Subsidy - tax settlement

Service-Tax

Entrepreneurs can take advantage of various forms of financing their business activities. One of them is a subsidy. Such co-financing can apply not only to people who are just starting their own business, but also entrepreneurs who have been operating on the market for many years. It is enough to submit appropriate applications and meet all the requirements.

Receiving a subsidy is often not the end of the entrepreneur's problems. The question that keeps the business owner awake at night is: what should the subsidy tax settlement look like? The answer is ambiguous, because it all depends on the source from which the money comes from and the purpose for which the funds were allocated.

Does the subsidy constitute operating income?

The answer to the above question should be sought in the provisions of the Act of July 26, 1991 on personal income tax (hereinafter: the PIT Act). In this case, particular attention should be paid to the provisions contained in Art. 14 sec. 2 point 2. According to them:

 

"Income from business activity also includes subsidies, subsidies, subsidies and other gratuitous benefits received to cover costs or as reimbursement of expenses, except when these revenues are related to the receipt, purchase or own production of fixed assets or intangible assets, from which, in accordance with Art. 22a-22o, depreciation write-offs are made. "

 

As you can see, a subsidy received by a taxpayer (future or current entrepreneur) to cover or reimburse current expenses generally constitutes business income. The exception to this rule are funds allocated by taxpayers for the purchase or production, on their own, of fixed assets or intangible assets, which are subject to depreciation. In such a case, the received subsidy does not constitute operating income.

Grant as tax-exempt income

Receiving a subsidy, which, according to the applicable regulations, should be considered income from business activity, is not tantamount to the obligation to tax it. Pursuant to Art. 21 sec. 1 of the PIT Act, the following are exempt from taxation:

  • subsidies, subsidies, subsidies and other free benefits or benefits partially paid, received for purposes related to agricultural activity from the state budget, budgets of local government units, from government agencies, executive agencies or from funds from foreign governments, international organizations or international institutions financial (point 47d of the above-mentioned provision),

  • one-off measures granted to an unemployed person to undertake the activities referred to in Art. 46 sec. 1 point 2 of the Act of 20 April 2004 on employment promotion and labor market institutions (point 121 of the above-mentioned provision),

  • subsidies, within the meaning of the provisions on public finances, received from the state budget or budgets of local government units (point 129 of the above-mentioned regulation),

  • payments for the implementation of projects under programs financed with European funds, received from Bank Gospodarstwa Krajowego, excluding payments received by contractors (point 136 of the above-mentioned provision),

  • funds received by a project participant as aid granted under a program financed with the participation of European funds, referred to in the Act of 27 August 2009 on public finances (Journal of Laws No. 157, item 1240, as amended ) (point 137 of the above-mentioned provision).

In connection with the above, if the taxpayer receives one of the above-mentioned forms of financial support, as a rule, he is exempt from taxation of the money obtained in this way. The support that entrepreneurs very often use are subsidies from the Labor Fund for opening a business, intended for the unemployed.

Subsidy as a source of financing expenses and tax costs

Expenses related to the conducted business activity may be a tax deductible cost. Pursuant to Art. 22 sec. 1 of the PIT Act, in order to be able to include a given expense as tax costs, it should be incurred in order to generate income or to preserve or secure its source.

The exceptions are, of course, the expenses listed in Art. 23 sec. 1 of the PIT Act, which the legislator excluded from the right to settle the costs of business activity, even if they are directly related to the obtained income. Among them are the expenses financed by the subsidy.

Pursuant to Art. 23 sec. 1 point 45 of the PIT Act, the tax costs are not included "Write-offs for the consumption of fixed assets and intangible assets made (...) from that part of their value that corresponds to the expenses incurred for the acquisition or production of these assets or intangible assets, deducted from the income tax base, or returned to the taxpayer in any form ”.

The aforementioned provision includes depreciation write-offs made from the initial value of fixed assets or intangible assets, the acquisition or production of which was financed from subsidies. In such a situation, the taxpayer is obliged to enter the assets into the records and to depreciate them, however, depreciation write-offs cannot be included in tax costs.

Moreover, pursuant to point 56 of the above-mentioned of the legal provision, also expenses and costs directly financed from the income (revenues) referred to in art. 21 sec. 1 point 46, 47a, 47c, 47d, 116, 122, 129, 136 and 137.Among them we find the tax-free subsidies in question, with the exception of one-off funds granted to an unemployed person to start a business (paragraph 121). In connection with the above, the remaining costs covered with the funds received from the Labor Fund may, as a rule, constitute a tax deductible cost from business activity. This solution is advantageous due to the fact that the funds received from the subsidies are exempt from taxation.

Purchase of a fixed asset partly from a subsidy

And what if the value of the purchased fixed assets or intangible assets significantly exceeds the value of the subsidy obtained? In this case, taxpayers finance the purchase partly from their own funds. What happens then with the depreciation charges?

If the purchase of an asset was partially financed with funds obtained from subsidies, then depreciation write-offs may not constitute only this part of the cost. This means that in order to calculate the value that may reduce the tax base, the ratio of the taxpayer's own funds share in the total initial value of the fixed asset or intangible and legal value should be determined.

The next step is to multiply the value of the depreciation write-off by the obtained ratio, which will result in the amount of interest to us that can be included in tax costs.

Subsidy - what are the benefits?

To sum up, people who intend to start their own business do not have to rely only on their own savings or apply for a loan that is difficult to access. If the undertaking is well thought out and planned, the chances of receiving support - subsidies - from European funds or other funds, increase. Thanks to this, the future entrepreneur has a chance to obtain the necessary funds to open a business, without having to return them later.