Investments in foreign fixed assets
Entrepreneurs use not only their own fixed assets but also external funds as part of their activities. The incurred financial outlays for fixed assets, which are not a component of the company's assets, were defined as investments in foreign fixed assets. What are they exactly and how to account for them in the article below!
What are investments in foreign fixed assets?
Investments in a foreign fixed asset are expenditure on a foreign fixed asset that is not owned by the company but is used on the basis of a lease, lease or other similar agreement.
Improvement of a foreign fixed asset will take place when the sum of expenses incurred for the reconstruction, expansion, reconstruction, adaptation or modernization of the foreign fixed asset exceeds PLN 10,000 in a given fiscal year (net for active VAT payers or gross for VAT-exempt taxpayers), and these expenses are will increase the value in use in relation to the value on the day of acceptance for use.
Buildings and structures built on foreign land are not an investment in a foreign fixed asset.
Renovation and investments in foreign fixed assets
The essence of renovation is to restore the original technical and functional condition of a fixed asset together with the replacement of worn technical components, without changing its nature and function. Renovation does not increase the initial value of the asset. It is an expense constituting a tax deductible cost, but it is not amortized. So it is not an investment (improvement) because an improvement should be understood as a permanent modernization of a fixed asset, which increases its use value.
However, an exception to this rule is the situation where the works are aimed at adapting the premises to the needs of business activities, where the very fact of changing the intended use of the premises indicates that the taxpayer will modernize it. Then, in this part, the taxpayer's expenses are investment expenses and are subject to depreciation.
Initial value of an investment in a foreign fixed asset
The initial value of an investment in a foreign fixed asset will consist of all properly documented expenses incurred for this purpose.
Investments in foreign fixed assets are entered into the records on the basis of the appropriate KŚT group to which the improved fixed asset belonged. It should be remembered that the same foreign fixed asset used on the basis of a lease, tenancy and other agreement cannot be entered into one's own fixed assets register.
The rental fee does not improve foreign fixed assets.
Depreciation of investments in foreign fixed assets
Investments in foreign fixed assets are depreciated regardless of their estimated useful life.
Taxpayers can independently set their own depreciation rates for improvements in foreign fixed assets. However, you need to remember that the depreciation period for:
- investments in foreign buildings, premises, structures may not be shorter than 10 years
- investments in foreign fixed assets included in groups 3-6 and 8 of the classification of fixed assets (KŚT) is:
- 24 months - when their initial value does not exceed PLN 25,000
- 36 months - when their initial value is greater than PLN 25,000 but does not exceed PLN 50,000
- 60 months in all other cases
- investments in foreign means of transport, including passenger cars, the minimum depreciation period must be 30 months.
An investment in a foreign fixed asset can also be depreciated according to the rates from the annual list of depreciation rates corresponding to the fixed asset affected by the improvement.
When a fixed asset is used on the basis of a rental, lease or other similar agreement, the duration of the agreement should be taken into account when determining the depreciation rate.
An investment in a foreign fixed asset, the value of which is less than PLN 10,000
In the case of an investment in an external fixed asset, the value of which is less than PLN 10,000, there are several solutions:
- expenditures incurred can be included in tax deductible costs directly on the date of putting the third-party fixed asset into use, without the need to depreciate them,
- can be depreciated once in the month of commissioning or in the following month,
- can be depreciated using the accepted depreciation rates.
VAT deduction and outlays on external fixed assets
The deduction of VAT on investments in foreign fixed assets is carried out on general principles, i.e .:
- when the investment in a foreign fixed asset will serve a taxable activity, the taxpayer may deduct VAT from the expenditure incurred
- when the investment in a foreign fixed asset will serve a tax-free activity, then the entrepreneur has no right to deduct input VAT
- when the investment will serve a mixed activity (taxed and exempt), then the VAT will be deductible on the basis of the proportion determined in accordance with art. 90 of the Value Added Tax Act.
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Sale and liquidation of investments in foreign fixed assets
When selling an investment in a foreign fixed asset, its undepreciated part constitutes tax deductible costs. However, the revenue from its sale is tax revenue.
As for the liquidation of investments in foreign fixed assets, the situation is quite difficult. When the lease agreement or another of a similar nature has been terminated earlier than expected, the taxpayer will hand over the fixed asset to the owner along with the expenses incurred by him. So there is no physical liquidation of these inputs, but only the cessation of their use for the needs of business activity. The non-depreciated part of the investment in a foreign fixed asset is not tax deductible. This is due to numerous interpretations of the tax authorities.
However, the non-depreciated value of an investment in a foreign fixed asset may be added to the tax deductible costs when it has been physically liquidated, understood as the loss of the statutory qualities of the fixed asset, i.e. completeness and suitability for use as a result of e.g. destruction, damage, disassembly, scrapping, etc.
Compensation for an investment in a foreign tangible asset
Pursuant to the provisions of the Civil Code, if the tenant has improved the fixed asset, the lessor, in the absence of a different agreement, may, at his discretion, either keep the improvements for a sum corresponding to their value at the time of return, or demand restoration of the previous state.
If the taxpayer receives from the owner of the fixed asset a refund of the amount equal to the undepreciated investment, the amount received will not be tax revenue.