As of 1 January 2025, major changes to the tax depreciation of property will come into effect, affecting all entrepreneurs and businesses. These changes aim to simplify and streamline the depreciation process, but they also bring new obligations and rules to prepare for.
The main changes include:
- Introducing completely new terms or replacing old terms with new ones.
- Introduction of so-called materiality thresholds for additional assessment.
- Depreciable asset: three basic tax depreciation periods are introduced.
- Depreciation will be determined monthly, not annually, and only straight-line depreciation will be introduced.
We discuss the specific form of the changes in greater detail later in this article.
Newly introduced terms
The amendment introduces some new terms or replaces the original terms with new ones. The new terminology aims to harmonise tax and accounting terminology, which will facilitate its application in practice.
The original term | A new concept |
---|---|
Property | Asset |
Commercial property | Recorded asset |
Tangible assets | Depreciated asset |
Residual price | Deferred expenditure |
Depreciation | Ongoing expenditure |
Technical improvement of tangible assets | Additional evaluation |
Continuous Cost | Immediate expenditure |
Attention! The term “asset” now includes several accounting categories, namely fixed assets, receivables, inventories, etc.
Increase in the limit for depreciable assets
A significant measure is the increase of the threshold for tax-depreciated property from the current CZK 80,000 to CZK 100,000. This means that assets with a purchase price of up to CZK 100,000 will be included in costs on a one-off basis, while more expensive items will have to be depreciated according to the established rules.
Abolition of depreciation groups and introduction of new depreciation periods
The existing system of depreciation groups has been abolished and replaced by three basic minimum tax depreciation periods:
- 60 months (5 years): for all movable assets and immovable assets with a value of up to CZK 2,000,000.
- 180 months (15 years): for goodwill acquired by purchase, for example when buying a business plant.
- 360 months (30 years): for immovable assets with a value over CZK 2,000,000.
Monthly depreciation without interruption
A new obligation to apply tax depreciation on a monthly basis is introduced instead of the current annual depreciation. Depreciation will thus be spread evenly over the months over the depreciation period. At the same time, it will not be possible to interrupt depreciation. This emphasises careful planning and asset accounting.
Abolition of accelerated depreciation
Another change is the removal of the option to choose between straight-line and accelerated depreciation. As of this year, only straight-line depreciation, i.e. the same amounts over the entire depreciation period, can be applied. This change is intended to simplify the tax system and remove the complexities associated with different depreciation methods.
Technical evaluation of assets
In the area of technical evaluation, newly referred to as additional evaluation, two thresholds of materiality (i.e. whether or not an evaluation is considered significant) are set:
- Absolute limit: 100 000 CZK.
- Relative limit: 10% of the tax value of the asset.
If the cost of additional appreciation exceeds any of these limits, it will have to be depreciated together with the original asset.
Impact on entrepreneurs and companies
These changes necessitate adjustments to accounting and tax procedures in companies. It is important to update internal guidelines on asset accounting and depreciation, to ensure that accounting systems are set up correctly for monthly depreciation and to prepare for the new limits for technical appreciation.
Tips for you: how to react to the amendment
- Consult the changes and their impact on your business with experts: meet regularly with your accountant or tax advisor to discuss the impact of the amendments on your business.
- Prepare for the new limits: make sure your accounting systems are set up correctly for the new limits and rules.
- Keep careful records of company property (or assets): make sure you keep thorough and accurate records of assets, including their value and planned depreciation.
- Plan your cash flow well: be aware that monthly depreciation can affect your company’s cash flow. Plan expenses and income with regular depreciation in mind.
- Keep an eye on legislative changes: keep an eye on any further legislative changes that could affect depreciation or the value of assets. A great tool can be the “Laws for People” portal, which offers a ‘Law Change Monitor’.
Conclusion
The new rules for depreciation of assets, effective from January 2025, represent a significant change in tax legislation. Although they aim to simplify and clarify the system, they require careful preparation and adaptation to the new conditions. We therefore recommend that you consult these changes with tax advisors and accounting specialists to ensure a smooth transition to the new depreciation system. Our accounting and tax professionals are at your disposal. Please use our contacts for a consultation.