How is custom software accounted for?

The Fundamental Difference

Externally commissioned: You acquire something for a fee. The amount is usually capitalized and amortized over its useful life.

Self-created: Under commercial law, there is an option for capitalization according to § 248 Abs. 2 HGB, while under tax law, there is a prohibition on capitalization according to § 5 Abs. 2 EStG – thus, the expense is immediately recognized.

Useful Life

The tax authorities have approved a useful life of one year for certain digital assets – such as operational and application software. Whether and how this applies to your custom software depends on the individual case and should be clarified with tax consulting.

Why This Matters for Decision Making

An investment that is amortized over several years impacts the results differently than ongoing license costs, which are recognized as expenses immediately. When comparing subscription and in-house development, this is a real difference – and one that never comes up in technical discussions.

Important Note

This text is a guideline, not tax consulting. The treatment depends on the legal form, contract design, and specific service. Clarify it before commissioning, not at year-end.