Currently, a proposal for fundamental changes in the area of tax depreciation is in the legislative process. These changes were originally intended to take effect from January 1, 2025. However, given the progress of the approval process, it is likely that the effective date will be postponed to January 1, 2026, at the earliest. In this article, you will learn about the proposed changes and how they could affect your business if adopted in their current form.
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.
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” should newly include several accounting categories, namely fixed assets, receivables, inventories, etc.
Increase in the limit for depreciable assets
The limit for the inclusion of assets in depreciation is proposed to increase from CZK 80,000 to CZK 100,000. This means that assets with an acquisition value up to CZK 100,000 will be possible to write off immediately as an expense.
Abolition of depreciation groups and introduction of new depreciation periods
The existing system of depreciation groups should be 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 should be introduced instead of the current annual depreciation. Depreciation should be thus be spread evenly over the months over the depreciation period. At the same time, it should not be possible to interrupt depreciation. This would emphasise careful planning and asset accounting.
Abolition of accelerated depreciation
Another proposed change is the abolition of the option to choose between straight-line and accelerated depreciation methods. In the future, it should only be possible to apply straight-line depreciation, meaning equal amounts throughout the entire depreciation period. This adjustment aims to simplify the tax system and eliminate 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) should be set:
- Absolute limit: CZK 100,000 CZ.
- Relative limit: 10% of the tax value of the asset.
If the value of the technical improvement does not exceed these limits, it will be possible to write it off immediately as an expense.
Impact on entrepreneurs and companies
The proposed changes will have a significant impact on the tax planning of companies and entrepreneurs. It is therefore advisable to monitor the legislative process and prepare for the new rules in time.
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.
Please note that this article reflects the situation as of January 2025. The final version that passes through the legislative process (if at all) may differ significantly from the proposals presented here.
