The reason for the change to the useful life of computer hardware and software lies in digitalisation. It is driving an ever stronger and faster transformation of technical devices and their software. The underlying Section 7 of the German Income Tax Act (Einkommensteuergesetz), which governs the depreciation of computer hardware and software, has not been amended for these assets in almost 20 years. This is now set to be adjusted to current conditions and is intended to create an incentive for businesses to acquire computer hardware and software.
Useful life reduced to 1 year
In order to implement the objectives of the Federal Ministry of Finance (BMF), the useful life of computer hardware and software has been reduced from three years to one year. This immediately brings to mind the immediate write-off, which is likewise limited to a useful life of one fiscal year, and may at first cast doubt on the usefulness of the legislative change. Nonetheless, differences can be identified, in particular due to the low-value asset (GWG) threshold for an immediate write-off of EUR 800 net. Many assets in the area of computer hardware exceed this threshold.
Which computer hardware and software is covered?
- Computer hardware
- Desktop computers (fixed location)
- Notebook computers (portable)
- Tablet
- Notebook with touchscreen
- Desktop computer or notebook using an external computer server for data processing
- Desktop or mobile workstation (particularly high-performance computer or notebook for scientific or financial data analysis)
- Small-scale server (computer that serves multiple users as a storage location or for data provision)
- Docking station (product to expand the connection options of a computer or notebook)
- External power supply
- Peripheral devices
- Input devices: keyboard, mouse, scanner, microphone, camera, etc.
- External storage: hard drive, USB stick
- Output devices: projector, printer, speakers, computer monitor, etc.
- Software (operating and application software for data input and processing)
Application
The legislative change to the useful life of computer hardware and software applies to the determination of business profits for fiscal years ending after 31 December 2020. Purchased computer hardware and software can now be deducted at a higher value at the end of a fiscal year, thereby creating a tax advantage. The reduction of the useful life to one year also applies to such assets that were acquired before 31 December 2020, provided they are still being depreciated over the previously applicable useful life of three years. In addition, the change to the useful life also applies to computer hardware and software acquired as private assets for the 2021 assessment period.
As a result, the entire value of one of the assets listed above can be deducted from profit at the end of a calendar year.
Frequently asked questions
Frequently asked questions
What is the tax depreciation period for computer hardware and software?
The useful life for computer hardware and software has been reduced from three years to one year. This means the full acquisition cost can be deducted as an expense in the year of purchase. The change is based on an adjustment under § 7 EStG to reflect rapid technological progress.
When does the one-year useful life for computer hardware and software apply?
The rule applies to fiscal years ending after 31 December 2020. It also covers assets acquired before that date, provided they are still being depreciated over the previous three-year useful life. For private assets, the rule applies from the 2021 assessment period onwards.
How does the one-year useful life differ from the immediate write-off for low-value assets (GWG)?
The immediate write-off for low-value assets is capped at acquisition costs of 800 euros net. Many computer hardware components exceed this threshold and were therefore not eligible for immediate depreciation. With the new one-year useful life, even more expensive devices can now be fully deducted for tax purposes in the year of acquisition.
Which computer hardware qualifies for the one-year useful life?
Covered items include desktop computers, notebooks, tablets, workstations, small-scale servers, docking stations, and external power supplies. Peripherals such as keyboards, mice, scanners, microphones, cameras, external hard drives, USB sticks, printers, projectors, speakers, and monitors are also included.
Does the shortened useful life also apply to software?
Yes, the one-year useful life also applies to operating and application software used for data entry and processing. The acquisition costs for software can therefore likewise be deducted in full as a business expense in the year of acquisition.