As of January 1, 2009, the regulation for temporary depreciation at will was introduced, in response to the economic crisis. This regulation applies to certain newly acquired business assets for which purchase obligations or development costs were incurred in 2009 or 2010. However, the business assets must be in use or be put to use before January 1, 2012 or 2013, respectively.
The regulation does not apply to all business assets. Buildings, intangible fixed assets, business assets mainly to be used by third parties (other than short-term lease to successive lessees), and cars (with some exceptions) do not qualify for temporary depreciation at will.
Liberalization retroactively to 2009
The liberalization of the temporary depreciation at will was retroactively set to January 1, 2009 by the Minister of Finance:
· The limit of 50% applies only to the year in which the purchase obligation was incurred or development costs were made.
· The remainder can be depreciated at will in one or several years instead of just in the second year (and without the 50% limit).
This amendment aims to prevent an unintended limit to the depreciation at will that may arise in concurrence with the payment criterion. This criterion prescribes that the depreciation at will, prior to the use of the business assets, cannot exceed the actual amount paid because of the purchase obligation or the amount spent on development costs. This may prevent depreciation at will from being fully utilized. In clarifying the amendment, the Minister of Finance gave the following example.
Example
A taxpayer assumes an obligation for purchasing a business asset toward the end of 2009. In 2010, 60% is paid, as is the remaining 40% in 2011. At the beginning of 2011, the business asset is supplied and put to use.
Under the old regulation, only 50% could be depreciated at will in 2010. Depreciation at will would not have been possible in 2009, because the business asset was not yet put to use and no payments were made in accordance with the applicable payment criterion. Furthermore, in 2011 and subsequent years, depreciation at will would not have been possible, because this could only take place – if the payment criterion was met – in the investment year (in this case, 2009) and the following year (in this case, 2010).
Under the new regulation, 60% can be depreciated at will in 2010, as can the remaining amount in the following year or years.