Fixed assets in a company – tax ABC
January 23, 2024
When running their businesses, most entrepreneurs make various types of investments necessary to sell goods or provide services. It is worth remembering that some of these expenses, especially fixed assets, require a special method of settlement for tax purposes – regardless of whether we settle based on the PIT or CIT Act.
What are fixed assets?
Interestingly, none of the tax laws contain a definition of a fixed asset. Both the PIT Act and the CIT Act we do find however the conditions that must be met for a given asset to be recognized as a fixed asset.
There are essentially five conditions:
- they must be owned or co-owned by the taxpayer (importantly, in the case of co-ownership, the percentage required for inclusion in fixed assets is not indicated)
- were acquired or produced by the taxpayer on their own
- are complete and operational
- their expected period of use is longer than one year
- will serve the entrepreneur in their business activities
Fixed assets can therefore be among others buildings, constructions, machinery, tools, and cars.
IMPORTANT! Once we classify a given asset as a fixed asset, we must enter it in a special register called the register of fixed assets. It is worth adding that the Classification of Fixed Assets (CoFA) 2016 is currently used to identify and properly record fixed assets.
How to settle a fixed assets for tax?
Correct classification of a given asset as a fixed asset is important because the costs related to its production or acquisition should be settled differently than current expenses incurred as part of the business activity.
The costs incurred by an entrepreneur to build or purchase a fixed asset cannot be settled once, at the time of posting an invoice regarding its purchase or making a payment. Such expenses should be settled by making the so-called depreciation deductions. Depreciation is nothing more than a gradual settlement over time (usually monthly) of costs related to a given fixed asset.
There is one important exception to the above rule: if the value of a fixed asset does not exceed PLN 10,000, it is possible to settle the expenses once, when the asset is put into use. Importantly, the decision on how a fixed asset worth less than PLN 10,000 will be settled in tax costs rests with the entrepreneur – he or she can settle it once or through depreciation write-offs.
The next important information is that from certain assets, even if they meet all of the above conditions, we cannot settle through depreciation write-offs, and they are:
- land and the right of perpetual usufruct
- works of art
- assets that are not used by us due to the suspension of business activities
The initial value of the fixed asset
If we already know that we must settle fixed assets through depreciation write-offs, we need to know how to determine the amount from which we should make these write-offs – that is, we must determine the initial value of the fixed asset.
The method of determining the initial value depends on how a given fixed asset entered our business activity.
Below we present the two most popular methods of determining the initial value:
- price of purchase – in the case of purchased fixed assets; it is worth noting that we include the cost of transport, insurance, assembly, installation or activation in the initial value. It is also important to note that all these values are taken in net amounts, i.e. without VAT (an exception is provided for those taxpayers who cannot deduct VAT in whole or in part)
- production cost – in the case of assets produced internally, in particular goods purchased to produce a given fixed asset, costs of external services as well as the cost of remuneration of employees who participated in the production of a given fixed asset.
Depreciation write-offs
After determining the initial value, the depreciation charges should be calculated. The amount of depreciation generally depends on the type of fixed asset. To determine the amount of the depreciation write-off, you need to find the fixed asset in the list of annual depreciation rates, which constitute an annex to the PIT Act and the CIT Act, respectively. These rates may be lowered or increased, depending on the type of asset and how it is used. The amount of depreciation is also influenced by the chosen depreciation method.
It is worth noting that we make the first depreciation write-off starting from the month following the month in which we entered the fixed asset into the register.
Depreciation methods
Tax laws provide for several depreciation methods. The most popular is the so-called straight-line method involves including depreciation deductions in tax costs at a fixed amount until the fixed asset is completely depreciated.
The opposite of this method of settling a fixed asset is the so-called degressive method. It is worth noting that it only applies to fixed assets belonging to groups: 3, 4, 5, 6, 8 (CoFA), as well as means of transport (except passenger cars). To use this method, the taxpayer assumes the highest rate and lowers it as the asset is used. The decreasing method can be used until the depreciation deductions are lower than they would be if the straight-line method was used. Then, the straight-line method is switched to the beginning of the next tax year.
In the case of fixed assets entered into the company’s records for the first time, which are improved or have been used, an individual depreciation rate may be established. In such a case, he must also remember to set the minimum depreciation period – from 24 to 60 months depending on the initial value of fixed assets and 30 months in the case of means of transport.
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