A heat pump may lower a firm's tax, but the way it is settled depends on the building: in non-residential premises used in business, it is usually depreciated as a fixed asset or an improvement of the building, whereas in a residential house where the entrepreneur only works, the options are much narrower. The VAT rate on supply with installation is 8% in residential construction up to statutory floor-area limits, and 23% in the remaining cases. The owner of a single-family house must also choose between a firm cost and the thermo-modernisation relief.
Which VAT rate on a heat pump
The reduced 8% rate follows from Article 41(12) of the VAT Act. It covers, among others, the supply, construction, renovation, modernisation and thermo-modernisation of buildings qualifying as construction covered by the social housing programme. These include residential buildings (excluding commercial premises), with the exception of:
- single-family houses with a usable area of more than 300 m²,
- residential premises with a usable area of more than 150 m².
With a larger floor area, 8% applies only to the part of the price corresponding to the area within the limit, and the rest is taxed at 23%. The preference concerns a service performed in a building, i.e. usually supply with installation. The purchase of the unit alone without installation, installation in an office building, hall or shop — these are at 23%.
| Situation | VAT rate |
|---|---|
| Installation with supply in a single-family house up to 300 m² | 8% |
| Installation in a house of 360 m² area | 8% on 300/360 of the base, 23% on the rest |
| Installation in an office building or warehouse | 23% |
| Purchase of the unit alone, without installation | 23% |
Elements installed outside the building's shell (e.g. the outdoor unit on a foundation in the garden) are sometimes assessed separately by tax authorities. An installation firm uncertain about classification should protect itself with an interpretation, because the wrong rate burdens the seller.
Firm building: fixed asset or improvement
When the pump heats commercial premises that are a firm's fixed asset, settlement depends on what it is for tax purposes:
- Separate fixed asset — a complete and operational device able to function independently. If the initial value exceeds PLN 10,000, it is entered in the fixed-asset register and depreciated. Transport, installation and start-up are added to the initial value.
- Improvement of the building — where the pump becomes part of the building's installation, and the outlays on reconstruction or modernisation in a given year exceed PLN 10,000 and increase its utility value. The building's initial value is then raised and depreciated together with it.
If the outlay does not exceed PLN 10,000, it can be settled as a one-off. An active VAT payer then deducts the full VAT on the invoice.
Residential house with an office: the limits
The most common situation in small firms looks different: the entrepreneur lives in a single-family house, with one room serving as an office. Three limits appear here.
- No depreciation of a residential building. The PIT Act excludes residential buildings and premises from depreciation, even where they serve the business. If the pump is treated as an improvement of the house, there is nothing from which to make write-downs.
- A proportion does not replace depreciation. An outlay above PLN 10,000 cannot be settled as a one-off "in the firm part", e.g. 15% of the pump price in the month of purchase. Classifying the unit as a separate fixed asset in a private house is sometimes contentious and requires caution.
- VAT only in the firm part. For real estate used both for business and personal purposes, the VAT Act requires the deduction to be set according to the share of use in business (Article 86(7b)).
What can be settled without doubt is current costs: electricity consumed by the pump, in the proportion corresponding to the part of the house used in the firm. The rules for setting such a proportion are described in the article Home office in a flat: what costs to settle.
Firm cost or thermo-modernisation relief
Instead, the owner or co-owner of a single-family house may use the thermo-modernisation relief (Article 26h of the PIT Act). It allows outlays on materials, devices and services connected with a thermo-modernisation project to be deducted, up to PLN 53,000 per taxpayer in total for all their buildings. The relief is available to persons on the scale, flat tax (podatek liniowy) and ryczałt on recorded revenue.
The two benefits cannot be combined for the same outlay: the part included in tax-deductible costs or financed from environmental-protection fund programmes is not deductible. Other important conditions:
- the outlay must be documented by an invoice from an active VAT payer;
- the project must be completed within 3 years from the end of the year of the first outlay;
- any amount not used is deducted in subsequent years, for no longer than 6 years.
Example: two options for one house
A female entrepreneur on flat tax lives in a house of 160 m², with 16 m² (10%) occupied by the office. The pump with installation costs PLN 45,000 gross (8% rate).
- Firm option: the house is residential, so depreciating the improvement is not available. Only 10% of the electricity bills powering the pump will go into the firm's costs.
- Relief option: the entire PLN 45,000 reduces the tax base in the return. At the 19% rate the saving is around PLN 8,550, and electricity can still be settled proportionally in the firm.
In this situation the relief is usually much more favourable. It is different when the building is wholly a firm's (e.g. a hall or commercial premises in the fixed-asset register).
How Good Balance can help
We determine whether the pump will be a fixed asset, an improvement or an outlay eligible for the thermo-modernisation relief, and we keep the fixed-asset register as part of simplified accounting. In more contentious cases, e.g. the VAT rate for the installer or a device in a house with an office, we prepare an application for an individual tax interpretation.