Fixed assets are assets that serve a company on a long-term basis and are therefore classified as non-current (fixed) assets. Typical examples are machinery, plant and office equipment, land, buildings and vehicle fleets. For accounting and tax treatment, acquisition or production costs, useful life and depreciation are decisive.
Definition and legal framework
Fixed assets are treated differently under commercial and tax law: commercial rules are anchored in the German Commercial Code (HGB) (e.g., duty of completeness, inventory). For tax purposes, in particular the Income Tax Act (EStG) with the depreciation rules (AfA, § 7 EStG) and the Value Added Tax Act (UStG) for input VAT deduction are relevant.
Key characteristics:
- long-term use: use over several financial years
- assignable: clearly attributable to the business
- capitalization required: generally to be capitalized as fixed assets when purchased or produced
Accounting and depreciation
Acquisition or production costs of a fixed asset are generally to be capitalized and depreciated over the asset’s useful life (AfA). Useful life is based on the official AfA depreciation tables of the Federal Ministry of Finance (BMF); a justification is required if the company-specific useful life deviates.
Depreciation methods
- straight-line depreciation (linear AfA): even allocation of costs over the useful life (most common method)
- declining-balance depreciation (degressive AfA): higher depreciation charges in the early years (observe special tax rules)
- impairment losses (extraordinary depreciation): possible in case of a permanent reduction in value
Special cases: low-value assets (GWG) and pooled asset account
Low-value assets (GWG) may, within certain limits, be written off immediately as an operating expense. The tax threshold is currently up to 800 EUR net (as of 2024). Alternatively, a pooled asset account (Sammelposten) can be formed for certain low-cost assets, which is depreciated evenly over five years. Check the current legal situation in each case and choose the option that is most favourable for your business.
Practical application in accounting
For freelancers and small businesses, clear rules for recording and managing fixed assets are important to book depreciation correctly and to utilise tax advantages.
Fixed asset accounting
- Keep a fixed asset register or fixed asset schedule with acquisition date, acquisition cost, useful life and accumulated depreciation.
- Carry out inventories (physical stocktaking) to ensure completeness.
- Document changes (additions, disposals, reclassifications) promptly.
Input VAT and acquisition
When acquiring a fixed asset, you can, under the conditions of the UStG, claim input VAT deduction. Recording the purchase typically takes place in two steps: capitalization of the net amount on the asset account and input VAT as a receivable from the tax office.
Concrete examples and journal entries
Practical journal entries help to transfer theory into practice. Below are typical cases:
Example 1: Purchase of a machine (acquisition 10,000 EUR net, 19% VAT)
- At purchase:
- Debit Fixed asset (Machine) 10,000 EUR
- Debit Input VAT 1,900 EUR
- Credit Bank 11,900 EUR
- Annual straight-line depreciation over 5 years:
- Debit Depreciation expense – fixed assets 2,000 EUR
- Credit Accumulated depreciation/Machine 2,000 EUR
Example 2: GWG (Printer 450 EUR net)
- Option: Immediate write-off as an operating expense:
- Debit Office equipment (Expense/GWG) 450 EUR
- Debit Input VAT 85.50 EUR (19%)
- Credit Bank 535.50 EUR
Note: For disposals (sale, scrapping) journal entries are required to remove the capitalized amount and to record any gain or loss on disposal.
Conclusion: Accurate recording of fixed assets, a properly maintained fixed asset register and the choice of a suitable depreciation method are essential for correct tax reporting and economically sound accounting. In case of uncertainties—especially regarding leasing issues, pooled asset accounts or deviating useful lives—it is advisable to consult your tax advisor.