Renting an apartment and tax deductible costs

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Running a business involves many costs for an entrepreneur, ranging from the purchase of materials or goods to a telephone subscription. Due to the desire to save, entrepreneurs often decide to run their business in their own home or apartment. However, when a self-employed person does not have one, he rents it for his private needs. Can you run a business in a rented apartment? Are the expenses incurred for renting an apartment tax-deductible? We explain below.

Can you run a business in a rented apartment?

In principle, it is possible to run a business in a rented apartment. However, several conditions must be met:

1. Legal title to the premises.

The first and most important condition is that the entrepreneur has a legal title to the premises. It can be a lease agreement. Importantly, if the premises are to be used also for business purposes - this annotation should be included in the contract. If one of the rooms in the apartment will be used for business purposes, please indicate which.

2. The consent of the owner of the apartment.

In a situation where the entrepreneur rented a flat some time before the commencement of the activity, and only then started it up, he should obtain the consent of the owner of the premises for this circumstance. In this situation, it is best to prepare an annex to the premises lease agreement.

3. Reporting the address of business activity in CEIDG-1.

An entrepreneur operating in a rented apartment should report it as a place of business or as an additional place of business in CEIDG.

4. Notification of the change of use of the premises.

The owner of the flat, who has agreed to operate in the rented flat, if the flat has a separate area intended only for the purposes of the activity conducted by the tenant, should notify the commune office or city activity). As a rule, it will be obliged to pay a higher real estate tax on the area intended for business activity.

It should be noted that not always the registration of the business in a private / rented apartment will oblige the owner to pay a higher property tax. In a situation where the area intended for activity is also used for private purposes, there will be no need to pay a higher real estate tax.

Tax deductible costs - what is it?

Art. 22 sec. 1 of the Personal Income Tax Act indicates exactly what expenditure can be considered tax deductible. According to its content, corporate costs may be those expenses that were incurred for the purpose of:

  • achieving revenues or

  • retain earnings either

  • securing the source of income,

- provided that it has not been listed in the catalog of non-tax deductible costs (Article 23 of the Act).

What is important, and what taxpayers often forget, is the fact that they, as entrepreneurs, are obliged to demonstrate an appropriate relationship between the cost incurred and the income earned.

If the expense meets the definition of a tax cost, you should also remember to properly document it, e.g. with an invoice.

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A rented flat at company costs - documentation

Expenses incurred for renting an apartment that is used for business activity (in whole or in part) may constitute a tax deductible cost, provided that the entrepreneur demonstrates a relationship between the expenses incurred and the company's revenues. However, this is not all, as mentioned above, the expense must be properly documented - by an invoice or a bill. Please note that the evidence cannot be limited to these documents only. Because they only inform about the amount of the tenant's obligation towards the landlord. It is worth keeping records in the documentation that would state that the activity is actually carried out in a given premises.

An entrepreneur who rents an apartment for both private and business purposes must remember that the costs cannot include the full rent. If two items are distinguished on the invoice - separate for each of the purposes - then the company costs only the rent for business purposes. However, when it is a total bill, a proportional calculation of the cost should be made, e.g. on the basis of the share of the area intended for activity in the total area of ​​the premises.

Example 1.

The entrepreneur rents out a flat (residential + business) with an area of ​​55 m2 from a private person. The room intended for activity is 15 m2. For a given month, the landlord issues a total invoice for the amount of PLN 1,500. What part of this amount can the entrepreneur qualify as operating costs?

  1. Establishing proportions

(15 m2: 55 m2) x 100% = 27.27%

  1. Determining the cost of obtaining income

PLN 1,500 x 27.27% = PLN 409.05

Accounting for costs related to renting an apartment

Entrepreneurs taxed on general principles or with a flat rate tax disclose the rent in col. 13 KPiR - other expenses. If the expenditure is documented with a VAT invoice with the company data and tax identification number provided, the deductible tax must be included in the VAT purchase register.

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Entrepreneurs taxed with a lump sum on recorded revenues due to the form of taxation cannot show rent in company costs. If the flat-rate company is also an active VAT payer and the rent is invoiced, it can deduct input VAT by showing it in the VAT purchase register.