Depreciation in Switzerland: calculations, journal entries and tax rates

What depreciation does

Depreciation recognises the loss in an asset’s value through use and the passage of time. It allocates the cost of an investment to the periods in which it contributes to the business. For intangible assets, English accounting terminology generally uses amortisation.

Buying a fixed asset does not necessarily mean deducting its entire cost immediately. Straight-line and declining-balance calculations spread the cost differently. Federal Tax Administration (FTA) rates are tax references, not automatic measures of each asset’s economic life. The annual depreciation entry creates an expense without a new cash payment.

Which assets should be depreciated?

Fixed assets are acquired for long-term use or holding. Equipment used over several years differs from inventory purchased for resale. Machines, vehicles, IT equipment and certain intangible assets can be depreciated or amortised.

Not every asset is depreciated routinely. Land is generally not depreciated merely because time passes; securities and receivables are subject to other valuation rules. The Code of Obligations distinguishes depreciation caused by use and time from value adjustments caused by other factors. A destroyed machine requires a different analysis from normal annual wear.

Capitalisation depends on the purchase’s nature, useful life and materiality. There is no single capitalisation threshold that can be applied without qualification to every Swiss business. A consistent internal policy prevents comparable purchases being treated differently.

Determine the depreciable amount

Begin with acquisition or production cost, including directly attributable costs of bringing the asset into working condition where appropriate, and deduct purchase discounts.

Recoverable VAT is normally excluded from cost. VAT that cannot be recovered may form part of the capitalised amount. For a calculation based on economic useful life, also estimate residual value: the amount reasonably expected to be recovered at the end of use. Depreciable amount is then cost less residual value.

Maintain a fixed-asset register with the description, purchase and commissioning dates, cost, method, useful life or rate, accumulated depreciation and net carrying amount. Reconcile it to the balance sheet.

Straight-line depreciation: worked example

Straight-line depreciation allocates a constant annual expense:

Annual depreciation = (cost − estimated residual value) ÷ useful life.

A machine costs CHF 50,000, is used for five complete years and has an estimated residual value of CHF 5,000. Annual depreciation is (50,000 − 5,000) ÷ 5 = CHF 9,000.

This illustrates the economic calculation, not automatic tax approval of the rate or life. If the asset enters service during the year, consider the actual period of use and applicable tax practice.

Declining-balance depreciation: worked example

The declining-balance method applies a rate to the remaining carrying amount, so the annual expense falls over time. For an asset costing CHF 20,000 with an annual rate of 40%, and no other adjustment:

A 40% declining-balance rate does not reduce the asset to zero in two and a half years. The remaining amount falls progressively. Document how the schedule ends and any change of method.

Do not confuse calculation with recording: straight-line or declining balance describes the calculation; direct or indirect describes how the entry is posted.

FTA tax depreciation rates

The FTA’s A/1995 notice sets out normal rates for commercial businesses. Its historical title does not mean it has been withdrawn: the FTA continues to publish the notice. Selected categories are shown below.

The notice halves the rates when depreciation is calculated on acquisition cost. Respect the exact category and conditions. Specific notices apply to certain sectors, and special cantonal methods may be relevant.

These references do not mean every computer has an economic life of five years or that all IT purchases qualify for immediate write-off. Deductibility depends on commercial justification, recording and the relevant tax rules. Any deferred catch-up depreciation also has specific conditions.

How to post the depreciation entry

For depreciation of CHF 4,000, debit the depreciation expense account. The credit depends on the recording method:

Under the indirect method, accumulated depreciation reduces the asset’s value. It is neither a liability nor cash set aside in a reserve. Both methods produce the same net carrying amount.

When an asset is sold, remove it and its accumulated depreciation from the accounts and register. The difference between proceeds and carrying amount determines the disposal gain or loss before other possible effects. Record these movements consistently in your chart of accounts and general ledger.

Profit, tax and cash are different

Depreciation reduces accounting profit. If accepted for tax, it may also reduce taxable profit. A CHF 4,000 deduction is not a CHF 4,000 tax saving: the effect depends on taxable results, the applicable rate and acceptance of the expense.

Hidden reserves may arise when book value is below an economically justified value. The implications can differ under Swiss GAAP FER.

Cash is normally affected when the asset is bought or according to the financing schedule. The annual depreciation entry does not cause another payment. EBITDA excludes depreciation and amortisation, but still does not represent cash in the bank; see our income statement example.

Finally, loan amortisation means repayment of principal. It reduces debt and cash and is different from depreciation of a fixed asset. Review acquisitions, disposals and incomplete schedules before the next year-end close.

Frequently asked questions