Temporary increase in ordinary investment deduction rate to 25% no longer applicable in 2023

Temporary increase in investment deduction rate to address economic crisis

Before the Covid pandemic, the ordinary investment deduction rate was 8%. In addition to the health crisis, the virus also brought about financial and economic crises. To help address these crises, the authorities introduced a wide range of temporary measures. One of these measures resulted in an increase in the ordinary investment deduction rate from 8% to 25%. This was of course intended to encourage companies to continue investing in the economy.

The temporary measure caused the rate of the ordinary investment deduction to be raised from 8% to 25% for investments made by self-employed persons or ‘small’ enterprises between 12 March 2020 and 31 December 2022. Furthermore, for investments made up to 31 December 2021 where this deduction could not be applied because the taxable base was insufficient, it was possible to carry the ordinary investment deduction forward to the next two taxable periods (2022 and 2023). Normally, such a deduction may only be carried forward for one year.

Eligibility for investment deduction

To be entitled to claim the ordinary (temporarily increased) investment deduction at all, you must meet several cumulative conditions. The investments must:

• Be made by natural persons realising profit or benefit or by ‘small’ enterprises (pursuant to the Belgian Company Code, Article 1(24), paragraphs 1-6)
• Pertain to tangible or intangible fixed assets depreciable over a period of at least three years
• Be actually and solely used in Belgium for professional purposes
• Be newly acquired or achieved during the taxable period. In other words, the items must either have come into the company’s possession in actuality or the taxpayer must have become the legal owner through a completed purchase transaction with immediate transfer of ownership in this period, even if they were not yet delivered and/or paid for.

Furthermore, certain investments will not be eligible for the investment deduction by definition. For example, the following type of investment definitely will not qualify:

• Investments in assets acquired or achieved with the aim of transferring the right of use to a third party, but not if this party is a taxpayer who could claim the investment deduction themselves.

Ordinary investment deduction’s temporary increase almost over

After 31 December 2022, the ordinary investment deduction rate for qualifying investments will drop back down to 8%.

Conversely, that means the (temporarily increased) deduction rate of 25% does still apply to investments made before this date.

On the one hand, an investment must make sense economically and based on your cash flow situation. On the other hand, the investment deduction’s tax implications are also worth considering.

A loss for the financial year requires a different approach than a tax loss that is being carried forward. In one of these cases, the investment deduction generally cannot be applied, or not fully, while in the other this may well be possible.

Finally, it is not possible to combine the ordinary investment deduction with a deduction for risk capital. As the deduction rate for risk capital for the 2023 tax year is so much lower, namely 0.443%, we advise applying the ordinary (temporarily increased) investment deduction of 25% for financial years that end on 31 December 2022.

Now is the time to invest

If an investment appears advantageous for economic and tax reasons, we recommend making this investment before 31 December 2022. That way, you will still be able to claim the 25% ordinary investment deduction rate.

Any questions? Please contact one of our experts.