We have already informed you about the Income Taxes Act amendment with planned effect as of 2021 in our previous article. Unfortunately, the planned second reading of the amendment in the Parliament, which was scheduled for September, did not take place. In September, the amendment was only discussed by the Budget Committee, which added a few modifications to the proposed wording of the law, mainly as regards the proposed changes in the tax depreciation of assets:

Intangibles – abolition of tax depreciation

The amendment proposed for tax depreciation of intangibles to be abolished. Costs relating to the acquisition of intangibles could be applied for tax purposes in line with accounting principles. This change should impact intangibles acquired as of 1 January 2020. The approach to depreciating intangibles thus returns back to the legislative state known until 31 December 2003.

Tangible assets – increase of tax depreciation threshold to CZK 80,000

The proposed amendment adopts an increase in the threshold to apply tax depreciation regime of assets from the current CZK 40 to CZK 80 thousand. This proposed amendment should enable taxpayers to fast-track deductibility of costs relating to the acquisition of tangible assets compared to the current regime. The increase of threshold from CZK 40 to CZK 80 thousand, as of which separable tangible assets are also considered as tangible assets for tax purposes, will also help eliminate differences between tax and accounting depreciation regimes and reduce the impact on deferred tax. The new provision shall apply to tangible assets acquired as of 1 January 2020 to technical improvements of tangible assets finished and put into use as of 1 January 2020.

Considering that the last time the threshold was increased (from CZK 20 to CZK 40 thousand) was in 1998, this new provision is economically justified and certainly welcome by taxpayers.

Extraordinary depreciation for tangible assets in 1st and 2nd tax depreciation groups

The new law introduces a possibility of extraordinary depreciation for tangible assets classified in 1st and 2nd tax depreciation groups acquired in the period from 1 January 2020 to 31 December 2021. To be able to adopt the extraordinary depreciation, the taxpayer has to be the first owner of the tangible assets concerned.

Tangible assets classified in 1st tax deprecation group can be depreciated for tax purposes within 12 months (compared to the standard period of 3 years). Assets in the 2nd depreciation group can be depreciated in 24 months (compared to the standard period of 5 years). In the first year, it will be possibly to apply tax depreciation charges of up to 60% of the acquisition price, and the remainder in the second year. The main obvious benefit is acceleration of tax deductibility of costs.

Extraordinary depreciation of assets classified in 1st and 2nd depreciation groups was applied in the same manner during the economic crisis years of 2009-2010. The tax law amendment therefore reactivates this provision for newly acquired assets.