Donation of a company real estate - effects in PIT and VAT
One of the basic components used in the conducted business activity is real estate. It happens, however, that the entrepreneur is interested in making a corporate donation of real estate after a longer period of use. It is therefore worth considering the tax consequences of donating a company's real estate.
Real estate donation based on VAT
It may be surprising that the donation of a corporate ingredient is an activity that may have specific effects on the basis of VAT. It should be noted that pursuant to Art. 7 sec. 2 point 2 of the VAT Act, taxable also apply to the transfer of goods belonging to his enterprise free of charge by the taxpayer, in particular any donation, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on account of acquisition, import or production these goods or their component parts.
As a consequence of the above provision, if the taxpayer deducts input tax when acquiring real estate, making a free donation (which is equal to a paid delivery of goods) is an activity subject to VAT on the donor's side.
If the entrepreneur deducted input tax when purchasing or producing real estate, then the subsequent donation of the company's real estate is an event that gives rise to the obligation to pay VAT.
VAT donation exemption
An entrepreneur who is faced with the prospect of paying VAT on account of a planned donation must be aware that it is possible to take advantage of a tax exemption. Well, according to Art. 43 sec. 1 point 10 of the VAT Act, the supply of real estate (also free of charge) is exempt from tax, except when:
the delivery is made at or before the first settlement;
a period of less than two years has elapsed between the first occupancy and the delivery of the building, structure or parts thereof.
By the first settlement - in accordance with Art. 2 point 14 of the Act - it means putting into use to the first buyer or user or starting to use buildings, structures or parts thereof for their own needs, after their:
improvement, if the expenses incurred for the improvement, within the meaning of the income tax regulations, constituted at least 30% of the initial value.
As you can see, the condition for taking advantage of the described exemption is that the sale of the property takes place two years after the commencement of the use of the property for one's own needs.
However, it should be borne in mind that although the property donation may benefit from the VAT exemption described above, it will also result in the need to correct the previously deducted VAT on expenses for the purchase and improvement of the property. According to Art. 91 paragraph. 6 of the VAT Act, if the goods are tax-exempt during the correction period - for the purpose of making corrections, it is assumed that further use of the goods or service is only related to tax-exempt activities.
Pursuant to Art. 91 paragraph. 2 of the VAT Act, in the case of real estate, the correction period is as long as 10 years.
Moreover, the obligation to correct applies not only to the tax deducted from the purchase of real estate, but also the tax deducted from expenses for improvement / modernization of real estate (if they exceed PLN 15,000).
The taxpayer purchased the property in 2015. He deducted input tax from the purchase expense. In 2020, he decided to donate real estate to his son. In this case, the entrepreneur may benefit from VAT exemption under Art. 43 sec. 1 point 10 of the VAT Act. At the same time, the entrepreneur will be required to make an in minus adjustment of the input tax amounting to 4/10 of the amount deducted upon purchase.
If the donation of real estate is exempt from VAT and if less than 10 years have passed since the purchase or improvement, the donor will be obliged to make a minus adjustment of the input tax deducted earlier on the costs of purchase and production.
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Donation of a company real estate based on PIT tax
Moving on to discussing the presented issue on the basis of PIT, it should first be emphasized that the donation agreement is not subject to income tax under Art. 2 clause 1 point 3 of the PIT Act.
Any donation agreement, including corporate property donation, is subject to inheritance and donation tax. In this case, the tax obligation rests with the recipient. Naturally, in the event of a donation between members of the immediate family, the recipient may take advantage of the total tax exemption under Art. 4a of the Inheritance and Donation Tax Act.
The very agreement on corporate donation of real estate does not have any income tax consequences. This type of legal transaction is excluded from the scope of personal income tax.
Donation of company real estate and adjustment of depreciation write-offs
The initial value of corporate real estate is included in costs by making systematic depreciation write-offs. Therefore, the question arises whether donating real estate involves the need to correct previously deducted depreciation charges.
First, let us pay attention to the content of Art. 23 sec. 1 point 49 of the PIT Act, which states that expenses incurred for the purchase of gradually consuming tangible assets of the enterprise, not included in fixed assets in accordance with separate regulations - if it is found that these components are not used for the purposes of of conducted business activity, but serve the personal purposes of the taxpayer, employees or other persons or are located outside the company's seat without justification.
The aforementioned provision should therefore apply to adjusting costs if it is found that the purchase of assets was not made for the purposes of business activity, but for the personal purposes of the taxpayer (specified person). It does not constitute a basis for excluding from the costs of expenses incurred for the purchase of assets used for business purposes, and then withdrawn and donated.
As explained by the Director of the National Tax Information in an individual ruling of January 11, 2018, No. 0112-KDIL3-3.4011.209.2017.2.KP, in the case of donation of fixed assets - donation as one of the forms of disposal sets the date of completion of depreciation write-offs. However, it does not require any corrections. Write-offs accrued during the use of the asset for the purposes of the business remain a tax-deductible cost for the donor. The last depreciation write-off against the initial value of the depreciated fixed asset, which is then donated, can be made for the month in which the donation was made.
In the case of a corporate donation of real estate, there is no need to adjust the already made depreciation in minus. Write-offs accrued over the period of using the asset for the purposes of the activity remain a tax-deductible cost for the donor. However, the donation does not require any corrections.
Moving on to the summary of this article, it should be pointed out that the donation of a company's real estate is a legal act that has specific effects in both PIT and VAT. It is worthwhile for taxpayers to be aware of any tax consequences before deciding to donate a corporate real estate.