ACCOUNTING AND TAXATION OF LEASING CONTRACTS

TAXATION OF LEASING CONTRACTS

Maintenance and repair of rented fixed assets

‘Leased fixed assets’ include fixed assets received by the entity for use and which are subject to the limitation of repair costs. Such assets include fixed assets that can be depreciated for tax purposes, i.e. investments in fixed assets that are used by the entity in its activity and that are subject to a contract of:

• operational leasing
• rent
• concession
• rental commodity
• sublease
• other types of contracts.

The specificity of the so-called “investments in fixed assets” is that they are recorded in off- balance sheet accounts, and the repair costs, according to the above contracts, are borne by the lessee, lessee or concessionaire.

According to art. 26/1 paragraph (11) of the CF, the expenses related to the current and capital repair of fixed assets that do not correspond to the provisions of para. (2) The following are allowed for deduction:

• within the limit of 15% of the calculated amount of the lease, lease, operational lease or royalty (concession payment), incurred during the fiscal period,
• in the case of repair expenses of international air transport means – in the amount of 100% of the calculated amount of the operational leasing rate, incurred during the fiscal period.

According to the norm, it is stipulated that all types of repair works, both current and capital, which do not correspond to para. (2) of art.26/1 of the CF are limited to 15% of the calculated amount of the lease, lease, operational leasing or royalty (concession payment), excluding expenses related to the repair of international air transport.

The amount of repair expenses allowed for deduction and the value of the fixed asset to be ascertained in accordance with art.26/1 para. (3) of CF no. 1163/1997 shall be determined by filling in the form in Annex no. 2 to GD 704/2019.

The amount of the excess of the repair expenses of fixed assets that do not correspond to the provisions of art. 26/1 para. (2) of CF no.1163/1997 above the 15% admitted in accordance with art.26/1 para. (11) of CF no. 1163/1997, upon completion of the repair works, is recognized as a separate fixed asset unit, which is included in the Register on the record and calculation of depreciation of fixed assets for tax purposes.

The depreciation period for fixed assets ascertained in accordance with art.26/1 para. (3) of CF no. 1163/1997 represents the minimum duration between the remaining duration of the contract and the useful operating period of the fixed asset that is the object of the contract.

The useful operating period is established by the lessee/concessionaire according to the manner established by the Government, similar to the fixed assets over which the entity holds the right of ownership.

The  entity  shall  be  entitled  to  establish  a  useful  life  longer  than  that  determined  in accordance with paragraph 26.

The expenses related to the current and capital repair of fixed assets that are the subject of an operational leasing, lease, concession, lease, bailment, sublease or other contracts that give the right to use them, concluded for a period of less than 12 months inclusive, are fully allowed for deduction in the respective fiscal period.

In case of carrying out two or more repairs or in case of carrying out a single repair during several fiscal periods, related to the same fixed asset, at the decision of the entity, the amount of the excess of the repair expenses above the limit allowed for deduction according to art.26/1 para. (11) of CF no. 1163/1997:

• is capitalized in a single fixed asset recognized according to art.26/1 par. (3) of CF no. 1163/1997 or
• separate fixed assets are created for each repair.