The forthcoming amendment to the Income Tax Act and the VAT Act and other related acts brings several changes that should come into force from 1 January 2023. We have prepared an overview of the novelties that await us in the field of corporate income taxes.
Extension of extraordinary depreciation
The draft amendment extends the regime of extraordinary tax depreciation for tangible assets classified in the first and second depreciation groups. The existing rules on extraordinary depreciation were available for assets acquired between 2020 and 2021, but it is now proposed to extend them to assets acquired in 2022 and 2023. Tangible assets in the first depreciation group can be depreciated exceptionally over 12 months (by way of a straight-line monthly tax depreciation) and assets in the second depreciation group over 24 months (up to 60% of the acquisition value in the first 12 months and the remaining 40% of the acquisition value in the following 12 months). The use of exceptional depreciation is not an obligation but an option for taxpayers.
Immovable cultural monument
The amendment introduces a special regulation in tax depreciation of immovable property which, as a result of a previous misinterpretation in the area of monument protection, was incorrectly considered an immovable cultural monument in the past. This refers to immovable property which was a cultural monument under the legislation in force until 1987 but which did not become a cultural monument under the current Act on State Heritage Preservation (i.e. it was not included in the National List of Cultural Heritage as of 31 December 1987 and was not declared a cultural monument afterwards).
The draft amendment introduces the fiction that such an immovable property is also considered an immovable cultural monument for the purposes of the Income Tax Act. A taxpayer who owns such an immovable property, who, in accordance with the previous interpretation, has assumed that it is an immovable cultural monument and has incorrectly applied tax depreciation under the immovable cultural monument regime in the past to such immovable property and its technical improvement, has two options:
- In accordance with this fiction, the taxpayer may continue to treat the immovable property as an immovable cultural monument for the purposes of the Income Tax Act and continue tax depreciation of the immovable property and its technical improvement under the cultural monument regime.
- Alternatively, the taxpayer may decide that it is not an immovable cultural monument. This decision will have no impact on the tax liability for past periods, but the taxpayer will “reclassify” the immovable property and its technical improvement to the standard regime in the tax year beginning in 2022 if they choose to do so. They will adjust the tax base of the 2022 tax year by the difference between the aggregate of the tax depreciation historically applied under the immovable cultural monument regime and the aggregate of the tax depreciation provided for the standard immovable property in a one-off adjustment and will depreciate the immovable property in a manner corresponding to the fact that it is not an immovable cultural monument from the 2022 tax year onwards.
The effects of reclassifying property can be very significant, particularly if the asset has been subject to technical improvements in the past. If your company owns such a property, we will be happy to assist you in assessing which approach will be more beneficial in your individual case.
Deduction to support vocational training
As a result of the ban on in-person lessons during the COVID-19 pandemic, there was a reduction in practical on-the-job training at future employers‘ in 2020 and 2021. This has had an impact on the ability of taxpayers claiming the vocational training deduction to meet the conditions for claiming the deduction, i.e. to actually use the fixed assets for which the vocational training deduction was claimed in the three immediately following taxation periods.
Under the draft amendment, if the condition of using the fixed assets for vocational training has not been met in the taxation periods beginning between 1 April 2019 and 30 April 2021 (typically the 2020 and/or 2021 taxation periods), it will be deemed to have been satisfied (i.e. there will be no negative consequences associated with the failure to meet the condition) and the period for which the condition of using the property must be satisfied will be extended accordingly by the number of taxation periods in which the condition was not satisfied but was deemed to have been satisfied.
This modification is proposed in addition to the Minister of Finance’s earlier decision on tax waiver covering this issue and is more advantageous for taxpayers (among other things, it eliminates the accrual of additional tax penalties in the event of a subsequent failure to comply with the condition that the property be used for vocational training for a specified period of time).
Free of charge acquisition of a co-ownership interest in an immovable property from a municipality
The draft amendment to the Income Tax Act also includes the exemption from corporate income tax of gratuitous income from the acquisition of a co-ownership interest in an immovable property from a municipality or a taxpayer of which the municipality is a member or founder. This exemption is intended to apply to immovable property for the construction of which subsidies were granted from the national budget or the National Housing Development Fund between 1995 and 2007 and the transfer of which was prohibited for a specified period of time by the conditions of the grant of that subsidy. Only the first gratuitous transfer from a municipality (or a taxpayer of which the municipality is a member or founder) to a legal entity (typically a housing cooperative) will be exempt.
Read also the article on how the amendment will affect the taxation of individuals and what is planned in the area of VAT.