As we have already announced in our newsletter, the most important aspect of the tax package for companies is the changes related to assets. That is why this newsletter will focus solely on these changes. Although Amendment No. 609/2020 Sb. to the Income Tax Act (hereinafter the “Income Tax Act”), which introduced the changes, is effective from 1 January 2021, all the following changes can be applied to assets acquired back in 2020 under certain conditions.
The first change concerns the reintroduction of extraordinary depreciation for tangible assets. Secondly, there is an increase in the value limit of tangible fixed assets, and the third change relates to intangible assets.
Extraordinary Depreciation of Tangible Assets (Section 30a)
It is possible to apply extraordinary depreciation charges to tangible assets belonging to the first and second depreciation categories and acquired between 1 January 2020 and 31 December 2021. In order for you to be able to apply the charges, the assets must be brand new (your company must be the first depreciator). This condition is met when your supplier has accounted for the assets as for goods.
Extraordinary depreciation charges are calculated on a monthly basis. Tangible assets in the first depreciation category can be depreciated over 12 months. Tangible assets in the second category can be depreciated over a period of 24 months; specifically, the company can depreciate the first 12 months on a straight-line basis up to 60% of the input cost of the tangible assets and the subsequent 12 months on a straight-line basis up to 40% of the input cost of the tangible assets.
Tangible Assets (Section 26)
In the case of tangible assets (more precisely separate movable items or sets of tangible movable items) acquired since 1 January 2021, the value limit for tangible fixed assets has increased from CZK 40,000 to CZK 80,000. This new higher limit also applies to technical improvements (Section 33) that have been completed and put into regular use since 1 January 2021, regardless of when the assets that have been technically improved were acquired (unlike intangible assets, as described below). However, it remains the case that expenses not exceeding this limit are also technical improvements if the company has so decided.
In practice, it means that movable items with a value of less than CZK 80,000 acquired since 1 January 2021 are not considered tangible assets under the Income Tax Act and, therefore, are not depreciated. In accordance with the internal accounting directive, they may be classified as low-value assets, with their book depreciation charges constituting tax costs, or accounted for as a one-off expenditure in consumption upon their release unless this significantly disrupts the substantive and temporal connection. As for expenses characterised as technical improvements, if the expenses for individual assets do not exceed the threshold of CZK 80,000 on aggregate in the tax period (again in accordance with the accounting directive), they can be claimed as a one-off expenditure.
This can be applied to assets put into use between 1 January 2020 and 31 December 2020 and technical improvements completed in 2020. However, these changes are likely to require adjustments to the internal accounting directive concerning assets or consultation with an auditor or an accounting expert.
Intangible Assets (formerly Section 32a)
The category of intangible assets has been completely abolished for tax purposes with effect from 1 January 2021. Intangible assets acquired since 1 January 2021 are no longer subject to tax depreciation. For income tax purposes, such new assets and technical improvements thereto will be treated as low-value assets if their acquisition price exceeds the accounting threshold, i.e. the threshold determined by the accounting entity for intangible fixed assets. Therefore, the company will determine the tax base using book depreciation charges.
In practice, this will mean that the acquisition price of intangible assets and technical improvements thereto may be expensed on a one-off basis up to the threshold determined by the accounting entity for intangible fixed assets.
Please note that these new rules for book depreciation of technical improvements do not apply to technical improvements completed and put into regular use for intangible assets acquired under the “old rules”, i.e. by 31 December 2020 or by 31 December 2019 (if you have been applying the amendment since 2020). Such old assets, i.e. both intangible assets and technical improvements thereto, will continue to be subject to Section 32a of the Income Tax Act and the limit of CZK 40,000 for the depreciation of technical improvements until the disposal of these assets.
Are you at your wits’ end with your tangible and intangible assets? Let professionals take care of your taxes. We would be glad to help!