Depreciation must be computed using the straight-line method. Depending on the type of construction and the estimated life of fixed assets, annual rates for depreciation are as follows:
|Plant and equipment (fixed/non-fixed/agricultural)||10/14/20|
|Other assets (office/other/computer)||10/20/50|
Alternative method of depreciation
Taxpayers under the TAP regime (see Customs duties in the Other taxes section) may, at their convenience, request a different depreciation rate (i.e. accelerated depreciation) from the tax authorities. Used fixed assets acquired abroad may also be subject to a different depreciation rate.
Goodwill, meaning the excess paid over book value in a transaction, can be deductible for CIT purposes if the capital gain is considered in the seller’s CIT return. However, the tax authorities must authorise the tax periods in which the goodwill will be amortised.
Start-up expenses are amortised over a three-year period of time after the beginning of business operations.
As a general rule, deduction of interest is allowed when derived from loans of financial institutions; however, the interest paid derived from loans of non-financial institutions will be deductible up to the amount resulting from applying the average lending rate of the national bank at the date of obtaining the loan, if fixed, or at the date of each payment, if variable.
In order for interest paid to a non-resident to be deductible, the corresponding 15% WHT must be withheld and paid.
Corporations are allowed a deduction of loss allowance up to 2% of the account receivable balances from customers. Any bad debt written off should be applied against this allowance, as long as there is supporting documentation of the credit, identification documents of the debtor and creditor, and administrative and judicial collection proof.
A deduction is allowed, at up to 10% of the corporation's net taxable income, for charitable contributions made to the government and its institutions, the Red Cross, and other organisations.
A deduction of up to 10% of the accumulated profits before this expense is allowed for payments made to employees as bonuses or in addition to their salaries or wages.
A deduction is allowed for employee insurance payments made.
Fines and penalties
Penalties or charges made by tax, customs, social security, or municipal authorities are not deductible for CIT purposes.
In principle, income tax expense is not deductible for CIT purposes. Municipal or local taxes (i.e. real estate tax, monthly sales and services tax, annual registration tax) are deductible from CIT.
Net operating losses
Losses may be carried forward and deducted from future profits, for up to three years. The carryback of losses is not allowed.
Payments to foreign affiliates
Payments made from affiliates to foreign related parties are deductible for CIT purposes, provided the following requirements are met:
- The expenses (i.e. royalties, interest, and services) are needed to generate taxable income.
- The expenses are duly supported (e.g. agreements, invoices, payment receipts).
- The expenses are incurred within the fiscal period.
- The WHT is applied and paid to the tax authorities.