Taxes in tax deductible costs - is it possible?

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From the definition of tax deductible costs, i.e. company costs, it follows that these are expenses incurred in order to obtain income, preserve or secure its source. Expenses that categorically cannot constitute a company cost are listed in Art. 23 of the PIT Act. Among them there are, among others taxes. However, it should be noted that in some situations entrepreneurs will be able to include taxes as costs.

Taxes in tax deductible costs - is it possible?

In principle, amounts paid for tax liabilities cannot be deductible for tax purposes. This rule mainly applies to:

  • income tax,

  • inheritance and donation tax and

  • a tax on the extraction of certain minerals.

However, these are not all taxes that an entrepreneur may be charged with. In some cases, certain taxes with which the taxpayer is charged as part of his business may be counted as tax deductible costs. Thus, taxes that can be included in costs include:

  • tax on civil law transactions (PCC),

  • tax on means of transport classified as fixed assets, or

  • tax on real estate used for business purposes,

  • excise duty (provided that it does not apply to excessive losses and shortages).

Attention!

In order for the above taxes to be a cost at all, they should not only be related to the activity performed, but also be paid. They are usually booked on the basis of payment receipts, contracts, decisions issued on their assessment (real estate tax).

Taxes in costs - VAT

According to the PIT Act, tax on goods and services is not recognized as tax deductible cost. There are, however, a few exceptions to this rule that entitle the taxpayer to include VAT in company costs.

The taxpayer is exempt from VAT

Taxpayers exempt from VAT can recognize VAT as tax deductible costs, regardless of the type of exemption they benefit from - objective (due to the type of activity performed) or subjective (due to the turnover not exceeding PLN 200,000). Taxpayers exempt from VAT have the right to deduct gross corporate expenses as costs, as they cannot deduct VAT from expenses. Thus, VAT is a cost in their case.

It is also worth noting that the taxpayer benefiting from the VAT exemption will include this tax in tax deductible costs, including for intra-Community transactions, when as a buyer of goods or services, he is obliged to charge and remit VAT to the tax office.

Attention!

Taxpayers exempt from VAT on the purchase of intra-Community services are required to independently calculate and pay VAT and show it in the appropriate declaration - VAT-9M.

Taxpayers exempt from VAT who purchased goods from a contractor from the European Union, only after exceeding the agreed limit of PLN 50,000 of the purchase, are required to submit VAT-8 to the tax office and pay the resulting tax.

Mixed sale

The entrepreneur who conducts mixed sales, although not for every purchase, is eligible for VAT costs. The taxpayer should determine which expenses are related to VAT taxable income and which are exempt. Additionally, it should identify costs that cannot be clearly classified into either of these two groups.

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In such a situation, VAT on purchases related to exempt sales can be considered as a tax cost in the full amount, while the one related to costs not explicitly qualified to any of the groups - on the basis of proportions.

Attention!

VAT on expenses incurred in connection with sales subject to VAT is not a cost - it is accounted for separately in the VAT declaration.

Active VAT payer

In some situations, VAT may also be a cost for active VAT payers. This is due to the fact that, as a rule, taxpayers are not entitled to a VAT deduction on some purchases. This mainly applies to the purchase of:

  • accommodation services,

  • catering services,

  • purchase of fuel and other operating expenses related to a passenger car used for mixed purposes - it is possible to deduct only 50% of VAT on the purchase of fuel and other operating expenses related to the vehicle. Then, 50% of the non-deducted VAT increases the net amount from the invoice, i.e. it is allocated to costs.

Attention!

Food service should be eligible for tax deductible expenses with caution as in this case there is a very fine line between corporate and entertainment expenses. In principle, entertainment expenses cannot be a corporate expense.

Representation does not have a statutory definition, so it is very difficult to decide exactly what expenditure will be the representation. For the proper definition of the concept of representation, the most important thing is the purpose of incurring a specific expense. Representation, in accordance with court rulings, is an activity aimed at creating and consolidating a positive image of the taxpayer towards other entities, and it is necessary to analyze all the circumstances in order to definitively assess whether the taxpayer's action actually constitutes representation.

Therefore, if the purchased catering service (lunch with the contractor) is intended to present the entrepreneur in a favorable light (e.g. to facilitate the conclusion of the contract, or even to create favorable conditions for its conclusion), there is a risk that such an expense will be questioned by the tax office.

VAT tax and the purchase or leasing of a car

You should pay attention to VAT when buying or leasing a passenger car. Before buying or leasing, the taxpayer should determine whether the vehicle:

  • it will be used only for business purposes - then it is entitled to a 100% VAT deduction provided:

    • reporting the vehicle to the tax office on the VAT-26 form,

    • keeping a detailed VAT mileage test and

    • introducing the regulations of using the vehicle in the company,

  • will be used in business and privately - then 50% of the VAT amount can be deducted from the remaining, non-deducted part of the VAT goes to costs.

In practice, there are many situations in which taxes can be recognized as deductible. Costs lower the tax base, and thus - reduce the amount of tax due to the tax office, so it is worth knowing what expenses can be classified as company costs.