Deducting costs from your tax return: amortisation
Your business costs 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 spread this over several years, because an asset lasts a number of years. This is called amortisation, or afschrijven in Dutch.
What are company assets?
Company assets are items that you use to run your company, and that are not meant for sale. You need to invest in company assets to make your products or provide your services. Examples of company assets are:
- Buildings, machines, and vehicles
- Inventory, such as computers, furniture, equipment, and tools
- Goodwill, permits, and licences
What is amortisation?
When calculating your business profit, you are usually allowed to deduct business expenses from your income. But when you buy a company asset, you are not allowed to deduct the entire cost in the year of purchase. Instead, you must amortise your investment. This means you gradually write off the initial cost over a period, because the asset lasts for several years. So you spread the purchase cost over the years in which you use the asset. Each year, you can deduct a part of the cost in your income tax return or corporate tax return.
Is the cost of buying your company asset €450 or less? Then you may deduct the entire amount from your earnings in your tax return.
How much can you amortise every year?
- Most investments have a maximum amortisationrate of 20%. The amortisation of the asset takes a minimum of 5 years.
- Goodwill is written off by a maximum of 10% per year.
Calculation methods for amortisation
There are different methods for amortisation, or writing off investments. Ask your accountant or tax consultant which method gives you 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
Are you using the asset for the first time later in the year? For example, from 1 October. You may only amortise in that year for October, November, and December. Then also use this formula:
- amortisation per year × 3 ÷ 12
This is the amount you paid for your asset. It does not matter whether it is new or used. For example, you may include notary and installation costs as well. You deduct any discounts or subsidies, even if you receive them later.
For the expected lifetime, you normally take the number of years until the asset no longer works. This is also called the technical lifetime. You may estimate how long it will be until the asset stops working.
But some assets are obsolete before that, even if they still work. They are obsolete compared to what is currently on sale in shops. Like a mobile phone. Then you may choose to count the number of years until the asset will be obsolete. This is the economic lifetime. You may estimate how many years it will take until the asset becomes obsolete.
Does the asset break down sooner than you had estimated? Then you must write off the remaining value. This is the book loss. If you have also incurred repair costs, these will not be included in the amortisation.
Or do you discover that the asset will become obsolete sooner than you estimated? Then adjust the value to write off in the coming years. Again, make sure the new annual amount does not exceed 20% of the purchase cost. You do not need to adjust the old instalments.
Expected service life of used equipment
Have you bought a used asset? That usually has a shorter lifespan. But even then, you are only allowed to write off a maximum of 20% of the purchase cost per year. Even though it will possibly stop working after just 2 years.
The residual value is the expected value your asset still has when you no longer use it for your business. With the economic lifetime, the asset has no residual value after that time. The residual value is then 0.
Are you unable to estimate the residual value of the asset yourself? Then check with an expert.
Example: calculating the amortisation for a laptop
Cost of purchase
You buy a laptop for €1,000. This is the purchase cost.
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.
Maximum amortisation
You are allowed to write off a maximum of 20% of the purchase price per year. For your laptop, that's 20 / 100 × 1,000 = €200. That fits nicely into 5 years.
Amortisation calculation
(€1.000 - €0) / 5 = €200 per year
Calculate amortisation for only part of the year
Do you buy or start using the laptop on 1 October? Then you may only write off (3 / 12 * 200) = €50.
You can find more information on how to calculate the amortisation of your assets on the Netherlands Tax Administration website (in Dutch).
Questions relating to this article?
Please contact the Netherlands Tax Administration, Belastingdienst