As the year end approaches, businesses with enough profit might be considering whether now is the time to invest in business assets.
There are good tidings from the tax office here. If you make a significant investment in assets, of more than €2,400 this year, there are extra deductions that you can make from your business profits.
Normally speaking, an asset needs to be deducted (or amortised) over a period of at least five years, if it cost more than €450. This means that, if you bought the asset on January 1, each year for the next five years, you take 20% of the purchase amount from your profits.
But under the small projects investment credit scheme, also known as the MIA in Dutch, you can deduct more of the investment from your profits in the first year, depending on how much you have invested.
There are a number of ground rules: you must invest a certain amount, you must invest in business assets and your company must be registered in the Netherlands, while you are liable for income tax or corporate income tax here. This year, the tax rule applies for investments from €2,401 to €328,721, and the most tax advantage is for investments of up to €109,574 (see the Dutch tax office table, in Dutch). Maintenance costs to enhance an asset are also eligible for this credit.
If you have disposed of depreciable assets and made a gain, you may have carried this over into a tax deferral reinvestment reserve (for up to three years). In general, the KIA ruling can be granted if you invest this money into new assets, but minus the reinvestment reserve.
Certain assets aren’t eligible at all, such as homes, land, animals, passenger cars that are not for professional transport, assets that you transfer from private use to your company, assets for rental or use abroad, and investments that involve obligations to relatives or people in your (or their) households.
If you’re thinking green, there are advantages to waiting until 2022 before investing: the environmental investment allowance or MIA gets a boost next year.
Similar to the KIA scheme, the deduction is applied if you invest in certain assets with a higher value than €2,500 (but not more than €25 million) that are on the environmental list. The list is broken down by industry – and is in Dutch – but for example for a restaurant, it includes assets such as electric frying equipment or an energy-saving fridge. Every item has a special code, and you need to register your purchase within six months with Netherlands Enterprise Agency the RVO.
There are three different deduction values depending on your asset this year, at 13.5%, 27% or 36% (and note that this deduction cannot be combined with the KIA).
Next year, however, the deduction levels will rise to 27%, 36% and 45%, depending on what you are buying for your business.
Another perk of buying eco-friendly assets is that you don’t necessarily have to deduct them in the normal strict five-year way. In the first year, you can also deduct 75% of the depreciation base (purchase cost minus residual value) as an expense, for instance, as long as you’ve registered the purchase within three months of buying it with the RVO.
You cannot, of course, deduct more than the amount paid. This tax ruling is known as the VAMIL, or random depreciation of environmental assets and it can help manage your liquidity.
For more advice on your personal situation, contact a tax expert at Blue Umbrella for sound advice at a fixed price.