Can taxes be tax deductible?


What is specified in the Income Tax Act

The Personal Income Tax Act specifies which expenses incurred by self-employed persons may constitute tax deductible expenses.

According to its Art. 22 sec. 1, deductible costs are the costs incurred in order to achieve income or maintain or secure the source of income, with the exception of the costs referred to in article 1. 23. It contains information on expenses that do not constitute a tax deductible cost, and therefore do not contribute to a reduction in income tax. The act also regulates certain taxes.

What taxes are not a cost

It is important that income tax and inheritance and donation tax are categorically not recognized as tax deductible costs (Article 23 (1) (12)).

In the case of VAT - it may sometimes constitute the above-mentioned cost, as specified in Art. 23 section 1 point 43 of the Act.

VAT at a cost

In the case of entities exempt from VAT, which are this characteristic group of taxpayers, who do not have the right to deduct the input tax on purchases or apply for its refund, the tax deductible cost is the gross value on the invoice. The situation is similar when the entrepreneur imports services or WNT. Then, the input tax is a tax deductible cost, because due to the exemption, the taxpayer has no right to deduct it.

As a rule, in the case of entities that are active taxpayers, the tax on goods and services is not a cost. However, as in many situations, there are some exceptions in this respect as well. Art. 88 sec. 1 point 4 of the VAT Act regulates the issue of tax deduction for hotel and catering services. The exception in this case is the purchase of ready meals intended for passengers by taxpayers providing passenger transport services.

A situation that may arouse interest among many entrepreneurs is the purchase of a passenger car for the company. The taxpayer for this type of transaction may deduct a maximum of 60 percent. VAT, but not more than PLN 6,000. The remainder of the tax not deducted increases the initial depreciable value of the car.When purchasing fuel for a passenger car, the taxpayer is also not entitled to deduct VAT, and thus the cost is the entire gross value of the invoice. When the expenses related to the operation of a passenger car are accounted for as part of the vehicle mileage register, i.e. kilometers, then the fuel situation is similar.

An entrepreneur who performs both exempt and taxable activities (mixed sales) makes a proportional division of the input VAT (purchase). The part related to taxable activities reduces the output tax, while the part related to exempt activities is tax deductible.

The list of such exceptions is not exhaustive. The other most common taxes included in company costs include, inter alia, tax on means of transport used as part of transport business activity, tax on civil law transactions (PCC) occurring, for example, when purchasing under a purchase and sale agreement, or tax on real estate used in the conducted activity.