Does lack of revenue interrupt amortization?

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Virtually every company uses assets defined as fixed assets or intangible assets. Most of them are amortized over time according to the amortization schedule. It is on its basis that the taxpayer recognizes depreciation charges in the company's tax costs. While in a situation where an enterprise generates revenues, recording depreciation write-offs seems most justified, in the case of a lack of revenues, entrepreneurs have doubts as to the validity of the recording of costs.

What is amortized?

As already mentioned above, depreciation is subject to fixed assets and intangible assets which:

  • they are owned or jointly owned by the taxpayer,

  • were purchased or manufactured on their own,

  • are complete and fit for use on the day they are accepted for use.

However, these are not the end of the requirements, as the most important of them also include the expected useful life for business purposes, which must be longer than one year.

Depreciation is a tax cost

Pursuant to Art. 22 sec. 1 of the Personal Income Tax Act, tax deductible costs are the costs incurred in order to:

  • achieving revenues or

  • retain earnings either

  • securing the source of income

- in addition to the costs listed in Art. 23 of the Act.

Wherein Art. 22 sec. 8 of the Act clearly states that the deductible costs are write-offs for the consumption of fixed assets and intangible assets (depreciation write-offs) made only in accordance with Art. 22a-22o, taking into account art. 23.

When should depreciation stop?

As specified in Art. 22c points 5 of the PIT Act, assets that are not used as a result of suspension or closure (liquidation) of economic activity are not subject to depreciation.

Then, the depreciation write-offs should be discontinued starting from the month following the month in which this activity was suspended or discontinued.

No revenues and depreciation recognized in costs

Two main situations have been mentioned above where depreciation cannot be a tax expense. Therefore, if the entrepreneur has not suspended the activity or closed it, but for purely economic reasons, it does not earn revenues for some time, it has the right to include the depreciation write-off for this period in costs.