Fixed asset depreciation methods in Poland: a practical guide

Depreciation (amortyzacja) of fixed assets is one of the most important elements of every company's accounting policy. Spreading the cost of buying fixed assets correctly over time not only reflects the actual wear of the assets but also lets you plan your tax burden. The choice of depreciation method can significantly affect the company's financial result and cash flow in particular periods.

Polish tax law offers business owners several depreciation methods, each with its own specific uses and requirements. Understanding the differences between the methods and their effect on the company's financial situation is crucial for making informed business decisions. Keep in mind that the choice of depreciation method is strategic, because once made, as a rule, the decision cannot be changed later.

Basic methods of depreciating fixed assets

Polish tax law provides two basic methods of depreciating fixed assets – straight-line and degressive (Article 22i and Article 22k(1) of the PIT Act) – supplemented by preferences in the form of one-off depreciation. The methods differ in how depreciation write-offs are calculated and where they can be used, and each of them may be the right choice in different business situations.

The first and most popular method is the straight-line method, with equal write-offs throughout the useful life of the fixed asset. The second method is degressive depreciation, also known as the accelerated or reducing-balance method, which allows higher write-offs in the first years of use. A third option, found only in accounting (balance-sheet) depreciation, is the natural method, also called the units-of-production method – the Accounting Act lets you take into account the asset's output measured in hours of operation or products made (Article 32(2) point 3), but the tax acts do not provide for this method (Article 22h(2) of the PIT Act).

The choice of a specific depreciation method should be preceded by a careful analysis of the specifics of the business, the nature of the fixed assets used and the company's financial strategy. Remember that different methods can be used at the same time for different categories of fixed assets, which lets you tailor your overall depreciation policy.

Straight-line depreciation - the most popular solution

Straight-line depreciation is the most popular method among Polish business owners because it is simple and transparent. It assumes that the fixed asset wears out evenly throughout its useful life, which translates into fixed monthly depreciation write-offs.

Under the straight-line method, depreciation write-offs are determined on the basis of the depreciation rates in Annex 1 to the CIT (corporate income tax) Act and to the PIT (personal income tax) Act. These rates are based on the KŚT (Classification of Fixed Assets) and reflect the average useful life of the individual categories of assets.

Calculating the annual depreciation amount under the straight-line method is very simple and is based on the formula: the initial value of the fixed asset multiplied by the set annual depreciation rate expressed as a percentage. The monthly depreciation amount is simply the annual result divided by twelve months.

A practical example of the straight-line method

Consider a company that bought a construction machine worth PLN 450,000 in June. The machine was classified as a fixed asset, and the business owner chose the straight-line method. According to the schedule of depreciation rates, the rate for this type of equipment is 20 percent a year.

The annual depreciation is: PLN 450,000 × 20% = PLN 90,000. The monthly depreciation amount is: PLN 90,000 ÷ 12 = PLN 7,500. Because the machine was put into use and entered in the fixed asset register in June, depreciation will start in July.

The depreciation schedule is as follows:

• July-December of the first year: 7,500 × 6 = PLN 45,000
• Each full year of use: PLN 90,000
• The last year: the remaining amount to be depreciated

Individual straight-line method - a flexible approach

The individual straight-line method is a modification of the standard straight-line method and can be used in certain cases where a business owner acquires used or improved fixed assets. It lets you set an individual depreciation rate, which can be beneficial where the standard rates do not reflect the actual technical condition of the fixed asset.

The right to use the individual straight-line method applies only where the fixed assets are entered in the business's register for the first time. In addition, the assets must meet certain criteria concerning the period of previous use or the degree of improvement.

Different minimum depreciation periods apply to different categories of fixed assets under the individual method:

1. For KŚT groups 3-6 and 8:

   • 24 months - where the initial value does not exceed PLN 25,000
   • 36 months - where the initial value is higher than PLN 25,000 and does not exceed PLN 50,000
   • 60 months - in other cases

2. For means of transport:

   • 30 months regardless of value

3. For buildings (premises) and structures:

   • non-residential buildings with a 2.5% rate: 40 years minus the full years since they were first put into use (minimum 10 years)
   • 10 years for other buildings and structures, with exceptions (e.g. retail kiosks and camping cabins – 3 years)

Conditions for treating an asset as improved

A fixed asset can be treated as improved if the value of the improvements made amounts to a certain percentage of its initial value. For fixed assets in KŚT groups 3-6 and 8 and for means of transport, the threshold is 20 percent of the initial value. For buildings and structures, a higher improvement threshold of 30 percent of the initial value applies.

The improvement of a fixed asset must be documented and must genuinely increase its functionality, efficiency or useful life. Ordinary repairs or maintenance cannot be treated as improvements within the meaning of tax law.

Accelerated straight-line method - additional options

In special cases, business owners can use the accelerated straight-line method, which involves applying increased depreciation rates. This method is available for fixed assets used in particularly difficult conditions or requiring intensive use.

The coefficients for increasing depreciation rates are strictly set out in tax law and are as follows:

Using the accelerated straight-line method requires meeting certain conditions and properly documenting the circumstances justifying the increased depreciation rate. The business owner must be able to show that the fixed asset actually operates in conditions that differ from the standard.

Degressive method - accelerated depreciation

The degressive method, also known as accelerated or reducing-balance depreciation, is an alternative to the straight-line method and can be used only for certain categories of fixed assets. It assumes that the efficiency and value of a fixed asset fall faster in the first years of use, which justifies higher depreciation write-offs at the beginning of its operation.

The degressive method can be used only for machinery and equipment in groups 3-6 and 8 of the Classification of Fixed Assets and for all means of transport except passenger cars. This limitation stems from the assumption that these categories of fixed assets really do become technologically obsolete faster.

In the first year of using the degressive method, the business owner can apply the depreciation rate from the schedule multiplied by a coefficient of no more than 2.0. In subsequent years, the basis for calculating the write-off is the net value of the fixed asset (the initial value minus the write-offs made so far), and the rate stays at the same increased level. Cheaper assets are treated differently – you will find examples in our article on depreciation of fixed assets up to PLN 10,000.

How the switch to the straight-line method works

A key feature of the degressive method is the obligation to switch to the straight-line method at a certain point. The switch happens automatically at the beginning of the tax year in which the annual depreciation write-off under the degressive method would become lower than the write-off calculated under the straight-line method.

At the end of each year, the business owner should compare:

• The degressive write-off for the next year
• The straight-line write-off, i.e. the rate from the Schedule applied to the initial value (Article 22i(1))

If the straight-line write-off turns out to be higher, the switch to the straight-line method happens automatically. From then on, write-offs are calculated using the rate from the Schedule on the initial value until the total write-offs equal the initial value of the fixed asset.

A practical example of the degressive method

Consider a company that bought a machine worth PLN 450,000 from KŚT group 5 in January. The rate from the schedule is 20 percent, and the business owner chose the degressive method with a coefficient of 2.0, which gives an increased rate of 40 percent.

Depreciation schedule:

First year:

• Calculation basis: PLN 450,000
• Annual write-off at the rate: 450,000 × 40% = PLN 180,000
• Monthly write-off: PLN 15,000 – the machine was entered in the register in January, so the write-offs cover February–December: 15,000 × 11 = PLN 165,000

Second year:

• Calculation basis: 450,000 - 165,000 = PLN 285,000
• Annual write-off: 285,000 × 40% = PLN 114,000

Third year:

• Calculation basis: 285,000 - 114,000 = PLN 171,000
• Degressive write-off: 171,000 × 40% = PLN 68,400
• Straight-line write-off: 450,000 × 20% = PLN 90,000 – higher than the degressive one

From the third year, the switch to the straight-line method takes place: the write-off is PLN 90,000 a year, and in the fourth year the remaining PLN 81,000 is depreciated (165,000 + 114,000 + 90,000 + 81,000 = PLN 450,000).

One-off depreciation - special preferences

One-off depreciation is a special form of tax preference that lets you include all or part of the value of a fixed asset in tax-deductible costs immediately. It can be used in several different variants, each with its own specific requirements and limits.

The basic form of one-off depreciation is the option to write off in full fixed assets worth no more than PLN 10,000. This preference is available to all business owners without additional conditions and can be used for any number of fixed assets that meet the value criterion.

The second form is one-off depreciation of brand-new fixed assets in KŚT groups 3-6 and 8, which can be used for assets with an initial value of at least PLN 10,000 (Article 22k(14–15) of the PIT Act). The annual limit of this preference is PLN 100,000 for each business owner.

One-off depreciation under de minimis aid

The third form of one-off depreciation is the preference available under de minimis aid, which can be used by small taxpayers and by business owners starting a business. It lets you write off in one go fixed assets in KŚT groups 3-8 (excluding passenger cars) up to EUR 50,000 a year (Article 22k(7) of the PIT Act; PLN 213,000 in 2026, PLN 219,000 from 1 January 2027).

The de minimis limit is set separately for each tax year and cannot be carried forward to later years. If the one-off write-off does not cover the whole value of the fixed asset, the remaining part can be depreciated in subsequent years using the methods chosen.

Conditions for using one-off depreciation under de minimis aid:

• Small-taxpayer status or the first year of business (with no business run in the start year and the two preceding years – Article 22k(11))
• Fixed assets in KŚT groups 3-8 (without passenger cars)
• An annual limit of EUR 50,000
• No option to carry forward an unused limit

Choosing the best depreciation method

The choice of the right depreciation method should be preceded by a detailed analysis of several key factors affecting the company's financial situation. The first is the nature of the business and the specifics of the fixed assets used. Different industries have different rates of asset wear.

The second important factor is the company's financial strategy, especially in terms of cash flow and planning the tax burden. The straight-line method provides predictability and an even spread of costs, while the degressive method lets you recover the money invested faster.

The third element of the analysis should be the pace of technological progress in the industry. For fixed assets that become technologically obsolete quickly, the degressive method may better reflect the actual fall in value.

Factors affecting the choice of depreciation method:

• The nature and intensity of use of the fixed assets
• The financial strategy and cash-flow needs
• The pace of technological progress in the industry
• The expected useful life of the assets
• Planned investments in upgrades or replacement

Practical aspects of using different methods

Using different depreciation methods in practice requires a properly prepared fixed asset register and accounting procedures. Each method has its own specific documentation and calculation requirements, which must be properly implemented in the organisation.

For the straight-line method, the key is to determine the depreciation rates correctly on the basis of the Classification of Fixed Assets and to calculate the monthly write-offs systematically. The register system should generate write-offs automatically and control the depreciation process.

The degressive method requires a more advanced control system that monitors the moment of the switch to the straight-line method. You need to compare the write-offs every year and switch methods automatically at the right moment.

One-off depreciation requires particular attention when checking the limits and conditions of use. The system should monitor the use of the annual limits and check that all formal requirements are met.

A manufacturing company used different depreciation methods for different categories of fixed assets. For modern production machinery it chose the degressive method because of rapid technological progress, for buildings it used the straight-line method, and for small tools it used one-off depreciation. This differentiated approach let it spread costs over time better and better reflect the actual wear of its assets.

The effect of depreciation methods on financial results

The choice of depreciation method directly affects the company's financial results in particular periods. The straight-line method provides stable and predictable costs, which makes financial planning and budgeting easier. Spreading depreciation costs evenly allows better control of profitability in the long term.

The degressive method causes higher costs in the first years of using fixed assets, which may lower the financial result in the first period but at the same time lets you recover the money invested faster. This method can be particularly beneficial for businesses in industries with high technological risk.

One-off depreciation significantly affects the financial result in the year the fixed asset is bought, causing a one-off cost charge. This lowers the tax in the year of purchase but requires proper cash-flow planning. We keep the depreciation schedule and monthly write-offs for clients who use our accounting services.

Analysis of the effect on cash flow:

• Straight-line method: an even charge throughout the period
• Degressive method: higher tax savings at the beginning
• One-off depreciation: maximum savings in the first year

Frequently asked questions