Investments in external fixed assets - tax settlement

Entrepreneurs often give up on the purchase of fixed assets, deciding to rent, lease or lease someone else's assets. It is worth emphasizing that sometimes it is connected with the necessity to incur additional expenditures, classified to a special category - investments in external fixed assets. What are they and how to tax them? You will find the answers to these questions in this article.

Investments in foreign fixed assets as a specific category of fixed assets

Investments in third-party fixed assets are expenditures incurred on someone else's fixed asset, which is used by the company only on the basis of a concluded contract (rental, lease, leasing, lending) and does not constitute its property. The following conditions must be met:

• the sum of expenses incurred for its reconstruction, expansion, reconstruction, adaptation or modernization will exceed PLN 3,500 in a given tax year,
• above the expenses will increase the value in use as compared to the value on the day of taking it into use.

Attention! The following are not considered investments in foreign fixed assets: expenses for the renovation of a foreign fixed asset (they are tax-deductible, but are not depreciated), because they only restore the fixed asset to its original state, without increasing its initial value; buildings and structures built on foreign land, as they constitute a separate category of fixed assets.

Investments in foreign fixed assets - how to estimate the initial value?

The initial value of an investment in third-party fixed assets consists of all properly documented expenses incurred to improve (expand, rebuild, modernize, adapt, reconstruct) someone else's property, except for the rent. Investments in foreign fixed assets are entered into the fixed assets register by qualifying them to the appropriate group of KŚT, which corresponds to a given fixed asset.

Important! A foreign fixed asset is not entered into the company's fixed assets register.

Investments in external fixed assets and depreciation

Investments in external fixed assets, in comparison to assets classified as ordinary fixed assets, are mainly distinguished by the fact that they are subject to tax depreciation regardless of their expected useful life.

When determining the depreciation rates, taxpayers should take into account the depreciation period for:

• investments in foreign buildings, premises, structures cannot be shorter than 10 years;

• investments in foreign fixed assets from groups 3-6 and 8 of the classification of fixed assets (KŚT)

- 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 other than mentioned cases;

• investments in foreign means of transport, including passenger cars - 30 months as a minimum.

Importantly, when determining the depreciation rate, you can use the rates from the annual List of depreciation rates for the asset that has been improved.

Investments in external fixed assets - value below PLN 3,500

The incurred expenditure on a foreign fixed asset, which does not exceed the amount of PLN 3,500, can be:

• include as tax deductible costs on the date of putting someone else's fixed asset for use, ignoring the need for their depreciation,
• amortize once in the month of commissioning or in the next month,
• amortize on the basis of accepted rates.

Investments in foreign fixed assets - the problem of VAT deduction

Deduction of VAT on investments in foreign fixed assets is closely related to the form of taxation of the conducted activity, which results from the table below:

SITUATION VARIANTS	taxable activity	non-taxable activity	mixed activity (taxed and exempt)
taxpayer	may deduct VAT from expenditure incurred	there is no right to deduct input VAT	VAT will be deducted proportionally pursuant to Art. 90 of the VAT Act

Investments in external fixed assets - sale and liquidation

When selling investments in external fixed assets, their undepreciated part constitutes the tax cost. The revenue from this sale, however, belongs to the revenue from business activity.

The situation becomes more complicated with the liquidation of investments in foreign fixed assets. On the example of a lease, tenancy or other similar agreement - when terminating it earlier than expected, the taxpayer transfers the fixed asset to the owner along with the expenses incurred. In this way, the abovementioned inputs are not physically liquidated, but only ceased to be used for the purposes of the conducted business activity. There is no loss of the statutory characteristics of a fixed asset - completeness and usability - as a result of destruction, damage, dismantling, scrapping, etc. That is why, according to numerous interpretations of tax authorities, the undepreciated part of an investment in a foreign fixed asset does not constitute tax deductible costs.

Investments in foreign fixed assets - compensation

In the event of improvements to the fixed asset by the lessee, the landlord has the right to keep the improvement by paying an amount equal to their value at the time of return or request restoration of the rented / leased fixed asset to its previous condition.

If the taxpayer receives from the owner of the fixed asset a refund of an amount equal to the undepreciated investment, this amount is not considered tax income.