SECTIONSGerman Depreciation Method
The German Government has specific rules that must be followed for the depreciation policy of companies that are incorporated or do business in Germany.
Key Aspects of German Depreciation
In most cases, Germany follows the Straight-Line method of Depreciation.
There are useful life policies provided by the German Government. For more information, click this link:
There might also be industry specific depreciation tables available from the German Federal Ministry of Finance website.
Fixed Assets and VAT
The asset cost is defined as the cost of the asset minus any VAT applied. In other words, the net cost of the asset must be used for depreciation (gross cost, minus tax or VAT).
In the case of a small business, or if the nature of the use or kind of business the customer operates is entitled to depreciate the VAT component, they will have to depreciate the VAT amount over the life of the asset, and file a report with the government.
In the case where an improvement was made to an asset (for example, a new set of tires added to a vehicle), the cost is added to the asset and the depreciation true-up as if the tires were added when the vehicle was purchased.
In the above example, the tires would be an element with the ability to depreciate the VAT part, currently in Fixed Asset Management this would have to be a separate asset with a relationship to the ”master” asset, with its own depreciation book in order to follow the VAT depreciation rules. A similar approach applies to the increase/decrease in value due to an addition to the asset or partial disposal.
Fixed Assets Directory or Book
You must maintain a fixed asset directory which at a minimum tracks the following:
- acquisition date
- acquisition cost
- depreciation amounts
- corresponding residual book value at end of year
See Fixed Asset Reporting below for a detailed list of fields.
Residual Value or Net Book Value is a field on the asset (defined as Cost minus Residual Value minus Accumulated Depreciation) but moves monthly. So if you need the value post year-end, and the next depreciation schedule has already been run, you must recalculate from Accounting.
Fixed Asset Reporting
In Germany there is a requirement to create a report called “Development of the Fixed Assets”.
You must work with your implementation partner to get the fixed data extract and other asset details. You must then tag the data correctly, build a report in excel and evidence it along with the extract.
The following fields are required in the rows.
- Intangible Assets
- Internally generated industrial and similar rights and assets
- Purchased concessions, industrial property rights and similar rights and assets and licenses in such rights and assets
- Property, Plant and Equipment
- Other equipment, operating and business equipment
- Advanced Payments
- Financial Assets
- Investments in Subsidiaries
- Investments in companies in which a participant interest is held
- Securities held as fixed assets
- Other Receivables
The following fields are required in the columns:
- Acquisition and manufacturing costs
- Balance at beginning of year
- Additions
- Disposals
- Reclassifications
- Ending Balance at end of year
- Accumulated amortization, depreciation and write downs
- Balance at Beginning of Year
- Additions
- Disposals
- Writeups
- Reclassifications
- Ending Balance at end of year
- Net Book Value
- Ending balance at end of year
- Ending balance at end of prior year
See a sample report attached in the pdf in English. The user is expected to identify these in their account values and tag them and produce a financial report.
Some of these are sourced from the Fixed Asset book/register. Some of them might be sourced from other parts of the balance sheet and they need to be compiled by the users.
Low Value Assets
An Asset is considered low value and can be depreciated immediately in the period and year of acquisition if:
- The Asset can be used independently (monitors would not be considered an independent asset as they can be used only with laptops/desktops)
- The cost of the asset is between 0.01 and 250 euros (this might be changed in the future and hence must be an Asset book parameter)
- It is not required to track this in the Asset Book
- The accounting would be as follows.
- Dr. Item Cost or Low Value Depreciation Clearing
- Cr. Cash
- Dr. Depreciation Expense
- Cr. Item Cost or Low Value Depreciation Clearing or Low Value Acc Depr
- Dr. Item Cost or Low Value Depreciation Clearing
Since low value assets don’t have to be recorded in a Fixed Assets book, we recommend that the value of these assets be held in a specific Small Assets GLA and they would be manually depreciated or written off directly to P&L.
Medium Value Assets
An Asset is considered medium value if the cost is between 250.01 and 1000 Euros. It follows all the rules of the low value assets except it has to be recorded in the Asset Book.
We recommend you create these in the asset register with a specific depreciation book.
Pooling of Low-Cost/Medium Value Assets
At the end of the year, the customer can choose to pool assets into a group for a better depreciation strategy. The rules are:
- The useful life of the pool is 5 years
- The cost of the assets must be between 250.01 and 1000.00 Euros
- This is an all or nothing rules
- Either all assets that cost between 250.01 and 1000.00 are pooled into the 5 year or not.
- The business cannot choose to pool only certain assets
- The customer will have to do a calculation at the end of the year for the preferred treatment and decide to pool or not
For low value assets that are valued between 250.01 and 1000 Euros, we can use a Tax Book, but this is attached to each individual asset, and needs to have a service life of 5 years.
If you set up the assets and don’t pool you can 100% depreciate in Year 1 (Bonus Depreciation).
Depreciation and Amortization Policy in Germany per PWC
Depreciation on movable fixed assets is calculated on the straight-line method over the asset’s anticipated useful life. Depreciation takes the residual value of the asset into account only if it is material, with any gains on a sale being treated as normal business income. Certain assets worth less than EUR 800 can be depreciated in total in the year of acquisition. Alternatively, certain assets acquired in one business year worth less than EUR 1,000 each can be pooled together as a compound item and depreciated over five years.
In response to the COVID-19 pandemic, enhanced depreciation rates were introduced for movable assets acquired or made after December 31, 2019 and before January 1, 2022 of up to the factor of 2.5 compared to currently applicable depreciation rates and up to a maximum of 25% per annum.
Software and Hardware purchases can be depreciated in one year. (need to be tagged correctly based on policy defined by the regulatory authorities). For example small scale machines and equipment). There is a specific list of equipment that is specified by the German authorities.
Building Depreciation Rules
Buildings are depreciated on a variety of straight-line or reducing-rate systems designed to reach a full write-down, depending on the age of the building and on whether the taxpayer was its first owner. (2% or 2.5% or 3%)
- 2% translates to 50 years
- 2.5% translates to 40 years
- 3% translates to 33 years
In addition to normal depreciation, special depreciation is deductible for tax purposes in certain limited circumstances (for example, small businesses, ancient monuments, buildings in designated renovated city zones).
Customers must review the asset and the qualitative aspects and determine the correct depreciation method based on the rules and set them up correctly in the system.
Other Assets and Their Treatment
Acquired intangibles are amortized straight-line over their estimated useful lives; goodwill is amortized over 15 years.
Assets such as securities, stocks and bonds, shares, land, and working assets cannot be depreciated according to plan.