5 things you need to know about Deduction of investment expenses
The amendment of the Income Tax Act introduces a new provision to support investments with a higher added value, i. e. productive investments linked to Industry 4.0. We have prepared answers to 5 basic questions that interest our clients.
1. Who can apply Deduction of investment expenses?
Deduction of investment expenses (costs) can be applied by legal entities and individuals with entrepreneur income according to Article 6 (1,2) of the Income Tax Law.
2. In what extent can we claim this deduction?
The deduction amount depends on the amount, which is being reinvested in the company and is determined as a percentage of the tax depreciation charge of the invested assets and can amount from 15% up to 55% of the tax depreciation charge. The taxpayer will reduce by this deduction the tax base after tax loss carried forward.
In practice, it is necessary to compare the amount invested in the years 2019 to 2021 with the investment plans for the next 4 years (periods). The increase between the average investment value and the planned investment must be at least 700% and the value of the investment at least EUR 1 mil.
3. What is the period applicable for Deduction of investment expenses?
The deduction is applicable during the entire depreciation period of the asset, but no longer than 10 tax periods, starting with the tax period in which the asset was put into use. It is not possible to interrupt tax depreciation of assets for which a deduction is applied.
4. Is it obligatory to file the investment plan together with the tax return in case a company claims Deduction of investment costs?
The investment plan is not a mandatory enclosure to the tax return.
The investment plan must be signed by a responsible person authorized to act on behalf of the taxpayer, at the latest by the deadline for filing of the tax return, in which he claims Deduction of the investment costs for the first time. It is submitted to the Tax Authorities only upon request, e. g. during a tax audit.
5. The company was established in 2020. Can we use the amounts invested in 2020 and 2021 for the purposes of calculation the average value of investments?
No. In accordance with Article 30 (7) of the Income Tax Act, Deduction of investment costs cannot be claimed by a legal entity that has obtained a business license in the Slovak Republic during the three tax periods which are included in the calculation of the average value of investment.
If you are interested in this topic and need more information, do not hesitate to contact our experts.