Germany: Updated guidance on useful lives of computer hardware and software

Revisions address certain accounting tax issues raised in practice over the last 12 months.

Revisions address certain accounting tax issues raised in practice over the last 12 months

The German Federal Ministry of Finance (BMF) issued updated guidance on the useful lives of computer hardware and software for tax purposes.

Changes to guidance

Under the original BMF guidance (dated 26 February 2021), one year can be applied as the useful life with a view to the “rapid technical progress” in the area of digitalisation.

The revisions (in guidance dated 22 February 2022) address certain accounting tax issues raised in practice over the last 12 months, such as:

  • The option to use a shorter useful life (in line with the BMF guidance) does not constitute an immediate write-off. Even in assuming a useful life of one year, in principle, depreciation or amortization starts on the date of acquisition or production of the asset. This means that if the asset is acquired/produced during the year, depreciation or amortization would have to be calculated beyond the reporting date (spread on an exact-monthly basis over 12 months). However, no objections would be raised by the BMF if, contrary to this, the asset is depreciated or amortized in full in the year of acquisition or production (i.e., not spread on an exact-monthly basis).
  • It is also possible to deviate from the assumption of a useful life of one year.
  • A shorter useful life does not constitute a tax option. The BMF guidance does not otherwise comment on the relationship to the balance sheet for financial reporting purposes, in which a longer useful life is typically applied.

Provisions not changed

The tax authorities can adjust the useful lives of computer hardware and software for tax depreciation and amortization purposes and in line with the "changed actual circumstances.” The tax authorities assume a useful life of one year for computer hardware and software—specified in detail in the BMF guidance. According to prior BMF guidance (2005), the useful lives for computers and similar equipment—based on the tax depreciation table—were three years for general fixed assets and five years for business software systems (ERP software).

  • The term "computer hardware" includes computers, desktop computers, notebook computers (including tablets, slate computers, mobile thin clients), mobile workstations, and peripheral devices. The assets are defined individually in the BMF guidance. In this regard, the BMF guidance draws on the definitions in Regulation (EU) No 617/2013 (26 June 2013) with regard to "eco-design requirements for computers and computer servers.” According to the BMF guidance, the hardware products specified under items one to seven are only recognized under the condition that information is to be provided by manufacturers pursuant to Annex II of the above-mentioned EU regulation, according to which the product type is to be provided in the technical documentation. Listing computer hardware according to items one to seven is therefore final.
  • "Peripherals" are subdivided into input devices (e.g., keyboard, mouse, scanner, digital camera, microphone, headset), external storage (e.g., hard disk; DVD/CD drive, USB stick) and output devices (e.g., speaker, monitor, display, printer). Peripherals are to be identified in close alignment with the listed devices. This list is, however, not exhaustive.
  • The term "software" includes operating and user software for data entry and processing. Besides standard applications, this also includes applications customized for individual users—such as enterprise resource planning (ERP) software, software for merchandise management systems or other application software for business management or process control.

These rules apply for the first time to financial years ending after 31 December 2020. The BMF guidance can also be applied to corresponding assets that were acquired or manufactured in previous financial years and for which a useful life other than one year was used as a basis. Thus, the residual book values can also be written off in full in financial year 2021.

Read an April 2022 report [PDF 344 KB] prepared by the KPMG member firm in Germany

 

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