As a result of a change in the law, new regulations for investments in movable assets will apply from 2020. Especially in the case of planned or urgently necessary investments, an enormous depreciation potential can be brought forward and used early. This will mainly benefit small and medium-sized enterprises. Because this is only usable for entrepreneurs with a profit that is less than EUR 200,000. However, there are other conditions that companies must meet for the use of the investment deduction amount according to § 7g EStG.

Consequently, an investment aid for small and medium-sized enterprises (SMEs) is described under § 7g EStG. The so-called investment deduction amount serves to be able to tax a share of the costs of future investments in assets of the fixed assets in advance. Companies may partially deduct from profit up to three years before the costs for the acquisition or production of assets are incurred. Due to the Corona Pandemic 2020, the entrepreneur can even use an investment deduction amount deducted in 2017 until the end of 2021, i.e. up to four years later instead of the usual three years. Because the investment has to be made until 31.12.2021. This can result, among other things, in a tax deferral, since this is deferred by several years.

The tax savings are basically intended to support the financing of the investment. In addition, a special depreciation can be made in the year of acquisition or manufacture of the asset or assets. In the following, it will be explained in more detail what causes these control advantages.

Use of the investment deduction amount: Conditions

2.1. Size characteristics of enterprises

In order to be able to use the investment deduction amount, companies must meet, among other things, size-specific requirements. The company profit is used as a benchmark. Since the new law, it is irrelevant according to which method the company determines its profit. This applies to companies subject to accounting, which have a business asset comparison according to § 5 para. 1 create EStG as well as for voluntarily accounting entrepreneurs and self-employed persons as well as agricultural and forestry enterprises, which according to § 4 para. 1 EStG and for small enterprises which have a surplus income account according to § 4 para. 3 EStG to determine profit, same profit limit. Finally, since the change in 2020, this determined profit must not exceed the uniform limit of EUR 200,000 to use the investment deduction amount.

2.2. Beneficiary assets

In addition, the investment deduction amount can only be used for investments in usable movable assets of the fixed assets. However, these can also already be used. In addition, the use must be guaranteed at least up to one year after the acquisition or manufacture in the company in Germany. As well as an almost exclusively operational use is a condition for the deduction, more than 90 % is considered appropriate.

In the meantime, the law has been amended so that a rental of the purchased or manufactured assets is also accepted. Thus, the investment deduction under a business split is a possibility for the owning company to benefit from this scheme.

2.3. Evidence for the tax office

The interesting thing about this regulation is that the taxpayer does not have to provide any proof to the tax office in the year of the investment deduction. Therefore, only a transmission of the deduction amounts is necessary.

The investment deduction amount according to § 7g EStG makes it possible to bring forward future expenses. The focus is on creating additional liquidity for the planned investment. Therefore, the entrepreneur can deduct the investment deduction amount from the profit up to three years before making the investment. However, it should be noted that the deduction amount does not correspond to the full amount of the planned investment, but up to a maximum of 50 % (up to a maximum of 40 %) of the planned acquisition or production costs (AHKs) and a deduction limit of a maximum of EUR 200,000. However, the deduction can also be less than the 50 % of the planned AHKs.

The deduction from profit is made by an off-balance sheet profit reduction. Thus, strategic tax planning is also influenced by such a deduction. If the company’s profits only increase in the following years and thus possibly the tax burden, then the investment deduction would exacerbate this development and lead to overall higher expenditure. In order to carry out the process properly and sensibly, you can count on our support.

3.2. For investment

Subsequently, the year of investment in an economic asset relevant for § 7g EStG has occurred. The actual acquisition costs are now relevant. Consequently, several effects are possible due to possible discrepancies between actual and planned acquisition costs.

3.2.1. Costs correspond to planned investment costs

If the pre-deducted investment deduction amount was determined on the basis of the later actual acquisition or production amount, the planned scenario actually occurs. The costs deducted in previous years are added to the profit off-balance sheet. However, the acquisition and production costs are reduced by the same sum, reducing profits. Therefore, this does not have any tax effects.

3.2.2. Costs are higher than the planned investment costs

Since the reduction of the acquisition and production costs must not exceed the addition of the investment deduction, there is now no additional tax impact.

3.2.3. Costs are lower than planned investment costs

If the investment amount was deducted with 50 % of the planned investment costs, the investment deduction may not be added in full in this case. This is due to the rule that a maximum of 50 % of the investments made may be added. If the full investment deduction amount has not been added after the 3-year period, the outstanding amount will be added in the year of the investment deduction and the already issued tax assessment will be amended subsequently. In addition, an increased tax payment is paid interest.

3.2.4. Special depreciation on investment deduction

In addition, a special depreciation may be applied in the year of investment in an asset corresponding to the abovementioned characteristics. This special depreciation may be claimed on a one-off basis up to a maximum of 20 % of the acquisition and production costs, after reduction thereof. However, this special depreciation may also be distributed arbitrarily for up to five consecutive years. The only criterion for their deduction is the EUR 200,000 profit limit in the year before the purchase of the asset. One advantage is the use of the special depreciation in the first year by keeping the linear depreciation constant over the remaining five years.

3.3. In the absence of investment

In the event of a failed investment, the deducted amount is retroactively reversed. The tax assessment pursuant to § 7g Abs. 3 EStG, not as usual after 173 Abs. 1 AO, modified. In addition, the avoided tax deduction, starting 15 months after the end of the calendar year in which the tax was incurred, is remunerated at 6% annually. This scenario should therefore be avoided at all costs, as this can ultimately end up very expensive for the entrepreneur. However, the interest on the additional tax liability does not always occur, because it is decisive whether the change in the adjustment notice is based on an event in the past or not. If further questions arise, we will gladly answer them in a consultation appointment.

Conclusion on the investment deduction amount

Finally, it can be stated that the investment deduction amount can be used very sensibly to maintain liquidity and ensure the financing of investments. Thus, especially in SMEs, additional investment potential is realized and used. Nevertheless, it is advisable to accurately estimate the costs of the subsequent purchase or manufacture in order to avoid tax back payments. In addition, a realistic assessment of future profits should be made in order to achieve a tax-advantageous use of the investment deduction amount. We are happy to help you for this. We are also happy to help if you want to use possible future super write-offs.