Clarification on the depreciation of hardware and software

The German Federal Ministry of Finance has added some clarifications and a non-objection rule to its guidance on depreciation of hardware and software within one year.

A year ago, the Federal Ministry of Finance issued an administrative instruction shortening the depreciation period for hardware and software to one year. At the time, the ministry listed in great detail which assets were covered by the regulation and regulated many other details, but completely omitted an important clarification. There was no explicit mention of immediate depreciation, i.e. full depreciation in the year of acquisition. However, depreciation over a period of one year (e.g. for an acquisition in May, depreciation of 8/12 of the acquisition costs in the year of acquisition and 4/12 in the following year) would mean unnecessary bureaucratic effort and significantly reduce the relief provided by the new regulation.

One year later, the Ministry has now recognized the problem and issued a clarification to the regulation at that time. According to this, the option to use a shorter useful life as a basis is not a special form of depreciation, not a new depreciation method and not an immediate depreciation. Even in the case of a useful life of only one year, it applies that depreciation begins at the time of acquisition or production and the assets must be included in the inventory. However, the Ministry also clarifies that the application of other depreciation methods (e.g. immediate depreciation for low-value assets) is also possible for these assets.

In addition, the Ministry issues a non-objection rule in the event that depreciation is charged in full in the year of acquisition or manufacture. This means that, although there is now no legal requirement, there is at least a practical option to write off hardware and software in full in the year of acquisition or manufacture or to allocate it on an accrual basis to this year and the following year if the acquisition or manufacture does not fall in January.