How to calculate special depreciation for Qualified Investment Project (QIP)
A company is large business registered at Ministry of Commerce ( MOC) and General Department of Taxation ( GDT) respectively. Also, this company is granted Qualified Investment Project (QIP) status by the Council for the Development of Cambodia (CDC), so company has two options for tax. For first option, Company can get tax on profit exemption or second Option Company can choose special depreciation.
Assume that company chose special depreciation, so first year fixed assets (normally class 4 for special depreciation) will be depreciated with two depreciation rates: special depreciation rate and general depreciation rate. Second year onward, depreciation applied only one general depreciation rate (no special depreciation rate applied anymore).
The following depreciation formulas are class 4 fixed assets.
Special depreciation = cost of fixed assets x 40%
General depreciation =( cost of fixed assets – special depreciation ) x 20%
Total Depreciation for Y1 (year 1) = special depreciation + general depreciation
Note: NBV1 (net book value Year 1) = cost of fixed asset – special depreciation – general depreciation
General Depreciation (Y2) = NBV1 x 20%
Note: No special depreciation applied anymore from year 2 onward.
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KKTOP Limited is an export oriented factory registered in 2007 with the Ministry of Commerce (MOC) and the General Department of Taxation (GTD) in Cambodia. KKTOP was granted Qualified Investment Project (QIP) status by the Council for the Development of Cambodia (CDC) in the same year. KKTOP’s objective is to produce men’s clothing for exportation to overseas customers.
On January 2010, KKTOP bought in a new sewing machine and cutting machines costing USD1, 000,000 and USD 100,000 respectively purchased from overseas. These machines are used in manufacturing and processing. KKTOP elected to use special depreciation rather than Tax on Profit exemption.
- Calculate depreciation expense for December 2010 ( Year 1) and Net book Value ( NBV)
- Calculate depreciation expense for December 2011( Year 1)
- Depreciation expense for 2010 ( Year 1)
- Special Depreciation expense = ( 1,000,000 + 100,000) x 40%=1,100,000 x 40%=440,000
- Regular/general depreciation expense = (1,100,000-440,000) x 20% =132,000
So total depreciation for year 1 = 440,000 + 132,000=$572,000
NBV ( Y1) = 1,100,000-572,000= $528,000
- Depreciation for 2011 ( Year 2)
It has only regular/general depreciation expense for year 2 onward.
Depreciation for 2011 ( Y2) = NBV(Y1) x 20% = 528,000 x 20%= $105,600