Depreciation rate in the so called private lease vs. premises used in business

Polish tax authorities confirm that taxpayers have the right to reduce income derived from the so-called private lease (not as part of business operations) by tax deductible expenses, including depreciation write-offs. Real estate leased within the private lease is still a fixed asset. Thus, it can be depreciated if the taxpayer decides to do so. In practice, taxpayers may have difficulties in determining the appropriate depreciation rate if the real estate leased under the private lease is used by the tenant in business (e.g. as a registered office).

Depreciation write-offs are made using depreciation rates and principles set out in the Polish Personal Income Tax Act. The annex to this Act basically shows that for residential buildings (premises) the monthly depreciation rate is 1.5 percent and it is calculated from the initial value of the property (e.g. purchase price). In the case of non-residential buildings (premises), this rate is 2.5 percent. The classification of fixed assets as residential or non-residential is based on the Polish Regulation of the Council of Ministers of October 3, 2016 on the Classification of Fixed Assets.

The tax authorities take the view that the classification of real estate as residential or non-residential should be determined by its intended use as well as the construction and equipment. Not by the way it is actually used, which in practice is sometimes incompatible with its official intended use. This means that the real estate, which, for example, according to the notarial deed has a residential status, even if it will be used by the tenant for business purposes, should be depreciated at the rate for residential premises (1.5 percent), and not the higher one for non-residential premises.

Aldona Leszczyńska-Mikulska, legal advisor, tax advisor, Private Client Practice, GWW