- 27 October 2021
- Posted by: Przemysław Bukowski
- Category: Articles
When running a business in Poland, all entrepreneurs incur various costs. Some costs are not directly or indirectly related to the conducted activity. Consequently, not all expenses are classified as tax costs. Below we present how to recognize expenses (NKUP) that are not deductible from the tax base in accordance with the CIT Act – Income Tax Act.
Determining the value deducted from the tax base indicates that it should be an expenditure aimed at obtaining income, providing or maintaining a source of income. This means that costs incurred for another purpose cannot be tax costs.
In this article, we’ll talk about the most common and common non-deductible expenses. Thus, it will apply to entrepreneurs who calculate taxes on general principles in accordance with the so-called the tax scale for a company of 9% and 19% and an individual entrepreneur – 18 or 32% and a flat tax of 19%. This article is not intended for entrepreneurs and natural persons who pay tax in the form of a lump sum on registered income.
Income tax or VAT
Generally, we cannot deduct income tax or VAT expenses from our income. When calculating taxes, i.e. when calculating the tax base for personal income tax, we do not take into account the amounts spent on paying this tax or the VAT charged on invoices from our suppliers of goods or services. Here it is necessary to understand the concept of “net” which refers specifically to income or expenses.
On this principle, in accordance with Art. 23 sec. 1 point 43 of the Personal Income Tax Act, there are exceptions. However, we may consider VAT as an expense if we are not a VAT payer or we can account for VAT because we are not a VAT payer or we are not entitled to deduct VAT due on the input tax on invoices, even if we are a VAT payer.
It is important to know that besides personal income tax and VAT, there are other taxes, such as local taxes such as property tax, which may not be taxable.
Property, plant and equipment and intangible assets
A separate category of costs that is accounted for separately from the company’s standard costs are costs related to the acquisition of fixed assets, i.e. tangible fixed assets with an expected useful life of more than 1 year and an initial cost of more than 1 year. than PLN 10,000 net. The same applies to intangible assets, i.e. property rights classified as non-current assets with a useful life of more than 1 year and an initial value of more than PLN 10,000 net.
In the case of such property, plant and equipment and intangible assets, the cost is their depreciation, and hence their wear and tear over time. This depreciation is charged over the useful life of property, plant and equipment and intangible assets. Depreciation write-offs are written off at the rate specified in the regulations.
Loss in working capital
Losses on current assets may be deductible based on the general principle that the deductible amount is expenditure incurred to earn income, maintain or secure a source of income. Tax authorities do not include losses incurred as a result of gross organizational negligence or supervision of works as costs. On the other hand, the rule will cover in expenses losses incurred as a result of random events in which the entrepreneur or his employees are not at fault.
The purpose of the costs incurred should be to generate income or provide a source of income. Advances paid for deliveries or services that are not delivered do not have this relationship. Thus, the Act excluded from tax expenses losses (costs) resulting from the loss of the advance payment due to the failure to perform the contract.
Fines and penalties
Tax expenditure on fines, penalties and interest on them that have been dealt with in criminal, tax, administrative and misdemeanor proceedings. Penalties imposed as part of administrative proceedings may not constitute tax deductible costs, regardless of the circumstances of their imposition. Due to the use of the natural environment, entrepreneurs may be required to pay certain environmental fees. Environmental fees may be tax-deductible if not sanctioned.
Like penalties and fines, interest on government receivables is not “bought” under Art. 23 sec. 1 point 18 of the Personal Income Tax Act. Tax authorities advise against untimely payment of budget receivables such as taxes, contributions or fees.
Loans and credits
Pursuant to Art. 23 sec. 1 point 8 of the Personal Income Tax Act, the repaid amounts of loans or credits cannot be considered a “purchase”. Keep in mind that for you, the cost of the loan or credit is the interest that can be “bought”, not the amount of the loan or the loan itself.
Pursuant to Art. 23 sec. 1 point 27 of the Personal Income Tax Act prohibits the recognition of “loans granted, including lost loans” as “purchases”. Apart from loans or credits, granted loans are not included in the value deducted from the tax base.
Pursuant to Art. 23 sec. 1 point 30 of the Personal Income Tax Act prohibits the recognition of non-compulsory contributions to organizations, with minor exceptions, eg for entrepreneurs operating in tourism, recreation and sport, who may consider the contributions as “purchases” paid to the Polish Tourist Organization.
The exception may be “contributions to organizations associating entrepreneurs and employers, operating on the basis of separate acts – up to the total amount not exceeding in the tax year the amount corresponding to 0.15% of the amount of remuneration paid. The previous tax year which was the basis for calculating social security contributions; if the entrepreneur has not paid this remuneration, the amount of contributions included in the non-taxable costs in the tax year may not exceed the amount corresponding to the amount of PLN 114 ”.
It cannot be considered a “purchase” of “accrued but unpaid or remitted interest on liabilities, including loans (credits)” in accordance with Art. 23 sec. 1 point 32 of the Personal Income Tax Act.
Shares and contribution
Shares and contributions are not considered a “purchase” within the meaning of Art. 23 sec. 1 point 38 of the Personal Income Tax Act. The cost of purchasing shares or contributions will be your property. Only in the case of resale can you include such costs in your “purchase”.
Expenses financed from the Company Social Benefits Fund are not included in the purchase price in accordance with Art. 23 sec. 1 point 42 of the Personal Income Tax Act. The “Purchase” includes only funds transferred to the Company Social Benefits Fund.
The taxpayer’s own work
The Act does not allow taxpayers to classify personal income tax as tax deductible costs with the following value:
- The taxpayer’s own work
- Underage children of the taxpayer
- The taxpayer’s spouse
If the taxpayer runs a business in the form of a partnership, the costs may not include the costs of work performed by the spouse or minor children of the partner. This prohibition applies to all partners of the company.
The Tax Office also hates when entrepreneurs spend money on entertainment expenses. The provision of art. 23 sec. 1 point 23 of the Personal Income Tax Act explains, however, that “purchases” are not considered to be expenses “in particular on catering services, purchase of food and beverages, including alcoholic beverages”.
It is possible to circumvent this law, if your company, for example, orders a stand with non-alcoholic beverages for customers, then this service can be classified as a “purchase”.
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