Computer program - what rate of depreciation?

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Purchased utility computer software for company purposes with a value exceeding PLN 3,500 is usually treated as an intangible and legal asset. It qualifies as a proprietary copyrights or license. Due to such qualification, the minimum depreciation period of the program is strictly defined in the provisions of the Personal Income Tax Act.

A computer program as an intangible and legal asset

Most often, when buying a computer program, an entrepreneur buys a license to use it. It may be for a limited time or for a lifetime. Computer software will be an intangible asset if:

  • was purchased for business purposes,
  • is an acquired license or copyright,
  • it is fit for use,
  • the expected useful life is at least one year,
  • it is an application program, not a system program.

Operational program as an exception

System software will be treated differently from the application program. It is more and more often purchased with the computer itself and is directly related to its operation. Therefore, it will increase the value of the purchased fixed asset - i.e. a computer (computer set), and will not be a separate asset - an intangible asset - like an application program.

Initial value

The initial value of property rights and licenses is their purchase price. As in the case of determining the initial value of fixed assets, also in the case of intangible assets, the purchase price is increased by the costs related to the purchase, accrued until the date of transferring the software for use in the company. The initial value can therefore be influenced by the expense of installing, running, and testing the software.

The tax classification of expenditure on computer software will depend on the initial value. If the purchase value is lower than PLN 3,500, the entrepreneur may qualify the expenditure directly as tax deductible costs.However, if the value is above PLN 3,500, it will be classified as an intangible and legal asset, and costs will include periodic depreciation, the amount of which will depend on the adopted depreciation rate.

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Software amortization method and rate

Intangible assets can only be depreciated using the straight-line method. Decreasing or one-off depreciation is unacceptable. Therefore, the entrepreneur cannot have doubts in this respect. However, they appear already when determining the annual depreciation rate.

In the case of intangible assets, there are no strictly assigned basic depreciation rates. Thus, the determination of the rate is at the discretion of the entrepreneur himself. However, it must take into account the limitations imposed in this matter by the Personal Income Tax Act. The regulations say that the amortization period of computer software in the form of a license or copyright cannot be shorter than 24 months. It also means that the highest rate of depreciation that can be adopted in relation to a computer program is the rate of 50%. Adopting it will meet the regulations, because the intangible asset at such a rate will be fully amortized after the statutory 24 months. The entrepreneur, when choosing the depreciation rate, is limited in this case only by the upper limit. Therefore, there are no contraindications to accept a rate lower than 50%.

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