A new method of depreciation for photovoltaic power plants

The amendment to the Income Tax Act, which comes into effect on 1 August 2025, brings with it significant changes in relation to the depreciation of tangible assets used to generate electricity from solar radiation, i.e. photovoltaic power plants.

The main change is discontinuation of the current special method of depreciation of photovoltaic power plants over a period of 240 months and its replacement with standard depreciation of fixed assets according to tax depreciation groups.

WHEN DOES IT START?

The new method of depreciation will apply to photovoltaic power plants commissioned from 1 August 2025.

At the same time, taxpayers may opt to apply the new method of depreciation under the amended Act for photovoltaic power plants commissioned after 30 June 2024, provided that depreciation commenced from that date.

In the case of photovoltaic power plants commissioned before 1 August 2025 or 30 June 2024, the existing rules for determining tax depreciation set out in Section 30b of the Act on Income Tax will continue to apply, i.e. straight-line depreciation over a total period of 240 months will continue to be applied.

HOW DOES IT WORK?

The basic principle of the new tax approach to fixed assets is to divide the power plant into individual components and classify each of them separately into the appropriate depreciation group according to the CZ-CPA and CZ-CC classifications. At the same time, it will be up to the taxpayer to choose between straight-line or accelerated depreciation, or to suspend tax depreciation entirely if necessary.

Those familiar with tax regulations may notice that this new legislation is remarkably reminiscent of the legal framework in place in 2010 and previous years. And indeed, tax history does sometimes repeat itself.

No change is introduced by the amendment with regard to the structural components of the photovoltaic power plant, and their classification into tax depreciation groups 4 to 6 remains as follows:

• The structure, including cables, will be depreciated in the relevant tax depreciation group either as a separate building or as part of or technical improvement to another building.
• A structure, including cables, which is classified as a temporary building under the Building Act, will be depreciated over the duration of the temporary building.

The technological part of the photovoltaic power plant should now be depreciated for tax purposes in accordance with the Act on Income Tax like any other fixed asset. According to the statement released by the General Financial Directorate on this issue, classification of the technological part of the photovoltaic power plant should be as follows:

• Panels with converters – depreciation group 2;
• Battery storage system – depreciation group 2,
• Generators – depreciation group 3.

For the sake of completeness, we would like to add that a photovoltaic power plant located on a building and serving as a source of electricity for that specific building alone is considered part of the building and is therefore depreciated as such.

In most cases, this revived tax depreciation method will shorten the depreciation period for the technological part of the photovoltaic power plant, which is good news for taxpayers.

Briefly with regard to top-up tax

The Chamber of Deputies has approved an amendment to the Act on Top-Up Taxes, which extends the deadlines for filing the first tax return and information return for Czech top-up tax. The amendment still has to be passed by the Senate and signed by the president. In view of the significant and expected extension of these deadlines, we are already bringing you information about the amendment at this stage of the legislative process.

The deadline for filing of the information return is 15 months from the end of the reporting period, and 18 months in the case of the first reporting period. The deadline for filing of the information return for the first period, this being the calendar year 2024, will be 30 June 2026 (instead of the original 31 October 2025).

The deadline for filing of the tax return for the allocated and Czech top-up tax will be 22 months from the end of the reporting period (i.e. for the period of the calendar year 2024, this will be 31 October 2026).

For the sake of completeness, we would like to add that the deadline for filing country-by-country reports (CbC) for the calendar year 2024 within the EU is the end of 2025. Companies and corporate groups should pay particular attention to this report, as it may serve as a basis for use of simplified procedure when reporting top-up taxes in the early stages of the implementation of top-up tax. If, for example, based on data from CbC reporting, the effective income tax rate of a corporate group exceeds the specified value of 15%, it will be possible to apply one of the so-called safe harbours. This means that it will not then be necessary to perform detailed calculation of top-up taxes and to pay top-up tax for the given group.

Briefly on the Mandatory Audit of Financial Statements

The Chamber of Deputies also approved an amendment to the Accounting Act. The criteria for a mandatory audit of financial statements are to change as follows from 1 January 2026:

• net turnover will increase from CZK 80 million to CZK 240 million;

• net asset value will increase from CZK 40 million to CZK 120 million;

• the number of employees (i.e. 50) will remain unchanged.

 

We will keep you informed about further legislative developments.

With friendly regards,

Team WTS Alfery