1 November 2023

The investment deduction remains a crucial tool for companies looking to optimise their profits by investing in new projects. Together, we look at the recent autumn 2023 changes to the investment deduction rates and how they may affect businesses. 

What businesses need to know  

One-off investment deduction  

For sole traders, liberal professions and small companies that invested between 12/03/2020 and 31/12/2022, a temporary increased one-off investment deduction of 25% applied. However, from 1 January 2023, this rate was reduced to 8%. Companies will also see changed percentages for “special investments” relating to tax year 2024. 

For example, for investments from 01/01/2023, rates such as 20.5% for patents and environment-friendly investments will apply, while for digital fixed assets and security investments (for small companies only), rates such as 20.5% and 27.5% will apply.  

Broken financial years  

For investments made from 01/01/2023, linked to assessment year 2023, adjusted percentages apply for so-called broken financial years. For example, small companies can avail 13.5% for patents and environment-friendly investments, while digital fixed assets and security investments (for small companies only) yield 13.5% and 20.5% respectively.   

Consideration for small companies  

For small companies, it may pay to explore whether they can use special investment deductions instead of the standard one-off investment deduction of 8%. Carefully considering the options can make a significant difference in optimising profits.  

Constant percentages  

Not all percentages have changed. For example, investments in carbon emission-free trucks, including electric charging infrastructure, remain at a stable 42%. For marine vessels, the rate is 30%, while reuse of packaging retains an investment deduction of 3%.  

Staggered investment deduction  

Besides the one-off investment deductions, there is the staggered investment deduction, which takes into account tax-deferred depreciation. This applies to research and development, where the rate for environmentally friendly investments in this category is 27.5% for investments from 01/01/2023 linked to assessment year 2024. For the same type of investments by large and small companies from 01/01/2023 associated with assessment year 2023, the investment deduction is 20.5%.  

It is important to note that the number of employees employed plays no role in this scheme, so the focus is on the nature and timing of investments.  

For the investment deduction, the changed percentages offer new opportunities for companies to optimise their financial strategies. It is essential for companies to thoroughly understand and exploit these changes to gain maximum benefit from their investments.   

Want to know more about the investment deduction?  

The investment deduction is a tax incentive that allows companies to exempt part of their profits for specific new investments made during the taxable period. This mechanism is designed to encourage companies to invest in innovative projects and growth, benefiting not only individual companies but also the wider economy. 

The investment deduction works by granting a percentage of investment costs as a deduction from taxable profits. This results in a reduction of the tax base, which in turn leads to lower tax liabilities for the company. The purpose of the investment deduction is to stimulate economic activity, promote innovation and support specific sectors, such as environmentally friendly investments and research and development. 

Companies can benefit from one-off investment deductions or staggered investment deductions, depending on the type of investment and tax regulations at the time. 

With FI Group as your reliable partner, you can navigate the evolving landscape of R&D funding and fully leverage the available incentive measures. 

Yvette Poumpalova 

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