Purchase of land and construction of a building at PKPiR


In a company that is focused on development and investments, a frequent problem is the settlement of land purchase and construction of a fixed asset that will be used in the conducted activity. The reasons for the difficulties in accounting for these operations are the difference between settlements in income tax and VAT, the right to be recognized as a tax deductible cost, as well as determining the initial value of the fixed asset for the calculation of depreciation.

At the time of purchase of land, it is recognized as a fixed asset and entered in the fixed assets register in the month of its purchase, because it will most likely be used for more than a year. However, according to Art. 22c of the Personal Income Tax Act, it is not subject to depreciation. Pursuant to Art. 23 sec. 1 point 1a u.p.d.o.f. also the expenses incurred for its purchase cannot be recognized as tax deductible costs. The incurred expense may be deducted only upon the possible sale of the land.

If a building is constructed in the purchased area, which will be used for business purposes, then after its construction is completed, the expenses incurred for its construction can be recognized in the revenue and expense ledger. For this purpose, it is necessary to calculate the initial value of the building, which will be the basis for depreciation. The initial value of this fixed asset will be the net sum of expenses incurred for this purpose. At the same time, it should be remembered that depreciation is included in tax deductible costs from the month following the month in which the fixed asset was put into use.

Example 1.

The company has built a commercial premises with a warehouse on the purchased land. The following costs were incurred in connection with the construction:

  • development of the plot: PLN 30,000 net + PLN 6,900 VAT
  • construction materials: PLN 220,000 net + PLN 50,600 VAT
  • construction company: PLN 35,000 net + PLN 8,050 VAT
  • geodetic company: PLN 6,000 net + PLN 1,380 VAT
  • The total net construction cost is PLN 291,000, which is equal to the initial value of the building, on the basis of which the depreciation will be made.

The facility was commissioned in April 2013 and has been used for business purposes since that month.

Calculation of depreciation using the straight-line method (depreciation rate in accordance with Annex 1 to u.p.d.o.f., "list of annual depreciation rates") in the case of annual, quarterly and monthly depreciation:

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Annual depreciation: PLN 291,000 x 2.5% = PLN 7,275

to be deducted in 2013: PLN 4 850 - for the months from May to December

Quarterly depreciation: PLN 7,275: 4 quarters = PLN 1,818.75

to be deducted in Q2 2013: 1,212.50 - for two months of the quarter (May and June)

Monthly depreciation: PLN 7,275: 12 months = PLN 606.25

The monthly depreciation write-off for this fixed asset amounts to PLN 606.25 and should be entered as an internal document in column 13 of the revenue and expense ledger in May 2013. In the case of quarterly recognition, the first write-off should be included in June 2013, and annual - in December 2013 r. In the event of depreciation write-offs for other fixed assets, their value is added up and entered by one item in the KPiR. Please note that you cannot change the selected method of depreciation of fixed assets during a given tax year.

In the case of settling the tax on goods and services, it does not matter whether the construction has been completed.VAT on expenses incurred for this purpose may be deducted on general principles, i.e. in the month of issuing the invoice or in two subsequent billing periods, but not earlier than on the date of receipt of the invoice and on the condition that the constructed facility serves activities subject to tax on goods and services. When creating a VAT-7 declaration, these expenses are included in item 39. net amount and in item 40. VAT amount - as "acquisition of goods and services classified as fixed assets by the taxpayer".