Deducting costs from your tax return: amortisation
Costs you incur for your business can usually be deducted immediately from your profits. You will then pay less tax. But if you buy an asset, you may not deduct the costs from your profit in one go. You must then sprad this over several years, because an asset lasts a number of years. This is called amortisation.
What are company assets?
Company assets are investments that you use to run your company, and that are not meant for sale. You need company assets to make your products or provide your services. Examples of company assets are:
- Buildings, machines, and vehicles
- inventory, such as computers, desks, equipment, and tools
- goodwill, permits, and licences
What is amortisation?
When you calculate your profits, you take into account the purchasing costs of your company assets: you deduct those costs from your earnings.
When you acquire a company asset, you are not allowed to deduct the entire cost in the year of purchase. Instead, you must amortise your investment. Amortisation, or depreciation, means that you spread the cost of purchase over the years in which you use the asset. You can deduct a part of the costs in your income or corporate tax return over a number of years.
Is the cost of acquiring your company asset €450 or less? Then you are allowed to deduct the entire amount from your earnings in your tax return.
Different amortisation percentages
- Most investments have a maximum depreciation rate of 20%. The amortisation of the asset takes a minimum of 5 years.
- Goodwill is depreciated by a maximum of 10% per year.
Calculation methods for amortisation
There are different methods for depreciating investments. Ask your accountant or tax consultant which method yields the maximum tax advantage for your company.
Linear calculation
The method used most often is linear calculation. When you use this method, you write off a fixed percentage of the difference between the purchase cost and the residual value annually. The formula for linear calculation is: amortisation per year = (cost of purchase – residual value) / expected duration of use.
This is the amount you paid for your asset. It does not matter whether it is new or second-hand. For example, you may include notary and installation costs as well. You deduct any discounts or subsidies. Even if you receive them later.
The residual value is the expected value your asset still has when you no longer use it for your business. Are you unable to estimate the residual value of the asset yourself? Then check with an expert.
The technical lifetime is the number of years until the asset ceases to work. Some assets have a shorter lifespan. They become obsolete earlier compared to what is currently on sale in shops. Like a mobile phone. Then you may use that shorter lifespan. That is the economic lifetime.
With economic lifetime, the asset has no residual value after that time. The residual value is then 0.
A second-hand asset usually has a shorter lifespan. But even then, the depreciation period is at least 5 years. Even if it stops working after only 2 years.
You can estimate how long it will take until the asset is worn out or obsolete. Can you not do that? Then check with an expert.
Example: calculating the amortisation on a laptop
Cost of purchase
You buy a laptop for €1,000. This is the cost of purchase.
Expected duration of use
A minimal duration of use of 5 years is common for amortisations. In 5 years, your laptop will be outdated, compared to the laptops for sale at that time. Therefore, the expected duration of use for your laptop is 5 years.
Residual value
A 5-year-old laptop is outdated, and its economic value is reduced to nothing. Your laptop’s residual value is €0.
Amortisation calculation
( €1.000 - €0) / 5 = €200 per year
You can find more information on how to calculate the depreciation of your assets on the Netherlands Tax Administration website (in Dutch).
Calculate amortisation for only part of the year
Are you buying the laptop later in the year, say on 1 October? Or do you use the laptop for the first time on that date? Then you may only calculate the depreciation for October, November and December of that year. So 3/12*€200 = €50. You divide the depreciation over 60 months, from the time you start using the asset. In this case, 1 October.
Questions relating to this article?
Please contact theNetherlands Tax Administration, Belastingdienst