Is it possible to depreciate an investment in a foreign fixed asset once?

Investments in foreign fixed assets are often troublesome for entrepreneurs. In the case of investments related to own, owned fixed assets, the regulations clearly define when a one-off depreciation write-off can be made. However, it is difficult for taxpayers to determine whether the applicable regulations also apply to investments in foreign fixed assets.

Depreciation

Art. 22a sec. 1 of the Personal Income Tax Act states that the subject to depreciation are those owned or jointly owned by the taxpayer, acquired or manufactured on their own, complete and fit for use on the date of acceptance for use:

• structures, buildings and premises owned separately,
• machines, devices and means of transport,
• Other items

- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental or lease agreement or an agreement referred to in art. 23a, point 1. Such assets are called fixed assets. The specific depreciation rates for individual fixed assets are included in Annex 1 to the Personal Income Tax Act.

Depreciation of investments in foreign fixed assets

According to the ordinance of the Council of Ministers of 10/12/2010 on the Classification of Fixed Assets (Journal of Laws No. 242, item 1622), all improvements (investments), i.e. reconstructions, extensions, reconstructions, adaptations, modernizations in foreign fixed assets, classified are in the respective groups KŚT. The classification is made in relation to the fixed asset directly affected by the improvement. So if, for example, a taxpayer modernizes a production machine, this improvement will be assigned to the value of the machine and will be classified in the appropriate group of fixed assets to which a specific machine is assigned.

Art. 22a sec. 2 of the PIT Act regulates that accepted for use investments in foreign fixed assets, called "investments in foreign fixed assets", are also subject to depreciation, regardless of the expected period of use.

Taxpayers may (but do not have to) independently set their own depreciation rates for investments in foreign fixed assets. However, note that the depreciation period for:

• investments in foreign buildings, premises, structures cannot 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.

Taxpayers may also depreciate the above-described investments according to the annual premiums listed in the appendix to the PIT Act.

Thus, on the basis of the above-mentioned regulations, investments in foreign fixed assets are subject to depreciation. A problem for the taxpayer may be the possibility of making a one-off depreciation write-off in their case.

One-off depreciation write-off

As for one-off depreciation, according to Art. 22k paragraph. 7 of the Personal Income Tax Act, taxpayers in the tax year in which they started their activity, as well as small taxpayers (i.e. those whose income together with the VAT due in the previous year did not exceed EUR 1.2 million), may make one-off write-offs depreciation on the initial value of fixed assets.

These write-offs can be made for fixed assets included in group 3-8 of the Classification of Fixed Assets, with the exception of passenger cars. The write-offs are made in the tax year in which these assets were entered into the register of fixed assets and intangible assets, up to the amount not exceeding in one year the equivalent of EUR 50,000 of the total value of these depreciation write-offs.

Pursuant to the PIT Act, taxpayers keeping the KPiR may apply a one-off depreciation write-off for fixed assets whose initial value does not exceed PLN 3,500.

Moreover, pursuant to Art. 22k paragraph. 11 of the PIT Act, one-off depreciation may not be applied by a taxpayer who commences a business activity, who in the year of commencement of this activity, as well as within two years, counting from the end of the year preceding the year of its commencement, conducted business activity independently or as a partner in a company without legal personality . Such a write-off cannot be made if the activity was carried out by the spouse of that person and there was joint property between the spouses at that time.

One-off depreciation write-off of investments in external fixed assets

In the light of the above-mentioned regulations, an investment in a foreign fixed asset is the value of the fixed asset it relates to and, pursuant to the PIT Act, it is also called a fixed asset. There are no specific provisions in the act that would regulate the possibility of making one-off depreciation write-offs of investments in foreign fixed assets.

Thus, in line with these findings, to the above investment, the general provisions on the possibility of making a one-off depreciation write-off apply. On their basis, it is considered that an investment in a foreign fixed asset can be depreciated once, after meeting the above-mentioned general conditions for fixed assets. The most important of them is classifying these investments into groups 3 -8 KŚT, excluding passenger cars.