On Budget Day you were able to learn about the cabinet’s plans. One of the striking things is the adjustment of the depreciation on commercial buildings for the income tax sphere (IB sphere). The government wants to further limit the depreciation potential in the IB sphere from 2024.
What’s up again?
You may depreciate assets up to their residual value. Because these assets simply wear out. An exception to this is land. After the depreciation period has expired, the asset is normally worn out. In the meantime, you can save enough money to purchase a replacement asset. Also in the context of the matching principle, it is very understandable that you can deduct costs when these assets generate income. Based on this rule, you can depreciate company buildings, machines and equipment within a certain period and charge them to the result. This means you pay less tax and have more financial room to save or repay.
Legislative change in 2007
In 2007, the legislator expanded the basis for profit calculation. It was a thorn in the side of the legislator that, as a result of inflation, commercial buildings decreased in value much more slowly than the annual depreciation. This created hidden reserves. Within the statutory rules, taxation can only take place in the event of a sale or discontinuation with the realization of the hidden reserves. The legislature wanted to put a stop to this formation of latent reserves.
The legislator at the time limited depreciation to the so-called floor value instead of continuing until the residual value has been reached. Initially, it set the floor value for commercial buildings at 100% of the WOZ value. The legislator toned this down again after comments from entrepreneurs. The restriction to 100% of the WOZ value therefore initially applied to commercial buildings with subsurface and appurtenances that were held as an investment. For commercial buildings with subsoil and appurtenances for use in the company’s own business, it set the soil value at 50% of the WOZ value.
Legislative change with effect from 2019
In 2019, the legislator once again adjusted the limitation of depreciation on commercial buildings within corporate tax. From then on, the soil value was also 100% of the WOZ value. The reduction in the corporate tax rate (corporate tax rate) partly offset the consequences of this restriction. In the meantime, the legislature has already reversed this proposed reduction.
Legislative change with effect from 2024
With effect from 2024, the legislator will further tighten the restriction again. The soil value will therefore be 100% of the WOZ value. This change drastically limits the depreciation potential for the IB entrepreneur. In practice, this means that there will be fewer deductions in the future. As a result, you have to pay more tax. This will have an impact on, among other things, the financial scope you have to meet your annual repayment obligations or reservation for replacement investments.
Limiting taxation
To limit tax liability, you must check each commercial building annually whether the WOZ value has been correctly determined. Is this too high? Then you can file an objection to reduce the value. The reduction in the WOZ value creates more room for depreciation.
For new investments in commercial buildings, you can divide the investments into the building itself and the exempt parts that fall under the equipment exemption of the WOZ. After all, you write down the investments that fall under the equipment exemption to their residual value. This means you retain more depreciation potential.
For certain investments in (new) commercial buildings, you may consider meeting the requirements of arbitrary depreciation. Because these investments are an exception to the restriction.
If profits are high, you can consider transferring your company to a private limited company. Although the same depreciation limitation applies here, the corporate income tax rate is much lower than the income tax levy. If you have a BV, please keep in mind that you will pay an AB levy on the excess profits at a later stage. But that is a matter for later.