Straight-line (the default method): constant annual depreciation = depreciable base / useful life.
Machine purchased for €24,000 excl. VAT, useful life 5 years Annual depreciation = €24,000 / 5 = €4,800/year (pro rata temporis in the first year, from the date of commissioning)
Accepted useful lives (common tax practice):
| Asset | Typical life |
|---|---|
| IT equipment | 3 years |
| Software | 1-3 years |
| Vehicles | 4-5 years |
| Equipment and tools | 5-10 years |
| Furniture | 10 years |
| Fittings, installations | 10-20 years |
| Buildings | 20-50 years |
Declining balance: a tax option reserved for certain new assets (e.g., industrial equipment), which applies a coefficient (1.25 to 2.25, depending on the useful life) to the straight-line method based on the residual value — deductions are concentrated in the early years. Useful when aiming to reduce tax early (e.g., high profits at the time of investment).
Three key points to avoid mistakes:
For tax purposes: every euro of depreciation reduces taxable profit. At a 25% corporate tax rate, a €24,000 machine “saves” €1,200 in tax per year for 5 years. This is the mechanism that enhanced depreciation schemes temporarily amplify (e.g. exceptional 40% deductions on certain green or industrial investments, depending on annual finance laws—check which schemes are open in the year of purchase).
Financially, depreciation is central to three key perspectives:
The management mistake to avoid: confusing depreciation with renewal provisions. Depreciating a truck does not set aside cash to replace it—the depreciation charge does not affect cash flow, but the replacement does. An operational SME (transport, construction, manufacturing) must plan fleet renewal in its cash flow (forecast CAPEX), independently of the accounting depreciation schedule.
Discover the Orizen answer: Orizen accounting — automatic depreciation schedule, modular and built for French SMEs.
Essai gratuit 14 jours What the Orizen accounting — automatic depreciation schedule module costsNone, except the word—and the confusion is universal. Accounting depreciation spreads the COST of an asset over its useful life (a calculated expense, no cash impact). Loan amortisation refers to repaying the PRINCIPAL of a loan (cash outflow, not an expense—only the interest is). A business can therefore ‘lose cash’ by repaying a loan without this appearing in the income statement: the cash flow statement reconciles the two.
Within a reasonable range, yes: accounting rules require the asset’s ACTUAL useful life in your business, and tax authorities accept standard industry lifespans (±20% flexibility tolerated). Depreciating a computer over 2 years is justifiable (intensive use); over 10 years is not. SMEs may, for simplicity, use standard tax depreciation periods without verifying the actual life. What is not allowed: changing the period midway without justification (changes in estimates must be documented).
Tax-wise, lease/rental payments are immediately deductible, whereas purchases are deducted via depreciation—over time, the difference evens out. The real difference is financial: leasing preserves cash flow and borrowing capacity (no loan on the balance sheet for operating leases), but costs more in total and creates no saleable asset. Rule of thumb: lease for assets that depreciate quickly or become obsolete (IT, vehicles); buy for durable assets that retain value (machinery, property).