If an enterprise purchases assets but has not yet put them into use, can they account for depreciation and include it in corporate income tax expenses?

This article was consulted by Lawyer Nguyen Quang Trung

Legal grounds:

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

We receive the following questions:

Hello TLT Legal, my company bought a car in early 2023, but for personnel reasons the car is parked at the branch in Hanoi unused. And then the 2023 tax finalization is near, I don’t know if that car has to be depreciated? That car is still new, not used yet.

After purchasing fixed assets, businesses often put them into use for production and business and deduct depreciation to gradually transfer the capital cost of the assets into the regular production and business operating costs of the business and are deducted when determining corporate income tax liability.

However, with assets that have not been put into use, how is depreciation handled?

1. Are unused assets depreciated?

In fact, even though the asset has not been used, it is still subject to natural physical wear and technological obsolescence, leading to a decrease in economic value.

Therefore, based on Clause 1, Article 9 of Circular No. 45/2013/TT-BTC as follows:

Article 9. Principles of depreciation of fixed assets:

All existing fixed assets of the enterprise must be depreciated, except for the following fixed assets:

• Fixed assets have been fully depreciated but are still being used in production and business activities.
• Undepreciated fixed assets are lost.
• Other fixed assets managed by the enterprise but not owned by the enterprise (except financial lease fixed assets).
• Fixed assets are not managed, monitored, or accounted for in the enterprise’s accounting books.
• Fixed assets used in welfare activities to serve the enterprise’s employees (except for fixed assets serving employees working at the enterprise such as: mid-shift rest house, mid-shift canteen, changing room, toilets, clean water tanks, garages, medical rooms or stations for medical examination and treatment, shuttle buses for workers, training and vocational facilities, housing for workers invested in by the enterprise).
• Fixed assets from non-refundable aid sources are handed over to the enterprise by the competent authority to serve scientific research.
• Intangible fixed assets are long-term land use rights with collection of land use fees or getting transfer of legal long-term land use rights.

According to the above regulations, depreciation of fixed assets is not based on whether the asset is actually used or not. Instead, after purchasing fixed assets, businesses must immediately depreciate them even if the assets are not used, except in certain cases such as lost assets or assets without rights of ownership, non-refundable aid assets, land assets with long-term use rights, …

2. Are depreciation expenses considered deductible expenses?

In principle, an enterprise is allowed to include an expense as a deductible expense when determining corporate income tax if that expense satisfies all 3 conditions specified in Clause 1, Article 6 of Circular No. 78/2014/TT-BTC, Amended and supplemented by Circular 96/2015/TT-BTC as follows:

Article 6. Deductible and non-deductible expenses when determining taxable income

1. Except for non-deductible expenses stated in Clause 2 of this Article, enterprises can deduct all expenses if they meet the following conditions:

1. Actual expenses incurred related to production and business activities of the enterprise.
2. Expenses have enough legal invoices and documents according to the provisions of law.
3. Expenditures if there are invoices for each purchase of goods and services with a value of 20 million VND or more (price includes VAT) must have non-cash payment documents when paying.

According to the above regulations, one of the conditions is that the expenditure must be related to the production and business activities of the enterprise.

In addition, based on point 2.2, clause 2, Article 6 of Circular No. 78/2014/TT-BTC, amended and supplemented by Circular 96/2015/TT-BTC as follows:

Article 6. Deductible and non-deductible expenses when determining taxable income

2. Expenses that are not deductible when determining taxable income include:

2.2. Depreciation expenses for fixed assets fall into one of the following cases:

1. Depreciation expenses for fixed assets not used for production and business of goods and services.

According to the above regulations, if a fixed asset has not been put into use, that asset is not involved in production and business activities.

So although these assets are still depreciated and included in expenses, the depreciation costs of these assets cannot be deducted when determining corporate income tax liability. Instead, asset depreciation in this case has meaningful in management accounting.