With letter dated February 26, 2021, the tax authorities reduced the average useful life and thus the depreciation period for hardware and software to one year. This new regulation can lead to a significant tax advantage for all companies, since the expenditure for the acquisition of hardware and software in the year of acquisition can be deducted from taxes immediately and in full amount as an expense in the profit and loss accounts. According to the tax authorities, the new option for depreciation will apply for the first time in 2021.
The German tax authorities even goes a step further. Hardware and software purchased in the past and already in business assets, which were depreciated over several years due to the previous regulations, can be depreciated in full amount for tax purposes in 2021.
The view of the tax authorities, which justifies this change itself with the fact that the normal operational average useful life on which the depreciation according to Sec. 7 of the German income tax code (EStG) is based, has not been checked for these assets for around 20 years, is from the point of view of the economy and the advisors very welcome. Since these economic goods are subject to ever faster change due to rapid technical progress, the previous regulation was long out of date.
The definition of computer hardware and application software could, however, be subject to dispute. The tax authorities names for computer hardware so-called desktop-computers, notebook-computers, workstations, docking stations and other peripheral devices such as external storage devices, projectors, headsets, monitors and printers as examples. User software is basically software for data entry and processing. In particular, this should include ERP software, inventory control systems and software for process control.
It must be carefully reviewed in each individual case whether it is advisable to make use of this new tax regulation. Please contact us as your experts for corporate tax law. Please find futher information to corporate tax law here on our website. In case of any questions to corporate tax law please do not hesitate to contact us.
Christian Dobner | TLI Steuerberater