but also in additional investment costs, such as the need to legalise unauthorised construction, carry out necessary modernisation works or even demolish the building. Such obligations may significantly affect the profitability and security of the entire transaction.
An analysis limited solely to tax or technical aspects does not provide the investor with full protection. Legal and construction risks may only become apparent after the transaction has been finalised, when the possibilities for reaction and limitation of liability are significantly reduced. Effective due diligence should therefore be comprehensive, interdisciplinary and cover all key layers of risk associated with the property.
Real estate due diligence – legal and tax support for companies
If you have read this article to this point and you are an investor, property owner or property asset manager, it is highly likely that issues related to the impact of due diligence on property taxation are particularly important to you.
In response to growing market needs and a rapidly changing legal and tax environment, our law firm actively supports entrepreneurs from various sectors of the economy – including industry, manufacturing and logistics – both in the process of acquiring real estate and implementing investment projects, as well as in their day-to-day operations. The scope of our advisory services includes, in particular, real estate portfolio management, tax optimisation and ensuring that properties comply with current legal and tax regulations.
Our experience includes comprehensive legal and tax analyses, preparation and execution of transactions, as well as support in conducting business activities related to real estate, taking into account the latest legislative changes and the practices of tax authorities and administrative courts.
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