In this post, we’ll shed light on the recent changes in tax legislation that could positively impact your business’s financial landscape.
Shorter Depreciation Periods: A Game-Changer for SMEs?
Recently, the Polish authorities introduced a legislative amendment allowing micro, small, and medium-sized enterprises (SMEs) to adjust their depreciation periods for certain fixed assets. Specifically, for non-residential buildings and structures, businesses in municipalities with high unemployment rates now have the option to shorten the tax depreciation period from the standard 40 years to either 10 or 5 years.
This means that depreciation rates of 10% or even 20% can be applied.
Who Can Benefit?
According to the new regulations effective from January 1, 2024, eligible businesses falling under the category of micro, small, and medium-sized enterprises, can individually determine their depreciation rates for non-residential buildings and structures. These assets fall under groups 1 and 2 of the Classification of Fixed Assets.
Conditions for Application
To apply the individually determined depreciation rates, businesses must meet specific criteria. The property must be located in a municipality where the average unemployment rate is at least 120% of the national average, and the local tax revenue per capita is less than 100% of the national average.
The depreciation period will vary based on the municipality’s unemployment rate, ensuring tailored benefits for businesses in regions facing higher economic challenges.
The new regulations will apply to fixed assets that are non-residential buildings (premises) and structures, in principle, for which a building permit was obtained after 2023 and entered in the fixed asset register.
A Note of Caution for Real Estate Companies
While these changes offer a significant opportunity for many businesses, it’s crucial to note that real estate companies may still face limitations.
The level of accounting depreciation will be a determining factor, as the new regulations won’t allow higher tax depreciation than the accounting depreciation for assets classified in group 1 of the Fixed Assets Classification.
For real estate companies applying accounting valuation of these fixed assets to fair value, we recommend requesting an interpretation of the tax law [tax ruling]. This is in connection with ongoing disputes with tax authorities regarding the possibility of taking advantage of tax depreciation rates while applyin fair value model.
De minimis
Aid in the form of a reduced depreciation period for non-residential buildings (premises) and structures constitutes de minimis aid granted to the extent and under the terms of the directly applicable acts of European Union law on de minimis aid.
Conclusion
In conclusion, the recent amendments provide a valuable avenue for eligible businesses to optimize their depreciation strategies. However, it’s essential to recognize that these benefits might not be universal, especially for real estate companies subject to additional constraints.
Feel free to reach out to our tax advisory team for personalized insights into how these changes could impact your specific business scenario.
