Changes to tax depreciation to support investment
Among other things, the government intends to reboot the economy with measures relating to corporate income tax, proposing a reduction of the tax depreciation periods for a selected group of tangible fixed assets, an increase of the limit for treating an investment/expense as a tangible fixed asset, and the abolishment of the category of intangible assets for income tax purposes. The introduction of these measures would mean a reduction in the tax liability for corporations and more funds for their investments.
The 2021 governmental tax package (Print 910), which also includes amending proposals regarding the depreciation of assets, is now to be discussed in the chamber of deputies within the second reading. These proposals have already been approved and recommended by the budget committee.
The reduction of depreciation periods is proposed as extraordinary depreciation, which we know from the financial crisis in 2009 and 2010. It would be possible to apply extraordinary depreciation charges to tangible fixed assets belonging to the first and second depreciation categories and acquired in the period from 1 January 2020 to 31 December 2021. Tangible assets in the first depreciation category would be depreciated without interruption over 12 months, on a straight-line basis, and up to 100% of the input cost. Tangible assets in the second category would be depreciated over a period of 24 months: the first 12 months on a straight-line basis up to 60% of the input cost and the subsequent 12 months on a straight-line basis up to 40% of the input cost. Depreciation charges would be set for months, not for years. The application of the extraordinary depreciation would be voluntary for taxpayers.
Another proposal suggests increasing the limit for treating an investment/expense as a tangible fixed asset and technical improvements thereof from the current CZK 40,000 to CZK 80,000. As a result, a larger number of acquired tangible assets could immediately be expensed, or their accounting depreciation could be claimed as deductible expenses for income tax purposes. The new threshold would have to be used for all tangible assets acquired and all technical improvements completed and put into regular use from the amendment’s effective date. Voluntarily, the new threshold could also be applied to assets and technical improvements acquired/completed after 1 January 2020.
The last proposal, offering simplification rather than tax savings, is the abolition of the category of intangible assets and their tax depreciation in the Income Tax Act. Accounting depreciation charges would then be treated as deductible expenses. As with tangible assets, this new arrangement could also be applied voluntarily to intangible assets acquired after 1 January 2020. Expenses for research and development, software and intellectual property rights incurred after the amendment’s effective date would no longer be considered intangible assets from an income tax perspective.