As we have already informed you, as of 1 January 2021, anti-crisis measures relating to non-current assets took effect with the amendment of act no. 609/2020 Coll. In addition to a summary of the individual measures in the area of non-current assets, we would also like to inform you in this article about the possible pitfalls of the new legal provision of act no. 586/1992 Coll., on income taxes, as amended (hereinafter “ITA”) in this area:

1. Increase of the limit for tax depreciation of tangible assets and their technical improvement

The current value limit of CZK 40,000 for inclusion in the category of tangible assets as well as the limit for technical improvement is being increased to CZK 80,000. The increased limit will apply to tangible assets acquired from the day the amendment took effect and to technical improvement completed and placed in service from the day the amendment took effect, i.e. from 1 January 2021.

In compliance with the transitional provisions, the new legislation can already be applied for tangible assets acquired (placed in service) from 1 January 2020 already and technical improvement completed and placed in service from 1 January 2020 (so-called “voluntary retroactivity”). According to the interpretation of the financial administration, in the case of tangible assets acquired from 1 January 2020, or technical improvement placed in service from 1 January 2020 until the time the amendment took effect, the taxpayer need not apply the new limit of CZK 80,000 for all asset groups, i.e. it is up to the decision of the taxpayer, for which tangible assets or technical improvements he will apply voluntary retroactivity (i.e. the limit of CZK 80,000) and for which he will apply “the old tax regime” (i.e. the limit of CZK 40,000).

Under the prerequisite that the limit for non-current tangible assets is set at CZK 40,000 by the regulation guideline for accounting purposes, tax depreciations reaching accounting depreciation under article 24 paragraph 2 letter v) of the ITA will be applied if using voluntary retroactivity for tangible assets with acquisition price from CZK 40,001 to CZK 80,000.

According to the interpretation of the financial administration, a taxpayer using investment incentives in the form of tax credit is not obliged to apply voluntary retroactivity (CZK 80,000 limit) for assets acquired from 1 January 2020 and technical improvements completed and placed in service from 1 January 2020 until the time the amendment took effect. Application of the “old tax regime” (i.e. the CZK 40,000 limit) is not considered a violation of the taxpayer’s obligation to lower the tax base as much as possible.

2. Extraordinary depreciation of assets in the 1st and 2nd depreciation group

For tangible assets included in the 1st and 2nd depreciation group acquired (placed in service) in the period from 1 January 2020 to 31 December 2021, extraordinary depreciation according to article 30a of the ITA can be applied:

• Tangible assets included in the 1st depreciation group can be depreciated by the taxpayer, who is its first person depreciating the asset, linearly without interruption up to 100 % of the initial price over 12 months.
• Tangible assets included in the 2nd depreciation group can be depreciated by the taxpayer, who is its first person depreciating the asset, without interruption up to 100 % of the initial price over 24 months, and in the first twelve months depreciation will be applied linearly up to 60 % of the initial price and in the next twelve months depreciation will be applied linearly up to 40 % of the initial price.

Extraordinary depreciation will be specified with the precision of entire months, and the taxpayer is obliged to begin depreciation starting from the month following the placement of assets in service. In the month of disposal of the respective asset, tax depreciation can be applied.

Technical improvements of assets depreciated in this way are classified separately (do not raise the initial price of the asset) and are depreciated in the standard way (linear / accelerated).

In case the taxpayer is obliged to submit an income tax declaration (i.e. on grounds of the taxable period of the economic year), he is authorised to apply extraordinary depreciation under article 30a of the ITA in an additional tax declaration for assets acquired from 1 January 2020.

A taxpayer using an investment incentive in the form of tax credit is not obliged to apply extraordinary depreciation under article 30a of the ITA for assets acquired from 1 January 2020. Non-use of the regime of extraordinary depreciation under article 30a of the ITA is not considered a violation of the condition stated in article 35a paragraph 2 letter a) point 1 of ITA (i.e. the obligation to apply all deprecation under articles 26 to 33 of ITA leading to lowering the tax base to the maximum possible extent). The above-mentioned follows from the conclusion of the Coordinating Committee of the Chamber of Tax Consultants no. 284/16.09.09, which, according to the interpretation of the financial administration, is applicable to the new legislation as well. The Finance Ministry has also approved the conclusion that extraordinary depreciation needs to be understood as a way of depreciation equal to the common regimes of linear or accelerated depreciation, the application of which is purely up to the taxpayer’s choice.

3. Cancellation of tax depreciation of intangible assets

The amendment has cancelled the category of intangible assets, including article 32a of the ITA, which governed tax depreciation of intangible assets. For tangible assets acquired from the day the amendment took effect (1 January 2021), tax depreciation will be applied in the amount of accounting depreciation according to article 24 paragraph 2 letter v) of ITA.

In compliance with the transitional provisions, the new legislation can already be applied to intangible assets acquired from 1 January 2020. In this case it is up to the decision of the taxpayer, if he will apply voluntary retroactivity (i.e. tax depreciations reaching accounting depreciation) to all intangible assets or only to some.

In the case of intangible assets, for which the so-called “old tax regime” is applied, i.e. they will be depreciated according to article 32a of the ITA, this “old tax regime” will also be applied to potential technical improvements of these intangible assets, even in case the technical improvements are placed in service after the amendment has taken effect (i.e. after 1 January 2021.)