Intellectual property rights such as copyrights, patents or trademark rights are depreciable under the Income Tax Act (PIT and CIT). They are also classified as intangible assets. While the provisions in the Act are almost identical when it comes to depreciation, the Corporate Income Tax Act (CIT) has additional provisions that don’t make sense when it comes to taxing individuals. Read the article to the end to find out what depreciation of intellectual property rights is.
What is subject to depreciation
According to the CIT Law, the categories of intellectual property rights that are depreciable include:
- copyrights or related property rights,
- licences,
- rights specified in the Industrial Property Law (e.g. trademark protection rights, patents for inventions),
- information related to knowledge in the commercial, scientific, industrial or organisational field (of the know-how nature).
Depreciation of intellectual property rights – Depreciation terms
The Law provides the same depreciation conditions for all intellectual property rights. First of all, only those rights that have been “acquired” by the entrepreneur are subject to depreciation. In addition, the rights to be depreciated must be ready for economic use on the date they are acquired for use. It is also necessary that the expected period of use of the intellectual property rights be longer than one year.
Cost instead of write-off
In some situations, intellectual property rights cannot be depreciated. In this case, the costs incurred can be recognised as a direct tax expense in accordance with the general rules. This applies if the expected period of use does not exceed one year. Please note that if the actual period of use is longer than 1 year, this can lead to unfavourable consequences. Among other things, the entrepreneur will have to make retroactive adjustments and pay penalty interest.
Depreciation of intellectual property rights – Depreciation value
The entrepreneur has to determine the initial value, which is the basis for calculating write-offs (most often the initial value is the purchase price). Intellectual property rights can be depreciated using only one method. This is the straight-line method. It involves making monthly write-offs of equal value. If the property rights acquired by the entrepreneur are not covered by a special provision, they are depreciated at the maximum rate of 20% per year (in this case, the minimum depreciation period is 5 years). Several types of property rights are depreciable at a rate of 50%. These include copyrights and certain types of licenses. These include licenses for computer programs, radio and television broadcasting, and film screening.
