Changes in Tangible and Intangible Assets
Together with the adoption of the amendment to the Income Tax Act, which is effective as of 1 January 2021, important changes in tangible and intangible assets have been introduced.
Firstly, special tax depreciation may be applied for assets categorized in class 1 and class 2 according to the Czech Income Tax Act and purchased from 1 January 2020 to 31 December 2021. According to the rules for special tax depreciation, the new depreciation period of assets in class 1 is 1 year instead of current 3 years and as for assets in class 2, it is decreased from the current 5 years to 2 years.
The second significant change is the increase of the threshold for classification of individual tangible assets in the category of tangible assets and for technical improvement of tangible assets from CZK 40,000 to CZK 80,000. Assets above the threshold have to be capitalized and depreciated; assets below the threshold can be accounted for as cost. It can be applied also for tangible assets and technical improvement acquired after 1 January 2020.
Moreover, the amendment also abolished tax depreciation of intangible assets. This means that any intangible assets purchased form 1 January 2021 should be now depreciated the same way as in accounting. Thus, this accounting depreciation of intangible assets is fully tax deductible. The tax payer has an option to apply such an approach also for intangible assets acquired after 1 January 2020.
Loss Carried Back
The general principle that tax losses can be carried forward to offset taxable profit in the immediately following five tax periods remains unchanged.
However, since 2020, the tax losses could also be carried backwards for two tax periods. This new rule can be applied firstly for a tax loss generated for the tax period ending on 30 June 2020. This means that a tax loss generated in the 2020 tax period can be utilised retroactively in the tax periods 2018 and/or 2019 via an additional tax return. Nevertheless, the maximum limit of the amount of the tax loss that can be carried back is set at CZK 30 million (as a sum of the amount of the two previous periods).
Finally, the last change concerning tax losses is that the taxpayer can newly waive the right to deduct the tax loss from the tax base in the five tax periods following the tax period in which the tax loss was assessed. The notification of this waiver must be submitted within the deadline for the submission of the tax return for the tax period in which the tax loss was generated and, after this notification is made, it cannot be changed. As a result of such a waiver, a significant reduction of the period for tax audit may result, since no special provision for extension of the preclusive period (up to 8 years) is applied.
