Currently, the process of industrialization and modernization is growing, so the investment demand is also increasing. For large businesses, the depreciation will help them know the part of the assets they are holding for later calculations. But for an asset class that is an investment property, which is usually a high-value asset, how will depreciation be performed? So, can investment property be depreciated? The following article of Lawyer X will help you answer.
Legal grounds
- Circular 45/2013/TT-BTC
What is investment property?
Investment property: Real property, including: land use rights, a house, or part of a house, or both the house and land, and infrastructure owned by the owner or lessee under a lease agreement. Financially held for the purpose of profiting from a rental or appreciation, but not for:
a) Used in production, supply of goods or services or used for management purposes; or
b) Sold in the ordinary course of business.”
As such, investment property is distinguished from tangible fixed assets (point a) or inventory (point b) based on the intended use of the asset.
In fact, real estate investment is not as organized as other liquid markets. Specifically, the market for foreign currency, money, gold. Because this asset is separate and cannot be exchanged directly. This is the limitation of real estate investment. However, it is also an opportunity for those who see the potential of these properties.
What is depreciation?
Depreciation is a term in the accounting industry, English called Depreciation. They are understood as the monetary value of an asset, which is calculated on the asset’s depreciation after a period of use.
Besides, the above-mentioned expenses converted into cash will reduce the value of assets recorded in the balance sheet of accounting assets. Will continue to decrease until the asset’s value is zero or becomes insignificant.
Purpose of business when depreciating fixed assets
The purpose of depreciation of fixed assets is to accumulate capital for simple reproduction or extended reproduction of fixed assets. The part of the depreciation value that is translated into the product value is considered an element of the production cost of the product expressed in monetary form called the depreciation of fixed assets. After the goods are sold, the depreciation amount is accumulated to form the fixed asset depreciation fund of the enterprise. The Fixed Asset Depreciation Fund is an important source of financing for the simple and extended reproduction of fixed assets in enterprises. In fact, when there is no need to invest in purchasing fixed assets, businesses can also flexibly use this fund to meet their business capital needs.
In principle, the calculation of the depreciation of fixed assets must be consistent with the level of wear and tear of the fixed assets and ensure the full recovery of the initial investment value.
Can investment property be depreciated?
Depreciation for the above works which are used for production and business and used for other purposes shall not be included in the deductible expenses for the value of the works on the land corresponding to the unused area. production and business activities.
In case an enterprise has constructions on land such as offices, factories, and shops in service of its production and business activities, the enterprise may depreciate it and calculate it into deductible expenses when determining income. taxable according to the depreciation rate and use time of fixed assets according to current regulations of the Ministry of Finance for these works if the following conditions are satisfied:
- Having a land use right certificate bearing the name of the enterprise (in case the land is owned by the enterprise) or having a land lease or loan contract between the enterprise and the land-owning unit or individual and the business representative. The enterprise must be responsible before the law for the accuracy of the contract (in the case of leased or borrowed land).
- Invoices for payment of construction blocks handed over together with the construction contract, contract liquidation, final settlement of the value of construction works bearing the name, address and tax code of the enterprise.
– Works on land are managed, monitored and recorded according to current regulations on fixed asset management.
But consider in your case the work built as a company office with a construction permit is a director and a husband and a family house. Therefore, the above real estate has no documents to prove that it is the property of the company (if the company’s property must be transferred to the name of the company in the name of the owner).
In order to depreciate fixed assets, this work must satisfy the following conditions: there is a land lease or land loan contract between the enterprise and the land-owning unit or individual, and the enterprise’s representative must be responsible before the law. Law on contract accuracy (in case land is rented or borrowed; Invoice for payment of construction works handed over together with the construction contract, contract liquidation, settlement of construction value) construction bearing the name, address and tax identification number of the enterprise; Works on land are managed, monitored and accounted for according to current regulations on management of fixed assets.
Long-term land use rights are not amortized and allocated to deductible expenses when determining taxable income; The land use right with a definite term, if there are sufficient invoices and documents, strictly follow the procedures as prescribed by law, participate in production and business activities, shall be gradually allocated to deductible expenses according to the provisions of law. the duration of land use permit stated in the land use right certificate (including the case of shutdown for repair, investment in construction).
=> Thus, in order for investment property to be depreciated, it must simultaneously meet the above conditions.
Are construction works on leased land a fixed asset?
According to Clause 1_Article 3_Circular No. 45/2013/TT-BTC
“first. Means of labor are tangible assets with an independent structure, or a system of many separate parts of assets linked together to perform one or several certain functions without any If one part of the system is inoperable, if all three of the following criteria are satisfied simultaneously, it is considered as a fixed asset: a) It is certain that future economic benefits will be obtained from the use. use such property; b) Has a useful life of more than 1 year; c) The historical cost of the asset must be determined reliably and has a value of VND 30,000,000 (Thirty million VND) or more. Where a system consists of many individual asset parts linked together, in which each component part has a different useful life and if a certain part is missing, the whole system can still perform its function. its main activities, but due to the requirements of management and use of fixed assets requiring separate management of each asset part, each part of that asset, if simultaneously satisfying three criteria of fixed assets is considered as an independent tangible fixed asset. For working animals and/or for products, each animal satisfying simultaneously the three criteria of fixed assets is considered. is a tangible fixed asset. For perennial orchards, each piece of garden or tree satisfying all three criteria of the fixed asset is considered a tangible fixed asset.”
Thus, in order for an asset to be considered a fixed asset to be depreciated, it must simultaneously satisfy the three conditions mentioned above.
Please see more
- How to check real estate records according to Vietnam law?
- Settlement and distribution of estates under Vietnam Law
- Procedure for partial transfer of land use rights in Vietnam
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Frequently asked questions
Also according to the above analysis, assets on leased land, not built and named by your company, are not fixed assets and are not subject to asset depreciation. So the fact that your company is depreciating this asset is not in accordance with the regulations. Just like the above case, you should make an official dispatch to report to the tax authority about the mistake and re-implement the legal procedures, return the missing tax amount due to incorrect depreciation.
Depreciation of fixed assets is for the purpose of recreating the amount of capital in expansion or simple production of the fixed asset. The part of the depreciation value that will be transferred to the value of the product will be considered as an element of the cost of production expressed in the form of so-called fixed asset depreciation.
When the product is sold, the depreciation will be accumulated into a fixed depreciation fund for the business. This fund is very important in production activities or expansion of business activities of enterprises. Businesses can also use this fund for their business capital purposes.
Note: The calculation of depreciation of fixed assets needs to match the depreciation value of the asset and ensure that the original investment value is fully recovered.
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