Accounting for investments

Cost segregation procedure

What is cost segregation?

Cost segregation is the detailed separation of fixed assets from investments based on:

tax regulations;
Classification of Fixed Assets (KŚT);
accounting guidelines and policies;
ESG taxonomy reporting requirements;

and determining the initial values of fixed assets taking into account the full pool of capital expenditure (CapEx).

Why is it worth it?

Differentiation of tax and balance sheet depreciation rates.	Increase in monthly depreciation write-offs by up to 2.5 times compared to an investment where only the building and basic structures (car park, fencing) were separated.
Reliable and accurate fixed asset records.	High quality tax and accounting records.
Real Estate clause in DTT.	Reduction of the fixed asset ratio for the purposes of the “real estate company” and the Real Estate clause.
ESG taxonomy.	Matching of assets to prepare reliable ESG taxonomy disclosures.
Minimum income tax on commercial property.	Lower tax base due to lower value of the building itself.
Preparation of the real estate for sale.	Transparent fixed asset structure and better due diligence results from the buyer.
Inventory of assets.	Review of assets and ability to professionally label fixed assets.
Real estate tax review.	Possible reduction of the tax base for structures.

Sample calculation

Fixed asset (group)	Initial value		Depreciation rate		Depreciation		Minimum tax
Fixed asset (group)	Before	After	Before	After	Before	After	Before	After
Building	100 m	66 m	2,5%	2,5%	2,5 m	1,65 m	378 k	235 k
Ventilation and air conditioning		10 m		10,0%		1 m
Telecommunication systems	9 m	10,0%	0,9 m
Electrical Switchgear	7 m	10,0%	0,7 m
Power generators	2 m	14,0%	0,28 m
External buildings	6 m	4,5%	0,27 m
Depreciation write-offs per year					2,5 m	4,8 m

Benefits

Increase in depreciation write-offs in 1 year by PLN 2.3 million (nearly 2 times).

Minimum tax encumbrance reduced by PLN 143 k.

When do you apply cost segregation?

At the stage of construction / putting the investment into use;
At the stage of purchasing a ready-made property;
During the use of the investment, also at the acquisition of a company - reasonable in several circumstances (e.g. when the company has so far reported a loss or a small income).

Why an external advisor should be used?

During the investment and at the stage of putting the investment into use, external support is necessary, because accounting services:

usually do not have enough time;
do not carry out technical inspection of the investment;
do not combine technical knowledge with the practice of separating fixed assets;
do not usually keep extensive analytical records of the fixed assets under construction account, and therefore
are not able to determine the initial values.

Our experience

We settle various types of investments, both as part of the settlement of newly created facilities, as well as adjustment of settlements in order to seek tax savings: