The Brazilian tax law provides specific guidance for depreciation and amortization of assets and, therefore, a company may apply a straight-line depreciation method irrespective of the depreciation method applied in the accounting records. As a result, the total asset’s cost can be evenly spread over its estimated useful life without reserving a portion of the cost as residual value.

An alignment with the depreciation methods used in the accounting records is also feasible but depends on the production of specific evidence. If a company opted to compute depreciation for accounting purposes in a more faithful manner and that results, for instance, in a shorter useful life period, such condition must be based on a suitable technical report derived from a technical examination from the National Institute of Technology or another official entity of a scientific or technological research character.

Depreciation is applicable to tangible fixed assets (movable and immovable assets) intrinsically related to the production or marketing of goods and services. This includes, for instance, machinery, equipment, buildings, forest and agricultural projects.

The depreciation of assets employed in the production process must flow through the inventories as part of the cost of production.

The Brazilian Federal Revenue Service provides an extensive list with the average useful life for various types of assets, indicating the Tariff Code and the corresponding depreciation rate (see Annex III of Normative Instruction RFB 1,700/2017). For instance, buildings must be depreciated over a period of 25 years, while vehicles take 5 years to fully depreciate. Since the straight-line method is the standard approach for calculating depreciation, the depreciation rate for each type of asset can be easily identified. For example, if a machine has a useful life of 10 years, its annual depreciation rate is 10% (100% / 10 years). Other examples include:

Buildings are depreciable at 4% per year;
Machinery and equipment vary significantly (10%, 20% 25% etc.) depending on their type; and
Most vehicles have a 25% yearly depreciation rate (but some types may be at 10% or 20%).

The depreciation rates may be increased, accelerating the deduction of the asset’s cost over time, by reason of its use in additional shifts or by reason of tax incentives. The accelerated depreciation by shifts increments the standard depreciation rate by 1, 5 (2 eight-hour shifts) or by 2 (3 eight-hour shifts).

Incentivized accelerated depreciation can be seen in the agribusiness and in the programs designed to improve technology development and to foster investments in specific regions of Brazil. Fixed assets used in rural activities can be fully depreciated in the year of acquisition. The same applies for new machines, equipment, apparatus, and instruments intended for use in technological research activities and technological innovation development. On its turn, fixed assets acquired by companies that set up in the Amazon or Northeastern regions of Brazil under a Sudam or Sudene project benefit from an eligible accelerated depreciation that may result in full deduction at the first year of acquisition of the corresponding assets, or over the first 4 years. (see Sec. 10.4 and 10.5 for further details on the regimes for technological innovation and for development of the Sudam and Sudene regions).

Amortization is applicable to intangible assets, more specifically to allow the deduction of the capital invested in the acquisition of rights whose existence or exercise is limited in duration, or of goods whose use by the taxpayer is legally or contractually limited in time. This includes patents of invention, formulas and manufacturing processes, copyrights, licenses, authorizations or concessions, as well as contracts and rights of any nature, including the exploitation of business goodwill.

Unlimited-life intangibles and those that do not have an expiration date cannot be amortized. This restriction discourages the acquisition of unlimited-life intangibles by Brazilian companies (such as trademarks, tradenames), as they will not benefit from any amortization. The Brazilian tax incentives for technology development do not provide any fictitious amortization period for these kinds of intangibles.

Only intangibles intrinsically related to the production or marketing of goods and services may be amortized. The amortization of assets employed in the production process must flow through the inventories as part of the cost of production.

The amortization quota will be based on the remaining years of existence of the relevant intangible.

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