Computer hardware and software

In early 2021, the German Federal Ministry of Finance (BMF) adopted a new rule that an average useful life of one year may be used for computer hardware and software, which means that immediate depreciation is now possible de facto for these assets. For about 20 years before that, the rule was that computers had to be depreciated over a useful life of three years.

Note: The new rule applies to hardware for desktop computers, notebooks, desktop thin clients, workstations, docking stations, external storage and data processing devices, external power supply units and adapters, and peripherals (keyboards, scanners, headsets, overhead projectors, speakers, printers, etc.). The software benefiting from this treatment is operational and user software for data entry and data processing, including but not limited to ERP software, software for merchandise management systems, and other business management or process control applications.

The BMF has now released a new circular adding further detail to its statements on immediate depreciation:

• Taxpayers are not necessarily required to choose immediate depreciation; instead, they can also choose other methods of depreciation.
• If the one-year useful life is chosen, then depreciation begins at the time of procurement or production and can be completed in the year of procurement or production. There is no need to reduce the amount of the depreciation monthly (division into twelfths) if the assets are procured in the course of the year. This means depreciation need not extend over two tax years in the case of a one-year useful life.
• The assets must be included in the record of existing movable assets, which the taxpayer is required to keep.
• The new rules on the one-year useful life also apply to the income-related expenses deduction for employees.

Note: The immediate depreciation rule is applicable for the first time to fiscal years ending after December 31, 2020 (which in the case of a regular fiscal year means 2021 is the first year to which it applies). The rules can also be applied to assets that were procured before 2021 and for which a different (longer) useful life was previously taken as the basis. This means all assets that benefit from this treatment can be written off in full for tax purposes in 2021.