Depreciation of RES installations – tax optimisation for entrepreneurs

In this article, we discuss the key issues from an income tax perspective (CIT/PIT), highlighting practical ways to accelerate the deduction of renewable energy investment costs.

Renewable energy installations as separate fixed assets

The first question an investor should ask themselves is whether the renewable energy installation constitutes a separate fixed asset or is merely an improvement to an existing building.

This distinction is of fundamental importance for the depreciation rate. If the photovoltaic installation has been permanently incorporated into the building’s structure (e.g. panels integrated into the roof, electrical wiring laid in a manner inseparable from the building), the tax authorities may regard it as a modernisation of a fixed asset within the meaning of Article 22g(17) of the PIT Act (and Article 16g(13) of the CIT Act, respectively). In such a case, the expenditure increases the initial value of the building and is depreciated at the rate applicable to that building – most often just 2.5% per annum.

This position was confirmed by the Director of the National Tax Information Service in an individual interpretation dated 8 November 2019 (ref. 0113-KDIPT2-1.4011.424.2019.2.MD), stating that a photovoltaic installation structurally and permanently attached to a building does not constitute a separate fixed asset.

Conversely, a system installed in such a way as to allow for its dismantling and relocation (e.g. panels on a support structure on a flat roof, a free-standing system, a ground-mounted farm) should be treated as a separate fixed asset. This allows for the application of significantly more favourable depreciation rates (as stated by the Director of the National Tax Information Service in the interpretation of 11 March 2022, ref. no.: 0111-KDIB1-1.4010.26.2022.1.SH).

When planning a renewable energy investment, it is worth ensuring that the method of installation allows it to be classified as a separate fixed asset. This is both a technical and a documentation issue.

KŚT classification – a choice between 7% and 10%

A photovoltaic installation treated as a separate fixed asset may be classified under one of two items in the Classification of Fixed Assets:

• KŚT 348 – “Other turbine sets and power-generating units” (group 3) – depreciation rate 7% This classification is based on the argument that photovoltaic panels are used to generate electricity and therefore constitute a type of power-generating unit.
• KŚT 669 – “Other non-industrial equipment” (group 6) – depreciation rate 10% The supplementary description for this KŚT category explicitly mentions solar collectors. Although a photovoltaic panel is not technically the same as a solar collector, both devices are used to harness solar energy, which justifies classification by analogy.

The more favourable classification under KŚT 669 (10% rate) was confirmed by the Director of the National Tax Information Service in the aforementioned individual interpretation of 11 March 2022 (ref. 0111-KDIB1-1.4010.26.2022.1.SH). A key element of the facts in this case was the prior confirmation of the classification by the Classification and Nomenclature Centre of the Statistical Office in Łódź.

Before entering the installation into the fixed assets register, it is advisable to submit an application to the Classification and Nomenclature Centre of the Statistical Office in Łódź for confirmation of the KŚT classification. Obtaining an opinion from the Central Statistical Office significantly strengthens the taxpayer’s position in the event of a potential audit.

Photovoltaic farm

In the case of large investments, such as photovoltaic farms, the correct breakdown of the investment into individual fixed assets is particularly important. The procedure involves identifying and classifying each component of the farm separately, i.e. drawing up a list of fixed assets that make up the photovoltaic farm.

At the same time, the approach described above will also be optimal for property tax and for determining the tax base for this tax.

One-off depreciation – up to PLN 100,000

The provisions of Article 22k(14)–(21) of the PIT Act (and Article 16k(14)–(21) of the CIT Act, respectively) provide for the possibility of a one-off depreciation write-off on brand-new fixed assets classified under groups 3–6 and 8 of the KŚT, up to a total amount of PLN 100,000 in the tax year. For example, photovoltaic installations (KŚT 669, group 6) may meet the conditions for this preference.

The possibility of a one-off depreciation of a photovoltaic farm (KŚT 669) was confirmed by the Director of the National Tax Information Service (KIS) in an individual interpretation, indicating that the conditions of Article 22k(14) of the PIT Act are met if the fixed asset is brand new and correctly classified in groups 3–6 of the KŚT (ref. 0113-KDIPT2-3.4011.522.2020.2.AC).

Depreciation and VAT – deduction of input tax

Regardless of the depreciation method used for income tax purposes, a business operator who is a registered VAT payer is entitled to a full deduction of input VAT on the purchase of a renewable energy installation used in taxable activities.

Summary

Proper planning of the tax structure for a renewable energy investment allows for a significant acceleration of cost recovery. Attention should be paid to the following aspects:

1. Proper classification of the installation as a separate fixed asset – verifying whether the installation constitutes a building improvement or is a separate fixed asset;

2. Determining the correct KŚT classification: for example, for photovoltaics, KŚT 669 (10% rate) – instead of KŚT 348 (7% rate). To be on the safe side, obtain confirmation from the Central Statistical Office (GUS);

3. Possibility of a one-off depreciation of up to PLN 100,000 (Section 22k(14) of the PIT Act / Section 16k(14) of the CIT Act);

4. Separation of individual components of the renewable energy farm.

Author

Mateusz Kowalski

Radca prawny, Senior Associate

I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.

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