Did you know that there are conditions regulating the technical improvement of leased assets?

According to the Income Tax Act, technical improvement of tangible and intangible assets mainly refers to expenses for completed extensions, annexes, built-ins, construction modifications, reconstructions, or modernizations of tangible or intangible assets that exceed EUR 1,700 per asset in total for the tax period. Such expenses cannot be included directly in tax expenses in the year they incurred but must be depreciated.

If the lessee decides to invest in the leased asset (for example, renovating an office or modernizing production premises), two situations may arise from the perspective of income tax:

1. The lessee depreciates the technical improvement

The lessee can include the technical improvement in their assets and depreciate it if the following legal conditions are met:

• the expenses for the technical improvement were paid by the lessee,
• the owner of the asset has given written consent for the lessee to depreciate the technical improvement,
• the owner has not increased the acquisition value of their asset by the value of the technical improvement.

2. The lessor depreciates the technical improvement

If the technical improvement is carried out by the lessee, , the lessor receives non-monetary income if he did not compensate the lessee for the costs of the technical improvement.

The lessor includes the non-monetary income in the tax base:

• in the tax period in which the technical improvement was put into use, if the owner of the leased asset increased the acquisition (residual) value of the asset, or
• in the tax period in which the lease ended.

The technical improvement of leased assets brings not only technical, but also tax and accounting issues that are important to consider for both the lessee and the lessor. If you have any questions, we are happy to assist you.