Purchase before business registration - PIT and VAT deduction

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Even before starting a business, entrepreneurs often incur expenses related to its launch. Can the purchase be settled in costs and VAT deducted prior to the registration of the activity? What conditions must be met?

Pre-business purchase in costs

If the expenses incurred before the commencement of the activity relate to the conducted activity and when incurred, the taxpayer already decided that the purchase was made with the activity in mind, he may record them as tax deductible expenses.

Important!

A tax deductible cost is an expense incurred in order to earn income or to preserve or secure its source. In addition, the expense cannot be included in the catalog that has been excluded from tax costs pursuant to Art. 23 of the PIT Act, i.e. it cannot be classified as non-tax deductible costs.

There is no specific time to book the expense in costs, as it is assumed that the expense can be booked in any period, limited to the end of the tax year. Therefore, if the future entrepreneur incurred the cost related to the business activity (e.g. he made business cards for advertising purposes) in the same year in which he intends to start operating, such a cost can be easily included in company costs.

However, it should be emphasized that in order for the expenditure to be booked in costs, it should be properly documented, so the taxpayer should have an accounting document. The basic accounting documents on the basis of which the expenditure can be recognized in costs are primarily:

  • VAT invoices, invoices without VAT, VAT-margin invoices, VAT RR invoices, VAT invoices MP,

  • customs documents,

  • correction invoices and correction notes,

  • daily statements of evidence,

  • accounting notes,

  • proofs of postage and bank charges,

  • other proofs of fees.

Example. 1

Mr. Piotr bought business cards in May. It plans to start economic activity on July 3. Can such a purchase prior to business registration be its corporate expense?

Purchasing business cards can be a tax-deductible cost. In order to be able to book it, Mr. Piotr should have an invoice. However, the booking is made not with the actual invoice issuance date, but with the date of commencement of business activity.

Attention!

An exception to the pre-operation posting of purchases is trade goods or basic materials. They are not subject to records, but only shown in the physical inventory as of the day of commencement of operations.

The valuation is made on the basis of the net purchase prices or acquisition prices, but also on the basis of market prices on the date of the inventory, if they are lower than the purchase or acquisition prices. However, such a valuation can only be made if you have proof of purchase.

Purchase before business registration and VAT

The provisions of the VAT Act do not limit the right to deduct VAT on purchases prior to business registration. In this case, unlike in the case of PIT, VAT can be deducted only within a specified period.

The basic condition that a future entrepreneur must meet in order to deduct VAT on purchases before registering the company is that they should be used for taxable activities.

The right to deduct VAT is granted in the period in which the VAT invoice was received (quarter or month, depending on the method of VAT settlement chosen by the entrepreneur) or in two consecutive settlement periods.

Example 2.

Mr. Piotr chose the monthly method of VAT settlement. Therefore, if he made the purchase in May and then also received an invoice, in accordance with the regulations, he could deduct VAT in May, June or July (deadline). The purchase is therefore within the time limit for the deduction of VAT and the invoice can be fully booked on the day of commencement of business activity.

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What expenses can an entrepreneur incur before starting a business?

The most popular purchases before registering a business are obviously related to its launch - rental of premises, purchase of equipment, the price of legal advice or stamp duties:

  • rental fees for the rented premises - such expenses should be properly justified before starting a business (e.g. the condition of consent to start a business is having a premises or running a business requires a properly adapted premises),

  • interest on a loan obtained for business purposes - this also applies to a situation where the interest was paid before the start of the business. Only interest paid and capitalized may be booked as costs,

  • expenses related to raising the qualifications of an entrepreneur - may be a cost if the entrepreneur can start business only after completing a vocational course, post-graduate studies or obtaining specific professional qualifications. The knowledge gained during such trainings cannot be general knowledge that concerns everyday life or is unrelated to the conducted business activity,

  • purchase of fixed assets, intangible assets and equipment.

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