How to account for expenditure on a foreign fixed asset?

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Many entrepreneurs who run small-scale economic activities, or are just starting with them, use foreign fixed assets in them. However, this is not a rule, because there are also huge enterprises that, for some reasons, prefer to rent and use foreign fixed assets instead of buying or producing their own. However, such fixed assets often require a financial outlay. Check how to settle the outlays on a foreign fixed asset for tax purposes?

Tax settlement of expenses incurred on external fixed assets depends on what exactly and for what purpose they were incurred. Thus, expenses incurred on a foreign fixed asset, which are aimed at its adaptation to the current needs of the taxpayer's business activity or its improvement, will constitute an investment in the foreign fixed asset. On the other hand, the renovation of a foreign fixed asset is the expenditure incurred in order to restore its original condition or to maintain it at a constant level.

In addition, if the expenses improving the original condition of a foreign fixed asset or renovation are incurred before accepting the foreign fixed asset for use for the purposes of the enterprise, we are always dealing with an investment in a foreign fixed asset.

Unfortunately, sometimes it is problematic to determine whether the expenses incurred on a foreign fixed asset will constitute an investment or a renovation, and it is necessary to consult a specialist in a given field.

Renovation in a foreign fixed asset

If the taxpayer qualifies the expenditure on a foreign fixed asset as a renovation aimed at restoring it to its original condition or maintaining it at a constant level, such expenses may constitute tax deductible costs in the total amount on the date they are incurred - they are treated as any other related expenditure. with running a business.

Foreign fixed asset - an investment

Investments in foreign fixed assets should be depreciated over time, because under the accounting law they are treated on a par with fixed assets, but their estimated useful life is irrelevant here - they are depreciated even when the improved external fixed assets will be used for a period shorter than year. As for the depreciation rates, there are two options:

  • depreciation according to the rates specified in the List of annual depreciation rates (Annex 1, the Personal Income Tax Act) for the type of fixed asset to which the investment relates,

  • depreciation according to individually agreed rates, however, the depreciation period cannot be shorter than:

    • for fixed assets included in groups 3-6 and 8 of the Classification of Fixed Assets (KŚT):

      • 24 months - when their initial value does not exceed PLN 25,000,

      • 36 months - when their initial value is higher than PLN 25,000 and does not exceed PLN 50,000,

      • 60 months - in other cases,

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    • for means of transport, including passenger cars - 30 months,

    • for buildings (premises) and structures - 10 years,

    • for buildings (premises) and structures permanently connected with the land of commercial and service buildings and permanently connected with the ground, as well as goods kiosks with a cubature of less than 500 m3, camping houses and substitute buildings - 3 years,

    • for non-residential buildings (premises) for which the depreciation rate from the List of depreciation rates is 2.5% - 40 years minus the full number of years from the date of their first use for use until the date of entry into the register of fixed assets and intangible assets and legal entities run by the taxpayer, but the depreciation period may not be shorter than 10 years.

Investments in foreign fixed assets can be depreciated according to any method chosen by the taxpayer, as in the case of other fixed assets, and the chosen method should be applied until the initial value of the investment is fully depreciated.