What is the investment deduction amount (IAB)?
The investment deduction, or IAB for short, is a tax concession in accordance with Section 7g of the German Income Tax Act (EStG). It enables small and medium-sized enterprises (SMEs) to save taxes even before the actual acquisition or manufacture of assets. The IAB offers entrepreneurs the opportunity to claim up to 50% of the planned investment costs for tax purposes in advance. This creates financial leeway and provides tax relief in the years before the actual investment.
Who can use the IAB?
The investment deduction is mainly aimed at companies and self-employed persons who do not meet the limits for so-called small and medium-sized enterprises do not exceed. These include:
- Sole proprietorship
- Partnerships (e.g. GbR, OHG, KG)
- Corporations (e.g. GmbH, UG)
A key factor is that in the financial financial year in which the deductions are to be made, the profit excluding investment deductions must not exceed EUR 200,000. A loss may also result from the creation of the deduction amount.
How does the investment deduction work?
The IAB allows you to deduct the planned acquisition of a depreciable movable asset (e.g. machines, vehicles, computers or photovoltaic systems) up to 50% of the expected acquisition costs in your tax return. The prerequisite is that the acquisition or production takes place within the next three years takes place.
Example: Assume you are planning to purchase a new production machine worth EUR 50,000, which is to be used at least 90% for business purposes in Germany. In this case, you can deduct an investment allowance of 25,000 euros (50% of the acquisition costs) and thus reduce your taxable profit this year. This reduces your tax burden in advance of the investment.
Advantages of the IAB
- Tax relief before the investmentYou can reduce the tax burden in the year in which you claim the IAB and thus build up liquidity.
- FlexibilityIf you do not carry out the planned investment within the next three years, you can reverse the IAB, but you will have to pay interest on the temporary tax advantage you have received (currently 1.8% p.a.).
- Long-term planning securityIAB allows you to plan for the long term and take advantage of tax benefits early on without having to make a large investment immediately.
- Loss offsetting: The IAB can also be claimed if this results in a loss. This gives you more flexibility and allows you to optimize your tax burden in difficult economic times.
Do you have any questions on this topic?
Requirements for the IAB
To be able to use the investment deduction, you must meet the following requirements:
- The investment deduction can only be used for depreciable movable assets (e.g. machinery, vehicles).
- The asset must be used at least 90 % for business purposes be used for business purposes.
- The acquisition or production must take place within the next three years take place.
- The asset must be rented out or used in a domestic permanent establishment by the end of the financial year following the financial year of acquisition or production.
How to save taxes with the IAB
The investment deduction offers you the opportunity to plan targeted investments and at the same time reduce the tax burden in previous years. This is a great advantage, especially for smaller companies and the self-employed, as liquidity is maintained and future investments are tax-privileged at the same time.
After acquisition, the remaining amount is distributed via the normal depreciation of the asset, which means further relief in subsequent years.
Tax tip: doubling the GWG limit
If the acquisition costs should be reduced by the use of theIf the acquisition costs fall below the GWG limit of 1,000 euros when the IAB is used, you can use the asset in this way.even write them off in full. So you can de facto double the GWG limit!
Conclusion: make clever use of tax benefits
With the investment deduction under Section 7g EStG, you can flexibly manage your tax burden and plan planned investments for the long term. For small and medium-sized companies in particular, this is an excellent way to secure tax benefits and maintain liquidity in the company at the same time. If you have any questions on this topic, please feel free to contact us at any time.
The author: Sven Sistig
Sven Sistig has been working in national and international tax law for 12 years, with a focus on VAT advice and support for start-ups, (online) retailers and influencers. After holding positions at Deloitte and Flick Gocke Schaumburg, he most recently headed the tax department at ABOUT YOU.
