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Certain business costs can’t be deducted at once but have to be depreciated over time.
Depreciation is the process of allocating the depreciable cost of a long-lived asset, except for land which is never depreciated, to expense over the asset’s estimated service life. Depreciable cost includes all costs necessary to acquire an asset and make it ready for use minus the asset’s expected salvage value, which is the asset’s worth at the end of its service life, usually the amount of time the asset is expected to be used in the business.
For example, if a truck costs € 30,000, has an expected salvage value of € 6,000, and has an estimated service life of sixty months, then € 24,000 is allocated to expense at a rate of € 400 each month (€ 24,000 ÷ 60 = € 400). This method of calculating depreciation expense, called straight-line depreciation, is the method for tax reporting purposes.
If you purchase an asset with a value above € 450 (excluding VAT), it is prescribed that the costs can’t be deducted at once but have to be depreciated over time.
Standard depreciation periods
- Equipment, computers etc.: 5 years (if it is clear that the asset is used for a period longer than 5 years, the depreciation must be spread out over this longer period).
- Goodwill: 10 years.
- For properties there is an additional requirement meaning that it is not possible to depreciate the value below the so called base value. The base value is the so called WOZ value of the property in case you rent it out, if you use it for your own business the base value is 50% of the WOZ value.
The VAT on the purchase can be claimed back immediately, independent from the question whether the cost needs to be depreciated or not for the income tax. There are (again) special rules for properties.
Be advised that you may be able to claim an investment tax credit in the income tax too for which additional requirements apply.