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What is the investment deduction amount (Investitionsabzugsbetrag, IAB) and how does it work? Companies can only finance investments from already-taxed profits. The investment deduction amount (IAB) makes it possible to take into account up to 40% of the investments planned for the next 3 years as profit-reducing deductions today. The resulting tax saving can then be used to pre-finance part of the investment.
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Example: A company plans to purchase a machine for 50,000 EUR net in 2018. An IAB of 20,000 EUR is therefore formed as early as 2015. At a tax rate of 50%, the company achieves a tax saving of 10,000 EUR, which can already be used to finance part of the machine.
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Conditions:
- Investment in new or used depreciable, movable assets (therefore excluding software costing more than 410 EUR and real property)
- For businesses that prepare balance sheets and for freelancers, the business assets must not exceed 235,000 EUR.
- For traders and freelancers who determine their profit using the income-surplus method (Einnahmenüberschussrechnung), the profit must not exceed 100,000 EUR.
- The assets must be used exclusively or almost exclusively (90%) for business purposes in a domestic permanent establishment (Betriebsstätte) in the first and second year.
There is now a new development: Previously, it was necessary to specify exactly which investments the investment deduction amount (IAB) was being formed for. For example, one could not form an IAB for a lorry and then purchase a milling machine. Since 2016, this tax-saving option has become far more flexible: you no longer need to commit to what you intend to spend the money on. You form an IAB and only decide later which investment it is intended for.