EU subsidies in the KPiR - in which column should they be included?

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Not all the funds received by the entrepreneur constitute income from operations and therefore - not all of them are entered in the tax revenue and expense ledger (KPiR). This rule applies, inter alia, to EU subsidies. How should the money thus obtained be recorded? What about the expenses incurred as part of the support received? Do you have to include EU subsidies in the KPiR?

Definition of income in accordance with the PIT Act

Considerations on whether the money received by the entrepreneur under the EU support is income should begin with the definition of income. Pursuant to Art. 11 sec. 1 of the Personal Income Tax Act (PIT), income includes all money, cash values, benefits received in kind and other free benefits that are received or put at the disposal of the taxpayer. Such benefits also include grants, subsidies and other similar benefits.

However, subsidies are usually subject to one of the exemptions contained in Art. 21 sec. 1 of the above-mentioned legal act. The absence of such an exemption for the received aid would mean that part of the funds allocated to financing a specific purpose would be spent in a different way - to cover liabilities towards the tax office (income tax). This, in turn, would be inconsistent with the intention of institutions financing aid programs, which is not, after all, supporting the state budget.

Therefore, EU subsidies are rarely included in the KPiR, as entrepreneurs are not obliged to do so.

Purchases with funds received from a grant

Subsidies can be used for various purposes, e.g. for the acquisition of fixed assets and intangible assets, or for covering other expenses. Each of these two allocations of EU funds is subject to various provisions of the Act. Pursuant to Art. 23 (1) (45) of the PIT Act, write-offs for the consumption of fixed assets and intangible assets made in accordance with the principles set out in the provisions on depreciation on the value that have been returned to the taxpayer in any form are not considered tax deductible costs. The above means that expenses for the acquisition of fixed assets, financed from a subsidy, e.g. in the amount of 60%, will be eligible for tax deductible expenses in the form of depreciation write-offs only on the amount financed by the taxpayer (i.e. from 40% of expenses in this example).

As a rule, other expenses financed from EU funds are fully excluded from the tax cost calculation. Expenses and costs directly financed from income (revenues) referred to in the article on income exemptions are not tax deductible costs (Article 21 (1) points 46, 47a, 47c, 47d, 116, 122, 129, 136, 137). Generally, expenses for the purchase of non-fixed assets, for example for salaries, purchase of services, etc., in the part that was financed with tax-exempt subsidies, do not constitute tax deductible expenses.

A special type of support is a subsidy for the unemployed to start a business, granted from the Labor Fund. In this case, different rules for the settlement of purchases made with the money received under the aid apply. According to Art. 21 sec. 1 point 121 of the PIT Act, one-off funds granted to an unemployed person to start a business are exempt from income tax. Among the provisions to which the exclusion of expenses from tax deductible costs refers (Art. 23 (1) (56)), however, there is no Art. 21 sec. 1 point 121. This means that purchases from one-off funds allocated to an unemployed person to start a business, intended for financing, for example, equipment (not constituting fixed assets), may be included in tax deductible costs. On the other hand, if the unemployed person finances fixed assets or intangible assets from the assistance funds, then the depreciation write-offs on these assets in the part covered by the subsidy will not be included in tax costs.

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EU subsidies in KPiR - records

EU subsidies in the KPiR are optional, and the expenses financed from EU funds are not tax deductible costs, therefore they are not shown e.g. in column 13 of the KPiR (other expenses) or column 10 (purchase of goods and materials). Some entrepreneurs do not post such purchases at all, keeping separate documentation necessary for the purposes related to the settlement of the received support.

Another practice is to show such expenses in col. 15 of the KPiR, which is used to enter other economic issues apart from those listed in columns 1-14. On the other hand, in column 17, the taxpayer may introduce comments as to the content of entries in items 2-16, eg “purchase financed with a subsidy”.