Small-scale Investment Deduction

Recently I have been getting a number of inquiries about the investment deduction, specifically the small-scale investment deduction.  Below, you will find some FAQs concerning the small-scale investment deduction.

What is the small-scale investment deduction?

There is a special investment facility for companies, the so-called small-scale investment deduction.  Entrepreneurs investing in company assets can receive an extra deduction if they make use of the small-scale investment deduction.  When submitting your income or corporate tax returns you must make use of the small-scale investment deduction.

How does the small-scale investment deduction work?

The small-scale investment deduction is a facility for entrepreneurs.  This applies to entrepreneurs in income tax and for companies in corporate tax.  To qualify, the entrepreneur must invest in a company asset or assets.

The small-scale investment deduction is an extra expense to be taken into account in your income or corporate tax returns.  Thus, this expense either decreases your profit or increases your loss from activity.

What are the conditions for the small-scale investment deduction?

Personally, I find the most important condition to be that the individual investment must exceed a sum of EUR 450.  Collectively, all investment must be over the EUR 2,300 threshold.  Specific investments, such as land and goodwill, are excluded company assets to which, therefore, the small-scale investment deduction does not apply.  If you enter into an obligation to an associated party, you can also not make use of the small-scale investment deduction. This circle of association is rather small.  Consequently, you should have a close look to see if you fulfil the conditions.

What is the value of the small-scale investment deduction?

If investment in company assets is above a certain level, you can claim small-scale investment deduction.  The extent of the small-scale investment deduction can be redetermined each year.  In 2012 and 2013, the lower limit of the required investment is EUR 2,300.  28% can be deducted from investments below EUR 55,248.  If the investment is above this figure, but below EUR 102,311,  the deduction is limited to EUR 15,470.  For investments above EUR 102,311, the investment deduction decreases to 7.56%.

If you buy a company asset for EUR 5,000, the small-scale investment deduction comes to EUR 1,400.  It is essential that you make use of the small-scale investment deduction in your income and corporate tax declarations.

What is a company asset?

On March 11, 1953, the Supreme Court ruled that company assets are “items belonging to business assets, which, in contrast to items intended for profit, belong to fixed capital and are intended for the  operation of the company.”

Can the small-scale investment deduction also be applicable to the building of a website?

In 2012, I had a website designed for my website.  When declaring my income tax, I asked myself if I could get an extra deduction for this.

Below, I set out how I came to the conclusion that I can use small-scale investment deduction for the costs of designing my website. Since, in my experience, it seems that this tax possibility often goes over people’s heads, I thought it would be useful to share my thought process on this matter.

There is a special investment facility for companies, the so-called small-investment deduction.  If you, as an entrepreneur, invest in company assets, you can get an extra deduction.  When submitting your income or corporate tax returns, you really have to make use of the small-scale investment deduction.

In 2012 and 2013, the lower limit of necessary investment comes to EUR 2,300. The percentage of extra deduction amounts to 28% of all investment sums below EUR 55, 248.  Afterwards, the deduction is capped at EUR 15,470.  From EUR 102,311 the investment deduction decreases to 7.56 % of the invested surplus.  In summary, if you buy a company asset for EUR 5,000, the small-scale investment deduction comes to EUR 1,400.  You cannot pass up this opportunity when submitting your income and corporate tax returns.

The website showcases my business and therefore operates as a company asset.  Building my website cost more than EUR 2,300, so I had reached the lower threshold.  The only obstacle was identifying and classifying the costs involved in investment in the website.

When doing my administration, the first thing I did was classify all costs involved in the building of my website, as software costs in the general ledger.  By doing this, however, the costs of building my site were not transparent.  Thus, when I was filling out my income tax returns, it was necessary to separate the software costs, such as the purchase of applications, from the investment in the site.  I kept the website designer’s invoices separate, which allowed me to have the necessary information for filling in my income tax returns ready at hand.

The application of the small-scale investment deduction does not mean that you have to show the investment in your company asset on your balance sheet.  If this were actually the case, you would not be able to deduct the expenses all at once.  It is nice to know that an exception applies to intangible assets, by which you can choose whether or not to immediately deduct an investment in intangible assets (website) from your profits during that trading year.  By identifying and classifying the costs of intangible assets, you are therefore also acquiring more flexibility in relation to spreading out your profit from activity.

Hendrik-Jan Van Duijn

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