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6.3. Depreciation and Amortization

Depreciation is allowed on capital assets owned by the business and used for its operations. Fixed assets, other than buildings, are subject to depreciation by a group method. Under this method, fixed assets are allocated to groups, and the groups are depreciated in aggregate. Depreciation rates specified by law are applied to the aggregate book values for each of the groups. The depreciable balance for a group is reduced by the depreciation accrued for the year by the group. If any assets of a group are sold during the year, the depreciable balance of the group is reduced by the residual value of such assets. The profit or loss on the sale of such assets is separately determined.

The following outlines the rates for different assets types:

Buildings and premises 7%
Machines and equipment 20%
Computing technology (high tech) 25%
Means of transportation 25%
Working cattle 20%
Expenses incurred for geological and exploration works, as well as for preparatory works for the production of natural resources 25%
Intangible assets with an undetermined period of use (For those with a determined period of use, pro-rata amount as per the useful life, in years) 20%
Other fixed assets 20%

An acquisition of assets under a finance lease is treated as a loan from the lessor to the lessee and a purchase of assets by the lessee. The lessee may then claim depreciation on the assets.

The cost of assets includes expenses for their acquisition, production, construction, assembly, installation and other expenses increasing their value, except deductible expenses.