In the business world, you often hear that investing in your company is the key to long-term success. But what does that actually mean? When is an expense an investment, and when isn't it? And why does it matter for your bookkeeping and your tax return?
An investment is an expense that adds value to your business in the long run. In other words, it's a one-off purchase that you benefit from for a longer period. An expense counts as an investment if:
- It concerns a business asset that you use to do your work.
- The business asset lasts longer than one production process. As a rule of thumb, people often look at whether it lasts longer than a year.
- The purchase price is at least €450, or several purchases of products that serve the same purpose add up to at least €450 together. This threshold is excluding VAT. Unless you are VAT-exempt, in which case you count the investment including VAT.
A business asset can be tangible or intangible. Think of tangible assets such as machines, laptops, company vans or office furniture. Intangible assets are things like trademark rights or a website. Recurring costs are not seen as an investment. Think of costs such as rent, salaries, training courses or software you pay for monthly.
Investments are processed differently from regular expenses. Instead of deducting the full cost from your profit straight away, an investment is depreciated over several years. This means you claim part of the cost each year, so your profit fluctuates less and your tax return stays more stable.
With an investment, you may claim a maximum of 20% of the purchase price as costs each year, spread over at least five years. So if you buy a business asset for €5,000, you can deduct a maximum of €1,000 a year in depreciation from your taxable profit.
However, new entrepreneurs may use discretionary depreciation (willekeurige afschrijving) if they are entitled to the starter deduction (startersaftrek). This lets them depreciate investments faster. That pays off if you expect strong growth in the coming years. This way, you lower your taxable profit in the first years and pay less income tax for now, leaving more room for growth. Later on, your income tax will go up, but that increase will have less impact because your income has grown.
Important: Depreciation only matters for income tax. You do have to reclaim the VAT on an investment in one go, in the quarter in which you make the purchase.
On top of standard depreciation, as an entrepreneur you can use the small business investment deduction (KIA). This is an extra tax benefit for entrepreneurs who invest more than €2,901 in business assets within a year, as of 2025. With the KIA, you may deduct 28% of the total investment amount from your profit. This lowers your taxable profit and therefore the income tax you have to pay. This applies up to an amount of €70,602. Above this threshold, different rules apply
Tip: Are you just below the €2,901 threshold at the end of the year? Then it may be smart to make one more investment so you can still benefit from the KIA.