The amendment to the Income Tax Act brought a change in the definition of tangible assets as of 1st January 2021.
Such assets whose entry price exceeds CZK 80,000 and whose operational and technical function is longer than one year are considered to be tangible movable property. The original wording of the act set the limit for determining the entry price of tangible movable property over CZK 40,000. Such a significant change allows accounting entities to extend the one-time declaration of expenses on the purchase of assets in tax costs up to CZK 80,000, but only if they are not tangible fixed assets from the accounting point of view. This higher limit also applies to technical improvements. Provided assets are recorded in the accounting as tangible fixed assets, it is not possible to include the expenses as one-time expenses in the tax costs; depreciation will be considered a tax-deductible expense. The amendment enters into force on 1st January 2021; however, an accounting entity may decide to apply this new limit to assets acquired already from 1st January 2020.
Unlike the Income Tax Act, the Accounting Act is not concerned with a specific minimum value for inclusion in tangible fixed assets. The category of fixed assets includes those assets whose expected useful life exceeds one year. The amount of valuation for classification into fixed assets is then determined by the accounting entity itself while meeting the obligations stipulated by law – including without limitation respecting the principle of materiality and a true and fair presentation of assets. This valuation is reflected in the accounting entity's internal rules.
There may be a situation where the accounting entity’s internal rules define a limit of CZK 40,000 for inclusion in fixed assets. In 2021, it will acquire assets worth CZK 50,000 - these are tangible fixed assets which will be gradually depreciated. For the purposes of income tax, depreciation will be considered a tax-deductible expense.
There may be a situation where the accounting entity’s internal rules define a limit of CZK 100,000 for inclusion in fixed assets. In 2021, it will acquire assets worth CZK 50,000 - in this case they are not fixed assets in terms of accounting or income tax, and the sum of CZK 50,000 can be included in tax costs as a one-time expense.
Thus if an accounting entity decides to apply this amendment to the Income Tax Act and to include expenses for the acquisition of assets as one-time expenses in tax costs up to CZK 80,000, then it must reflect this change in its internal rules and set the value of fixed assets to a price higher than CZK 80,000. A change in the fixed assets limit can then significantly affect the costs and value of assets and their reporting in the financial statements.
Do not hesitate to contact us for more detailed information.
Anežka Hájková
Accountant
ASB Czech Republic
E: ahajkova@asbgroup.eu