ASSET DEPRECIATION RATES MALTA
For income tax purposes, this occurs when one buys an “Asset”. for example office furniture.
In this case, the tax treatment for expense purposes will be completely different than when other expenses such as stationery expenses or diesel are incurred.
In the case of stationery or diesel, the whole amount is take as an expense for that year and life is great!
Yet for assets, the amount taken as an expense is “divided” over a number of years.
The reasoning is that office furniture or say a laptop will be used for a number of years. It has a much longer lifespan than say a biro or diesel top up. The office furniture will also be used to directly or indirectly to help your business generate income over a number of years.
Therefore on the same basis, it is reasoned that the deduction as an expense should not relate to only the first year but instead spread out over the number of years it’s expected to be used. To get to the point, a business cannot take the whole deduction during the first year.
Instead we say it is “depreciated” over a number of years. Or in simple English, the expense is divided over a number of years.
How does one decide over how many years to depreciate the asset?
Well, the good news is that the Tax dept. has already created a category of different assets and the years to use. Therefore it’s as simple as checking under which category your purchased assets falls under and apply the depreciation rate or years dictated by the tax dept as per the below table.
(NB for Income tax, what we know as depreciation is referred to as “Capital Allowances” but we won’t need to go into the details of this)
Example: ASSET DEPRECIATION RATES MALTA
A business bought office furniture worth €2,000 excl VAT in Year 1
So from the table below we can establish two things:
- Office furniture falls under the category:
“Furniture, Fixtures , Fittings and Soft Furnishings”
- According to table below, furniture has a depreciation rate of 10%. (Which basically means a 10 year life span).
Whether your furniture will last that long is another matter though not relevant for this article either!
So for Year 1, the depreciation taken as a tax deductible expense is €200 ( €2,000 x 10% )
And what will happen in year 2 , 3 , 4 etc you might rightly ask?
Answer : The same , you would take another €200 for every year. This would keep on happening till year 10.
By the end of year 10, the asset would have been fully deducted for tax purposes. ( €200 x 10 years depreciation = whole €2,000 deduction taken)
So when it comes to tax planning and estimating any tax due, distinguishing between the normal everyday expenses and those which fall under assets is an important factor to consider.
Reason being your profit will be in fact higher than you might have actually thought since the assets’ expense is divided over a number of years. Which in a nutshell means more taxable profit.
On another fantastic note, many assets could be applicable for the Malta Enterprise incentive: Micro Invest Tax Credits (available to 2020) which will give you a further 45% Tax Credit on the amount of the asset Click Here for more info.
Therefore, you might be able to save quite a lot of tax after all, even in just the first year!
LIFE SPAN IN YEARS
DEPRECIATION RATE TO USE FOR TAX PURPOSES
Industrial buildings and structures (including hotels, car parks, and offices.(offices over 2,500 meters squared)
New acquisitions of industrial buildings and structures are entitled to a concurrent extra 10% allowance in the year of acquisition. Tax depreciation is not required to conform to book depreciation
Computer and Electronic Equipment
Electrical & Plumbing Installations and Sanitary Fittings
Furniture, Fixtures , Fittings and Soft Furnishings
Lifts and Escalators
Premises – Offices , Hotels and Carparks (initial 10% deduction)