If you are planning investments within the next three years, you can already deduct 50% of the expected costs for tax purposes today (§7g German Income Tax Act – EStG).
What requirements must the assets meet?
They must be:
- Movable fixed assets
- Used almost exclusively for business purposes (at least 90%)
- Purchased by the end of the third financial year following the deduction
Employee vehicles are generally eligible for IAB, whereas company cars used primarily by business owners often are not.
What requirements must the taxpayer meet?
- The business must be a German company or permanent establishment
- Applies to corporations, partnerships, and sole proprietorships
- The profit in the year of deduction must be below €200,000
Investment deduction amounts can also be used to smooth income peaks and benefit from progressive tax rates. This also applies to subsidiaries of corporate groups, provided they remain below the profit threshold.
Example 1
DanByg GmbH, based in Hamburg, needs a new excavator in 2025 costing €60,000.
In 2022, the company reports a profit of €180,000. It reduces this profit by 50% of the expected purchase cost, lowering taxable profit to €150,000 in 2022 and saving approximately €10,000 in taxes for that year.
Example 2
Peter Petersen, residing in Munich, earns a regular salary of €250,000 in 2022 and receives a severance payment of €200,000. To reduce the tax burden on the severance payment, he establishes a business in 2022 that plans to operate a solar installation costing €400,000. He reduces his 2022 tax burden by €90,000 and uses the savings as equity for the solar installation purchased in 2024.
These examples illustrate how investment deduction amounts in Germany can be used to manage taxes and control the timing of tax payments. However, proper implementation requires a certain level of tax expertise — therefore it is best to implement this strategy in consultation with a tax advisor.
tyskrevision Steuerberatungsgesellschaft GmbH & Co. KG