Tax Advisors Explain: Low-Value Assets—Collective Items and Business Expenses
If you’re a business owner, you’ve probably heard of “low-value assets.” We believe it’s crucial for business owners to understand exactly what these specific assets entail. Low-value assets offer particular advantages through simplified accounting options. In this article, our tax advisors from Düsseldorf and Oberhausen explain everything you need to know about low-value assets, collective items, and business expenses.
What are low-value assets?
Low-value assets are usually abbreviated as GWG. For low-value assets, it is possible to deduct the full acquisition or production costs from business expenses, rather than spreading them over the useful life (depreciation) as is otherwise customary. For your business, this means that this rule allows you to make a variety of smaller purchases without the items in question being subject to depreciation rules. This can save companies time and resources.
So which assets are considered minor? Minor assets are assets that
- are classified as movable fixed assets,
- have acquisition or production costs or a contribution value
that does not exceed €1,000 net,
- are subject to wear and tear, and
- can be used independently.
The assets mentioned above are explained individually below for a better understanding. If you have any questions, our tax advisors in Düsseldorf and Oberhausen are the best people to contact.
- Tangible Fixed Assets
A distinction is made between movable and immovable assets. Only movable assets are considered low-value. Land, buildings, and outdoor facilities are, understandably, immovable and therefore cannot be classified as low-value.
Furthermore, only fixed assets are eligible for this benefit. Current assets include, for example, raw materials or items that have not yet been put to their final use (e.g., screws in your spare parts inventory). The low-value asset rule does not apply to such items.
- Acquisition and production costs
Acquisition costs are the costs incurred to acquire an asset and bring it into a ready-to-use condition. Only net acquisition costs apply here. Incidental costs, such as those for transportation or subsequent acquisition costs, are also included in the acquisition costs.
Production costs are those incurred during the production or expansion of an asset. Potential improvements and optimizations are also included in production costs. Generally, direct material costs, direct manufacturing costs, and special manufacturing costs are added.
- Depreciability
Low-value assets must be depreciable, i.e., eligible for depreciation. An office chair, for example, would be a case in point. So-called short-lived assets (with a useful life of less than one year) lack this depreciability.
- Independent Usability
The law stipulates that a low-value asset must be capable of being used independently and separately from other assets. What may initially sound like “tax jargon” can be clarified using the following examples:
Independently usable:
Laptops, tablets, office chairs, telephones, smartphones, books, lamps, etc.
Not independently usable:
Printers (without copy and fax functions, as they do not work without a PC), car trailers, machine tools, and wear parts.
Immediate write-off as business expenses
If the above criteria are met, the item qualifies as a low-value asset. If the acquisition and production costs do not exceed €800, the expenses can be fully deducted in the year of acquisition as an immediate write-off under business expenses.
Collective item for low-value assets
For low-value assets with acquisition costs between €250 and €1,000, business owners can create a collective item. This must be amortized over the following four fiscal years at a rate of 1/5 per year. All low-value assets must be listed in the collective account. It is not possible to depreciate some assets individually.
A collective account can be quite useful for some businesses. When creating a collective account, only the acquisition of the assets and the annual write-off need to be recorded in the books.
As an entrepreneur, it’s better to play it safe
We believe it is important to provide business owners with a basic understanding of taxes. We are therefore pleased that you have read this article carefully and now know how to handle low-value assets for tax purposes. Nevertheless, it makes sense for day-to-day business operations to engage a qualified tax advisor for the aspects mentioned. As tax advisors based in Düsseldorf and Oberhausen, we are here to answer all your questions and assist you with all tax-related matters. Contact us today to ensure your business is on solid ground when it comes to taxes!
