For businesses that keep single or double-entry books, accountants process the cost-of-use records after the administrative process is complete to determine the taxable net profits. The end-of-use records also include expenses that must be charged to the past administrative period and which could not be recorded during the period of use. Among them, an important expense is the depreciation of fixed assets.
Depreciation of fixed assets is the reduction in their value (buildings, machinery, furniture, etc.) that happens every year due to their use (operation). With Presidential Decree No.299/2003, in order to avoid inconsistencies regarding the annual depreciation rate, lower and higher depreciation rates are established, depending on the type of fixed assets. Thus, each entrepreneur may choose between the lower and higher depreciation rates, which they are obliged to apply until the fixed asset is fully depreciated.
In businesses with single-entry books where the double-entry bookkeeping system is not applied, the value of the asset is entered on the last pages of the profit and loss book, and depreciation is also recorded there every year.
It should be noted that depreciation is mandatory every year. Therefore, if a company does not go through with it in a given year, the depreciation is lost.
Depreciation of fixed assets comes from:
- The use or the functional damage. For example, the more a machine is used, the more its value decreases until it becomes zero or can only be valued as scrap metal.
- The passage of time or deterioration over time. All fixed assets, such as operating and organizational costs, services, cars, etc., have a limited lifespan.
- The economic depreciation is the result of continuous scientific and technological development that leads to improved or even new types of more productive and economically sound goods appearing on the market.
According to the recent Tax Law 4110 Article 3 paragraph 22, the following are established:
- Mandatory depreciation for all businesses and for all fixed assets acquired as of 1.1.2013, regardless of whether they are used, leased, or exploited in another way.
- The fixed depreciation method is the only one allowed. The fixed assets that were depreciated using the declining balance method and on 31.12.2012 had depreciated more than 50% of their value will be depreciated using the straight-line method as of 2013.
- Intangible assets and rights may also be depreciable with a 10% rate.
- The possibility of choosing a higher or lower depreciation rate has been abolished.
The case in paragraph 1 of Article 31 of the Income Tax Act is replaced as follows:
The depreciation amount for the integrated or intangible fixed assets of the financial entity.
a) A depreciable fixed asset is an operational or non-operational, integrated, or intangible element acquired by the economic entity and having a limited useful life but exceeding one year.
b) The depreciation procedure is mandatory. The economic units that own fixed assets are obliged to do so, regardless of whether they use, lease, or exploit them in any way.
c) Depreciation shall be calculated using the straight-line method on the value of the acquisition of fixed assets, increased by the cost of additions and improvements.
The depreciation coefficients per fixed asset and branch of economic activity, in accordance with the NACE rev2 classification, are as follows:
For all areas
- Territorial scopes: 0%
- Building facilities, offices, and apartments: 4%
- Production facilities, warehouses, railroad stations, and non-building facilities: 4%
- Machinery: 10%
- Equipment (excluding PC and software): 10%
- PC equipment and software: 20%
- Means of passenger transportation: 10%
- Freight carriers: 12%
- Intangible assets and rights: 10%
- Other fixed assets: 10%
Notwithstanding the above points mentioned, the following shall apply:
- Territorial scopes: for sector B (Mining-Quarries), except B.09 (Mining support service activities) 5%
- Means of passenger transport: 12%
- For sections N77.11 (Renting and leasing of cars and light motor vehicles) and O85 (Education), freight carriers: 16%
- For sector N77.12 (Rental and leasing of trucks) Other means of transport: 5%
- For sections H49.1 (Interurban passenger transportation by railway), H49.2 (Freight transport by rail), H50 (Waterway Transport), and H51 (Air transport), i.e., for trains, ships, and aircrafts respectively, as well as for intangible assets and their rights: 100%
- For sector P90 (Creative activities, arts, and entertainment) 50%
- For sector I59.1 (Production of films, videos, and television programs), other fixed assets: 50%
- For sector N77.2 (Renting and leasing of personal or household goods) only for the rented goods: 30%
- For sector N77.3 (Renting and leasing of other machinery, types of equipment, and material goods)-Only for the rented items:
d) Depreciation shall be calculated on an annual basis.The transfer of depreciable amounts between economic uses shall not be permitted. Depreciation for newly acquired fixed assets shall begin in the month in which they are put into service or use. It is calculated over twelve months, as many as there are months left until the end of the management period.
e) The depreciation carried out in accordance with the provisions herein may not exceed the acquisition or adjusted value of the depreciable fixed asset. Fixed assets that have a value of up to one thousand five hundred (1.500) euros each, may be fully depreciated during the period in which they were used or put into service. The above value can be adjusted every five years from the effective date of this order, by the decision of the Minister of Finance and at a rate not exceeding for the same period, the corresponding change in the Producer Price Indicator in the Industry (Branch 055 – “Intermediate and Capital Goods”), as promulgated by the Hellenic Statistical Authority.
f) In particular, the companies that applied the declining balance depreciation method pursuant to P.D. 299/2003 (A’ 255) until 31/12/2012 and depreciated more than 50% of the original value of the fixed assets until that date are required to switch to the updated system pursuant to the current law. In the remaining cases, businesses can choose to maintain the current system, until the depreciation exceeds 50% of the value of the fixed asset, at which point the company will transition to the method of area(iii). During this transition period, enterprises shall use the depreciation rates of the area (iii) multiplied by two (2).
g) In particular new businesses may apply zero rate depreciation to all the fixed assets during the first three (3) administrative periods, This shall also apply to the costs paid by a company for a non-owned network connection to the DEI (electricity company) network for a duplication station or independent production.
h) In this case, the gross income of companies that rent a building, which has been constructed solely at the expense of the tenant. shall be deducted.
