Depreciation of Computers: How Does It Work?

How does computer depreciation work in a company? And what if you rent your equipment? What are the deadlines to respect and the pitfalls to avoid? That’s what we’ll find out together in this article.

If you're a business owner, you have every interest in deducting as many professional expenses as possible from your turnover. The problem is that the law is often very complicated and full of exceptions. Let’s be honest, most of us would rather not know every detail of tax administration rules. Yet, knowing these depreciation rules can save you cash flow (more info) that can be reinvested into your business.

Depreciation: What Is It? 📚

Let’s start from the beginning. What is depreciation? (Hang on, it might seem complicated but it's simpler than you think.)

Depreciation represents the loss of value of an asset due to wear, the passage of time, or obsolescence. This can be linked to its use, age, or even technological progress (a 2012 computer won’t perform as well as a 2019 one). Depreciation expense is the sum representing this decline in value, calculated for each accounting period according to a specific method. This amount is deductible from your company’s taxable profit.

To offset this depreciation, you are allowed to depreciate your asset. In other words, you can record the expense against your earnings. This is called accounting depreciation.

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To do this, depreciation must meet several criteria:

• Only fixed assets can be depreciated,
• The useful life must be longer than one year,
• The acquisition value must meet the minimum threshold set by current tax rules—Note: As of 2024, this threshold may have changed, so always check the latest guidance or confirm with your accountant.

The purpose of depreciation is to allow the company to spread the loss of value across each accounting period, for the full useful life of the asset.

🛑 Note: Fixed assets ≠ expenses. Fixed assets increase the value of the company, whereas expenses do not.

Depreciation: Useful Life of Different Assets**

What Can I Depreciate?

As a business, you can depreciate various assets. Before buying a new asset for your business, it’s important to know whether the item can be depreciated. In this article, we will only focus on tangible (i.e. "physical") depreciable items.

The following assets can be depreciated:

• Buildings
• Industrial equipment and tools
• Transport equipment
• Office equipment
• IT equipment (such as computers)
• Furniture

If the asset you wish to depreciate is on this list, the next question is: what is the useful life of the asset? Since asset value decreases over time, the duration of depreciation will differ between, for example, industrial tools and computers.

The Useful Life of a Depreciation?

The useful life is defined in the General Chart of Accounts and varies depending on the nature of the asset:

• Buildings: between 20 and 50 years
• Industrial equipment and tools: between 5 and 10 years
• Transport equipment: 4 to 5 years
• Office equipment: 5 to 10 years
• IT equipment: 3 years (subject to company policy and technological updates)
• Furniture: 10 years

Case Study: How Does Computer Depreciation Work? 💻

IT equipment in a company is kept for several years and can be very expensive, making it interesting to treat as an asset. According to law, computers and other IT equipment are typically depreciable over 3 years, i.e. a 33.33% depreciation rate per year. After three years, the equipment is considered obsolete. Most companies renew their computer fleet every three years, which corresponds to an average computer's useful life. Thus, for 3 years, you can deduct depreciation amounts as expenses.

💡 Depreciation Period for Computers: Simply put, if an asset is depreciable over 4 years, the depreciation rate will be 100%/4 = 25% per year for straight-line depreciation.

Suppose you buy a computer for €900 (VAT included) at the start of 2019. Since it can be depreciated over 3 years, depreciation will be: 900/3 = €300. Each year, you can deduct €300 as a business expense from your taxable profit.

There are several methods for depreciation. We'll focus on two: straight-line and declining balance. ⚠️ Update 2024: The declining balance method is no longer generally available for new movable property acquired after 2020, with certain exceptions. For most IT equipment, straight-line depreciation now applies.

Straight-Line Computer Depreciation

Straight-line (linear) depreciation means the same amount is depreciated each year. This is the standard calculation method.

Depreciation can only apply to assets intended to remain in the company for a significant period. Also, assets must be listed under assets on the balance sheet, and must lose value through use or over time.

Formula: Depreciation base x straight-line rate x days/360 = annual depreciation

• Depreciation base = gross value of the asset (purchase price excl. VAT + associated costs)
• Depreciation rate: always a percentage: 100 / useful life (years)
• Depreciation starts: on the date the asset is put into use (not the purchase date)
• Annual depreciation: the same from one year to another
• If depreciation starts mid-year: first annual chunk is calculated pro rata (based on true usage days). Assume one month = 30 days (a year = 360 days)

Example:

• Depreciation period for a computer: 3 years (rate = 100% / 3 = 33.33%)
• If bought during the year, use pro rata: Price x 33.33% x (time left/360)

Declining Balance Computer Depreciation

2024 Update: The declining balance method is no longer generally available for new movable property acquired after 2020, except for certain assets or under specific tax regimes. For most IT equipment, straight-line depreciation now applies.

Previously, declining balance depreciation allowed for a higher deduction in the first years of use, which was beneficial for companies looking to reduce taxable profits in their cash-tight early years. However, this method is generally not permitted for new IT equipment purchased after 2020. Always consult your accountant for the latest rules.

What About Software?

2024 Update: More and more software is acquired as a service (SaaS). These expenses are usually treated as operating expenses (charges), not depreciated as fixed assets. Only purchased software (not subscription-based) may be depreciated, often over 1 to 2 years.

What to Do After Your Computer Is Fully Depreciated?

After depreciating your company computer, you have several options as a business owner:

• Keep it: If it works, keep using it.
• Give it to an employee: According to the Official Tax Bulletin, this is not considered a benefit-in-kind (if value < €2,000 and free). The employee does not have to declare it. This applies to permanent, fixed-term, and even internship contracts.
• Sell it: For example, you bought a computer for €2,500, depreciated over 3 years (€833/year). After 3 years it's fully depreciated (net book value €0). If you sell for €1,000, that's a taxable capital gain.
• Recycle it: Consider recycling your equipment for a second life. See our guide to recycling computers and IT equipment.

What About Renting Computers?

You can also choose to rent your company's computers rather than buying them (learn more). This way, you don't tie up cash in IT equipment. In accounting, the monthly subscription is treated as an expense, and it weighs less on your balance sheet, allowing you to spread the cost over several years. This frees up cash for you to invest in your core business.

As technology evolves very quickly, renting can also ensure you always have up-to-date models. It also gives you access to comprehensive services. For instance, Fleet offers a monthly all-inclusive subscription: long-term rental of top computers, responsive customer service, device warranties, and a fleet management dashboard.

Example: If you are seeking funding and need at least €30,000 in your company account, and you take on an intern without a computer, but only have €2,000 for a new computer, it’s wiser to rent it, spreading the cost comfortably.

In Conclusion

That’s it! Now you know all you need to about computer depreciation in business.

⚠️ 2024 Key Updates & Reminders:

• Depreciation Threshold: As of 2024, the minimum value for classifying assets as depreciable fixed assets may have changed. Always refer to the latest tax guidance or your accountant.
• Software: SaaS/subscription-based software is usually an expense, not a depreciable asset.
• Declining Balance Method: The declining balance method is generally no longer available for new IT equipment purchased after 2020. Straight-line depreciation is now the rule.
• Always consult your accountant or a tax professional for the latest regulations applicable to your business.