Dlouhodobý nehmotný majetek – pozor na technická zhodnocení

Intangible fixed assets – be careful with technical improvements

The rules for tax depreciation of intangible assets have significantly changed several times since the Income Taxes Act came into effect. Until the end of 2000, the same rules applied for depreciation of intangible assets as for depreciation of tangible assets. Between 2001-2003, accounting depreciation of newly acquired intangible assets (with a capitalisation limit of CZK 60 000) was considered a tax expense. Since 2004, the specific rules regarding intangible assets have returned to the Income Taxes Act to leave it again from 1 January 2021.

Thus, from 1 January 2021, the category of intangible assets in the Income Taxes Act has been abolished and the taxpayer can gradually claim the expenses related to the acquisition of intangible assets through their depreciation. Unlike the situation in 2001-2003, the minimum value is not set by accounting or tax rules and is determined by the accounting entity taking into account the principle of materiality and true and fair view of the assets.

In the case of newly acquired intangible assets, the decision whether to depreciate them under the Income Taxes Act or to treat the accounting depreciation as a tax-deductible expense is relatively straightforward. Complications can arise in the case of technical improvement, which always follows the rules that applied to the underlying intangible asset upon its acquisition. 

If a company in 2022 technically improved software placed into use in 2019, the original rules set out in Section 32a of the Income Taxes Act apply for determining depreciation and such technical improvement must be depreciated over a minimum period of 18 months. For the sake of completeness, we would like to add that the old rules apply not only to the depreciation method, but also to the value of the technical improvement, which is, in this case, CZK 40,000.

A similar situation occurred in the past, namely when the tax rules for depreciation of intangible assets changed with effect from 1 January 2001. A transitional provision of the amendment stipulated that the Income Taxes Act, as amended until 31 December 2000, would apply to intangible assets acquired before 31 December 2000. In practice, this means that if, for example, intangible assets classified into the first depreciation group and put into use in 2000 are subject to technical improvement, then an annual depreciation rate of 25% is applied in the case of linear depreciation. 

If you have any questions, please contact the author of this article or the EY tax team with whom you regularly work.

Authors:

Ladislava Zamazalová

Gabriela Dias