Dual nature of depreciation expense
The calculation of depreciation for tax purposes (hereinafter referred to as "tax depreciation") is in no way conditioned by the calculation of depreciation for accounting purposes (hereinafter referred to as "accounting depreciation"). Depreciation calculated in accordance with International Accounting Standards or International Financial Reporting Standards (hereinafter referred to as "IAS" or "IFRS"), that is, as is widely accepted in our country, using the expected useful life, is recognized as an expense in the income statement, but is not recognized as such in the tax balance, as a calculation prescribed with the aim of determining the basis for measuring the amount of liability for corporate income tax.
In the tax balance, only the amount obtained by applying the prescribed depreciation rates, which do not necessarily reflect the real consumption of the fixed asset in the business cycle, is recognized as an expense as depreciation expense. As we announced, our legislation, for the calculation of the base for measuring the liability for corporate income tax, does not recognize the costs of accounting depreciation, but only the costs that are calculated in accordance with the Law on corporate income tax (hereinafter referred to as "the Law") and the Rulebook on the method of classifying fixed assets by group and the method of determining depreciation for tax purposes.
It was this Rulebook that "underwent" changes and got its new name. In the following text, you can familiarize yourself with the news that he brings, but also with the basics of calculating the liability for income tax, so that even beginners will be animated by the content.
Tax amortization is an obligation prescribed by law and is primarily used for tax reports, which is why it was introduced as a category. Therefore, its most important goal is to determine the income tax liability.
The law establishes that the starting point for the calculation of income tax liabilities, with the balance on the balance sheet date, is the financial result (profit or loss) derived from the income statement for the period ending on the balance sheet date. This amount is then increased or decreased by the amounts of corrections prescribed by law.
After applying all corrections, the amount of taxable profit is obtained, which is the basis for determining the liability for corporate income tax. One of those values that is corrected through the calculations presented in the tax balance is depreciation. If the amount of calculated depreciation is higher, the profit of the company is lower, and therefore the liability for the relevant tax is also lower. Therefore, tax depreciation is primarily a source of information that allows taxpayers to determine the scope of the tax liability for the company.
New Rulebook on depreciation of fixed assets recognized for tax purposes
Until December 31, 2018, the Rulebook on the method of classifying fixed assets by group and the method of determining depreciation for tax purposes (Official Gazette of the RS No. 116/2004, 99/2010, 104/2018 and 8/2019) was used, that is, one method of calculating depreciation, while from January 1, 2019, a different method of calculating tax depreciation is applied, which is led to the necessity for taxpayers to keep double records, and if we add to that the necessity of updating accounting depreciation, we are actually talking about triple records.
At the end of 2019, more precisely from December 24 to 31, the Official Gazette of the Republic of Serbia published a large number of changes to the existing ones, as well as a set of completely new regulations. It applies to everyone from January 1, 2020, that is, most of them refer to the preparation of financial statements for 2019.
New Rulebook on depreciation of fixed assets recognized for tax purposes (hereinafter "Rules"), it was finally adopted and is certainly applied to the calculation of tax depreciation when determining the amount of corporate income tax liability for the year 2019. When determining corporate income tax for 2019, several different rules for calculating tax depreciation will be applied. The Rulebook was published in the Official Gazette of the RS no. 93/2019 and entered into force on January 1, 2020.
The provisions of this Rulebook apply to permanent assets acquired after January 1, 2019, that is, starting from the first day of the tax period starting in 2019.
What are the new features in the Regulations?
The new Rulebook introduces the following rules:
- Fixed assets, except for intangible investments, are classified by group and depreciated according to the rates prescribed in Article 10b paragraph 3 of the Law on Corporate Income Tax:
Group I – 2,50%
Group II – 10,00%
Group III – 15,00%
Group IV – 20,00%
Group V – 30,00%
- all fixed assets are depreciated using the proportional method for each asset separately
OA = purchase value on the last day of the tax period x number of days of use in the tax period x depreciation rate
The purchase value of a fixed asset for the purpose of calculating tax depreciation (hereinafter: purchase value) represents the value at which the asset was first recognized in the business books in accordance with accounting regulations and IAS, i.e. IFRS and IFRS for SMEs (hereinafter: accounting regulations).
The purchase value cannot be changed during the calculation of tax depreciation, except in the case of subsequent investments that are included in the purchase value of the fixed asset in accordance with accounting regulations (hereinafter: subsequent investments).
- if the amount of accounting depreciation of a fixed asset is lower than the amount of tax depreciation, the amount of accounting depreciation is recognized in the tax balance
- Intangible assets - the amount of "accounting depreciation" is recognized.
The calculation of tax depreciation begins and ends simultaneously with the calculation of accounting depreciation.
The taxpayer is obliged to provide the following data for each fixed asset acquired from January 1, 2019:
- the date when the fixed asset was acquired and put into use;
- the amount of the purchase price;
- date of commencement of calculation of accounting depreciation;
- the amount of subsequent investments;
- the amount of accounting depreciation in the tax period;
- the amount of accounting depreciation which, in the tax period, is recognized for tax purposes;
- the amount of tax depreciation in the tax period;
- the amount of tax depreciation which, in the tax period, is recognized for tax purposes;
- the amount of unwritten tax value at the end of the tax period;
- the amount of unwritten tax value on the date of termination of depreciation calculation;
- the amount of unwritten accounting value on the day of termination of accounting.
Ana Vukasinovic
Manager in the audit sector
