Make use of the KIA? Invest before the end of the year for additional cost deduction
When the end of the financial year is in sight and you are considering investing in certain business assets, it could be wise to do so before the end of the year, as you might qualify for claiming KIA (small projects investment credit).
What is KIA?
You’re eligible for small projects investment credit, or investment deduction, if you’ve invested over €2401 in one year. This will allow you to deduct 28% of the total amount of investments from your profit. This results in a lower profit and therefore means that you’ll pay less income tax. Suppose you’ve already invested €2000 this year, and you’re contemplating the purchase of a €600 iPad, then it may be worthwhile to do so. With this purchase, you’ll exceed the minimum of €2401 and you can claim an additional cost deduction of (28% of €2600 =) €728!
Does this go for all investments?
Let’s start with an explanation: what exactly qualifies as an investment for the Dutch Tax and Customs Administration? An investment is a business asset that will last a given amount of time and costs more than €450 excluding VAT. Examples are laptops, cameras or electric bikes. Not every investment qualifies for KIA, because the deduction does not apply to:
- Residential houses, land or animals
- Vessels for representative purposes
- Intangible property such as stocks, receivables and goodwill
- Passenger cars that are not intended for professional transport
- Business assets that are, for at least 70%, intended for rentals
- Business assets that are transferred from your private assets to your business
- Investments with which you enter into obligations towards someone belonging to your household or family, e.g. a machine you buy from your uncle is not eligible for investment deduction.
Are you investing in an environmentally friendly business asset, such as an electric car or scooter? Then you may be eligible for an extra deduction under the MIA or VAMIL regulations.
Sounds great! Start shopping?
As nice as it may seem to ‘reward’ yourself with a new camera or iPad, it’s only wise to invest in something if you really need it of course. The cost deduction will never outweigh the amount of the investment itself. In addition, keep in mind that when your profit is approximately €25.000, you’re entitled to private business ownership allowance and the extra deduction is not of much use, as your profit is already reduced to such an extent that you will not have to pay income tax anyway!