Purchase of real estate for a company: depreciation deductions
Depreciation is a system of periodic accounting for fixed assets, i.e., company assets. Depreciation applies to fixed assets such as structures, buildings, separately owned premises, equipment, and machinery that belong to the entrepreneur and are complete and fit for use. To qualify for depreciation, fixed assets must:
- should be used for more than one year and used for business purposes or transferred to the company on a specific basis, e.g. a lease agreement;
- should be entered into the company's fixed asset register.
Depreciation takes place from the first month following the month in which the asset or value was entered into the records.
The depreciation charges are calculated on a straight-line basis using the rate from the list of depreciation rates, which are as follows:
- 2.5% of the initial value for non-residential buildings and premises,
- 1.5% of the initial value for buildings and residential premises.
It is also possible to establish an individual rate when an asset meets the definition of a used asset and is entered into the taxpayer's records for the first time.
Depreciation charges should be charged until their total amount reaches the initial value of the building or premises or until the asset is sold or liquidated.
Purchase of real estate for a company and VAT
To the extent that goods and services are used to perform taxable activities, the taxpayer is entitled to reduce the amount of output tax by the amount of input tax. This means that when purchasing real estate for business purposes, VAT can be deducted.
VAT and PCC tax – differences
The purchase of real estate for business purposes involves the settlement of VAT or PCC tax, and the calculation rules depend on the type of seller and the nature of the transaction.
|
Transaction Aspect |
VAT |
PCC tax |
|
Seller |
entrepreneur |
natural person |
|
Tax rate |
8% for premises and buildings with an area of 150 m2 23% for properties with an area larger than 150 m2 |
2% of the property price recorded in the notarial deed |
|
Nature of the transaction |
an agreement between two entrepreneurs, e.g. a developer and an entrepreneur-investor |
civil law contract (usually applies to real estate on the secondary market) if the purchase is related to business activity, the PCC tax, similarly to VAT, can be included in tax-deductible costs |
When can VAT be deducted and when not?
Another consideration when accounting for the purchase of business real estate is how it will be used. This impacts tax deductions.
If the apartment was purchased for residential purposes, the VAT paid on the purchase cannot be deducted.
If the purchased property is used for short-term rentals and meets the criteria for a taxable business, VAT deduction is possible. The same applies to the purchase of commercial premises.
What else should you pay attention to when buying real estate for your business?
In addition to depreciation and VAT, settling the company's income tax is also crucial when purchasing real estate for business purposes. Costs related to the operation and maintenance of the property, such as renovations, repairs, or management costs, can be included in tax-deductible expenses, reducing the tax base.
If you're running a small business, even a sole proprietorship, it's worth considering purchasing a mixed-use building. This allows you to combine residential and commercial functions, for example, by arranging commercial space on the ground floor and an apartment on the first floor. Orange offers such properties, as well as those serving purely office or warehouse purposes. For more information, please contact our sales advisors.
Check out current sales offers at: Real estate sales - online offers | Orange Nieruchomości
Purchasing real estate for a company - FAQ section
Is purchasing real estate for a company always tax-efficient?
Purchasing real estate for business purposes isn't always tax-efficient. This option is advantageous when the company intends to use the building for a long period, allowing for depreciation deductions. Short-term use of the premises can result in losses.
Can an entrepreneur buy a property for a business but use it partially for private purposes?
Yes, an entrepreneur can purchase a property for business use and partially use it privately. In this case, VAT deductions and depreciation are applied proportionally to the business's share, e.g., by square footage.
How does the purchase of real estate for a business affect subsequent sales?
When subsequently selling real estate to a company, the sale date is crucial. After five years from the end of the year of acquisition, the sale is exempt from income tax. Before this date, income is taxed according to the company's tax rules (e.g., a flat 19% rate or a 12/32% scale).
Does the purchase of real estate for a business affect the entrepreneur's creditworthiness?
Yes, purchasing business property increases a company's assets, which typically improves its creditworthiness with banks for future loans. Business property can also serve as collateral for a loan, although this requires it to be listed on the balance sheet and free of mortgages.
Can the purpose of a property be changed after it has been purchased for a business?
Yes, an entrepreneur can change the intended use of a property purchased for a business, for example, from business to private use or vice versa. Such a change requires an adjustment to the deducted VAT (if less than 10 years have passed) and an update to the fixed asset register, which affects subsequent depreciation and deduction rates.