Can fixed assets that have not been fully depreciated but are damaged beyond repair be included in expenses when determining corporate income tax?

This article was consulted by Lawyer Nguyen Quang Trung

Legal ground:

• Circular No. 45/2013/TT-BTC;
• Circular No. 96/2015/TT-BTC.

We have received the following question:

Hello TLT Legal, my company has a production machine that has not been depreciated by 50% but has damaged components and cannot be repaired because the manufacturer no longer produces it. Therefore, that machine must be discarded. So, can the remaining depreciation be included in deductible expenses reasonably and legally?

In principle, enterprises are allowed to include in deductible expenses the damage to fixed assets that have not been fully depreciated. However, it should be noted as follows:

Pursuant to Clause 4, Article 9 of Circular No. 45/2013/TT-BTC:

4. Fixed assets that have not been fully depreciated are lost or damaged and cannot be repaired or restored, the enterprise shall determine the cause and the responsibility for compensation of the collective or individual causing the loss. The difference between the remaining value of the asset and the compensation of the organization or individual causing the loss, the compensation of the insurance agency and the recovered value (if any), the enterprise shall use the financial reserve fund to compensate. In case the financial reserve fund is not sufficient to compensate, the enterprise shall calculate the difference into the enterprise’s reasonable expenses when determining corporate income tax.

According to the above provisions, when fixed assets are damaged, the enterprise must determine the recovered value, with the aim of limiting the enterprise’s losses. The recoverable value can be:

• Insurance compensation
• Compensation from individuals or organizations causing damage
• Recoverable value from liquidation

After deducting the recoverable value, the remaining value (not fully depreciated) of the fixed asset can be included in the deductible expenses when determining corporate income tax. However, if the enterprise has already allocated a financial reserve fund, it must use this fund to compensate before including it in the deductible expenses.

In addition, the expenses included in the deductible expenses must meet all the conditions specified in Circular No. 78/2014/TT-BTC, amended and supplemented by Circular No. 96/2015/TT-BTC, according to which the enterprise must have full documents and records on the purchase of fixed assets, as well as the assessment of damaged assets and documents on the recoverable value of the assets.