Depreciation law

The Depreciation Act is the Danish law that regulates companies' ability to depreciate their assets for tax purposes. The law provides a framework for how a company can spread the cost of investments in machinery, buildings and equipment over several years instead of deducting the entire amount at once.

The purpose of the Depreciation Act is to create a realistic picture of asset depreciation while allowing companies to obtain tax deductions that reflect the actual use of the asset.

What can you write off?

Depreciation law typically includes:

Equipment and fixtures: e.g. machinery, cars, IT equipment and office furniture.
Buildings: some commercial buildings are depreciable, while others are exempt (e.g. residential).
Installations: technical installations that are integrated into a building but can be depreciated separately.
Goodwill: can in some cases be amortized over a number of years.

Not all assets can be depreciated - for example, land is not depreciable as it does not lose value in the same way as machinery or buildings.

Depreciation methods

Depreciation law works with different methods:

Balance method: where a percentage (up to 25%) can be depreciated annually on fixed assets.
Straight-line depreciation: where the same amount is depreciated each year, often used on buildings.

The choice of method depends on the asset type and the applicable rules of law.

Why is depreciation law important?

For virksomheder er afskrivningsloven central, fordi den påvirker både skattebetalinger og regnskabsføring. Korrekte afskrivninger kan udskyde skattebetalinger og dermed forbedre virksomhedens likviditet på kort sigt.

A good understanding of the law is therefore important for business owners, accountants and auditors alike.

Depreciation law and the world of Collectia

Although depreciation law is not directly related to debt recovery, it does play a role in a company's finances. If a company is not in control of its depreciation, it can affect liquidity - and thus the ability to pay bills on time. At Collectia, we often see that lack of financial overview is a factor behind payment problems. Therefore, correct accounting practices and effective accounts receivable management are closely linked.