Tangible vs Intangible Assets: Definitions, Examples, and Differences

For most people, the difference between tangible and intangible assets only becomes relevant at very specific moments, such as when planning an estate, seeking collateral for a loan, or dividing assets during divorce proceedings. 

The tangible vs intangible asset distinction can also play an important role in the lifecycle of a business. Events such as valuations, mergers, acquisitions, and bankruptcy proceedings often hinge on how the business’s assets are classified. 

Whether you’re a high-net-worth investor with a broad portfolio of assets or a business owner, you should understand the difference between tangible and intangible assets before you encounter an event where that knowledge will have critical importance. In this article, you’ll learn: 

• The definition of tangible assets, with examples
• The definition of intangible assets, with examples
• The key differences between the two types of assets
• The assets that are difficult to classify 

What Are Tangible Assets?

Tangible assets are assets with material substance. For companies, these assets are typically used to create a product or administer a service. For individuals, these items are used for their real-world utility, but they can also serve as an investment vehicle. 

Examples of Tangible Assets

Some of the examples of tangible assets a business might own include: 

• Land and buildings, such as offices, warehouses, or factories
• Machinery and equipment used to create a product or provide a service
• Inventory, which included both finished physical products and materials

In the context of property you can own as an individual, tangible assets can be: 

• Real estate
• Cars and other vehicles
• Jewelry 
• Art
• A wine collection 
• Precious metals like gold, if they are in a physical form, such as a coin, ingot, or bar

It’s important to note that, for tax purposes, real estate is typically not considered tangible personal property. While it meets the criteria for a tangible asset, it doesn’t fulfil the requirements for personal property, which state that it must be movable. Instead, real estate is classified as real property. 

Tangible vs Fixed Assets: Is There a Difference?

Tangible and fixed assets are not two different types of assets. Instead, fixed assets are a subtype of tangible assets. 

There are two subtypes of tangible assets: 

1. Current assets: Assets that will be sold within a year 
2. Fixed assets: Assets that the company will use long-term to generate income

An example of a tangible current asset is the inventory of a company. Tangible fixed assets could be: 

• Land and buildings
• Machinery 
• Furniture and office equipment
• Vehicles
• Computer hardware

What Are Intangible Assets?

Broadly speaking, intangible assets are assets without a physical form that can provide an individual or a company with distinct economic advantages that drive long-term wealth accumulation.

A more precise definition used in accounting and financial reporting says that an intangible asset is one that meets the following three criteria: 

1. It is identifiable: You can acquire it from a company without purchasing the company itself, or it arises from contractual rights
2. It is non-monetary: Assets that are monetary in nature typically fall under their own category
3. It doesn’t have physical substance: You cannot touch or see intangible assets

Examples of Intangible Assets

The most common intangible assets held by businesses include: 

Type of Asset	Example
Intellectual property	Patents Trademark Copyrights
Brand-related assets	Trade secrets Goodwill (customer loyalty and brand reputation)
Customer-related assets	Customer lists Contracts that guarantee future revenue

You can also personally own some of these intangible assets. For others, you can have equivalents—for example, if you’re a social media personality, your personal brand and reputational capital can be considered a personal intangible asset. 

Are Investments Tangible or Intangible Assets?

An investment itself is not a type of asset; instead, it can take the form of either, depending on what you invest in.

The financial investment vehicles you can use to invest in a company, such as stocks, have traits that would classify them as intangible rather than tangible investments. In some cases, they may be considered personal intangible assets.

For accounting purposes, however, they are typically classified as financial assets rather than tangible or intangible investments. Financial assets include: 

• Cash
• Stocks and bonds
• Certificates of deposit

Some types of investments can be difficult to classify. Cryptocurrencies, for example, might not meet the criteria for actual currency or other financial assets, but are typically classified as intangible assets. These definitions might vary depending on the jurisdiction and the applicable accounting framework.

Differences Between Tangible and Intangible Assets

While the fundamental difference between tangible and intangible assets is their material substance, the two are distinct in several other important ways: 

1. Valuation
2. Appreciation/amortisation
3. Liquidity
4. Use as collateral
5. Risk profile

Valuation

Valuation is typically easier in the case of tangible assets. Because they have observable market prices, their value can be determined as the price they would receive if liquidated at any given time. 

Companies also regularly hire appraisers who specialise in a certain type of asset to determine its value, a practice also common when appraising artwork and jewellery as part of an estate valuation. When dealing with insurance companies, appraisers might use replacement costs to determine the value of a tangible asset.

For intangible assets, market comparison might also be used. This is a rare case, however, as it requires a comparable asset to have been sold, which doesn’t happen often. 

The valuation of intangible assets often relies on determining the total cost of creating the asset or the future income it may generate. Specific methods include: 

Method	Explanation
Relief-from-royalty (RFR)	Determines the value of an asset based on the royalty expenses the company would avoid by owning it instead of licensing it
Multi-period excess earnings (MPEEM)	Determines the value of the primary business asset by deducting the returns on all other assets
With-and-without	Compares the value of the business with the asset to the modelled value without it

Depreciation/Amortisation

Tangible assets are subject to wear and tear, ageing, or obsolescence, which can decrease their value. This reduction is accounted for through depreciation, which allows businesses to spread the cost of an asset over its useful life on the balance sheet. 

Depreciation applies only to fixed tangible assets. Current assets, such as inventory, are not depreciated. 

The equivalent process for intangible assets is amortisation. Intangible assets don’t suffer from the same damage-related reduction of value as tangible assets. However, they can have a limited lifespan for contractual or legal reasons, and amortisation allows businesses to spread their cost over their lifespan. 

For intangible assets that don’t have a limited lifespan, such as goodwill, an impairment test is performed annually to determine their value, allowing businesses to account for any reductions. 

Liquidity

Tangible assets are generally much easier to liquidate than intangible assets. Their value is easier to determine, and they can simply be traded in an open market.

Intangible assets don’t have the same liquidity. They are more difficult to evaluate accurately, and the pool of potential buyers can be significantly smaller than for tangible assets.

Use as Collateral

Tangible assets are the standard collateral for securing loans, whether business or private. 

The ability to use an asset as collateral for a loan is easily determined by assessing the following four factors: 

1. Marketability, or the existence of a demand for the asset on a secondary market
2. Ascertainability, or the ease of calculating the value of the asset
3. Stability, or the fluctuations in the demand for and prices of the asset
4. Transferability, or the ease and potential costs associated with transferring the ownership of the property

Tangible assets perform better in most of these factors. Transferability is the only factor where intangible assets might have a stronger case, since signing over intellectual property rights can be easier than physically transferring heavy machinery.

Risk Profile

Tangible and intangible assets are exposed to different kinds of risks. For tangible assets, regular use can carry a risk of damaging the asset beyond expected wear and tear, reducing its value or incurring repair costs. 

Additional risks include theft, vandalism, or damage from adverse weather events. Tangible assets can also become obsolete.

Intangible assets have a much more complex risk profile, which includes: 

• Infringement challenges: A third party can accuse you of using their intellectual property without permission, potentially resulting in costly litigation
• Theft of trade secrets: Information like product formulas, client lists, or algorithms might be stolen by third parties or disgruntled employees
• Title disputes: Competing companies might claim ownership over the intellectual property you own
• Validity challenges: A third party can challenge whether your patent, trademark, or copyright is legally enforceable, potentially leading to loss of IP
• Supply chain liability: A supply chain partner might infringe on third-party intellectual property and expose you to liability
• Reputational damage: A public relations crisis or a legal dispute can reduce the value of brand equity and goodwill
• Obsolescence: An intellectual property can lose its legal protections, such as when patents expire or copyrights run out

Some of these risks can be easily mitigated with proper insurance. Others, however, require additional measures to increase the assets’ physical or cyber security and ensure legal protections are in place.

Asset Situs: The Role of Jurisdiction

Both tangible and intangible assets have a situs. This is the legal home of the asset, and it determines which country’s laws govern it, how it is taxed, and what happens to it in the case of death, divorce, or a creditor claim. 

Tangible assets have a straightforward situs, which is typically the asset’s physical location. For instance, if you have a house in your home country and another abroad, each will have its respective country as a situs.

For intangible assets, determining situs is more complicated. The situs of an asset with no physical substance is usually determined by the country in which the asset is registered. For company shares, this would be the jurisdiction where the company is registered, while for internet domains, it could be where the registrar is based. 

Without a deliberate situs strategy, the legal and tax framework governing each asset is chosen by default, potentially resulting in unnecessary tax exposure or conflicting succession laws. For a coherent jurisdiction optimisation strategy that mitigates unnecessary taxation, contact Nomad Capitalist.

Plan Your Assets Effectively With Nomad Capitalist

Nomad Capitalist is an advisory company that focuses on global mobility and wealth protection. We have helped more than 1,500 clients build an international lifestyle and preserve their wealth by obtaining residency in a tax-efficient jurisdiction, capitalising on investment opportunities abroad, and using other legal methods to minimise tax exposure.

Our core service is the Action Plan, a step-by-step blueprint for achieving your financial and lifestyle goals. Each Plan we create is tailored to a client’s specific situation and needs, ensuring the most effective solution that aligns with the desired timeline as closely as possible. 

Here’s what partnering with us looks like: 

1. We ask you to fill out a form to help us determine whether we’re a good match
2. We schedule a 45-minute onboarding call to learn more about your circumstances and desires
3. Our agents create an Action Plan and present it to you for approval
4. We implement the Plan over 12 months and manage the administrative parts
5. You continue receiving lifelong support from us after the Plan was implemented

To help you optimise your tax liability on tangible and intangible assets, we can assess your situation and propose solutions for moving your tax base or assets abroad. Our team can also help you decide on the most favourable jurisdiction and manage the residency acquisition process for you. 

To start the process right away, contact Nomad Capitalist!

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