A self-employed professional has to invest in order to start and grow their business. These investments (e.g. a car, a computer, a new building) are intended to last several years: you will therefore deduct their cost in installments, over the years of use of these goods, and not entirely the year of purchase.
How does amortization work? In how many years will you deduct your investment? At what rate? with or without VAT? Should you opt for linear or degressive amortization? Here we clarify all these questions that arise once you have an investment to depreciate!
With or without VAT?
A self-employed natural person recovers VAT if possible via the quarterly VAT return. The VAT that you cannot reclaim is added to the net value excluding VAT of the investment: the amount that you depreciate, which you deduct a little each year. The rate of depreciation for non-recovered VAT will be the same as for the investment (linear or degressive).
Companies will have to choose between writing off non-deductible VAT and other accessory costs of investment (registration fees on the purchase of a building, etc.) in one go or at the rate at which the investment is depreciated – necessarily on a linear basis.
What is the minimum amount for depreciation?
You are depreciating an asset that is intended to last several years, in which you are investing on a long-term basis, and for a relatively high amount.
The minimum amount from which to depreciate an asset is mainly relevant for the VAT return.
Remember this: from €1,000 (excl. VAT), you have to depreciate the property. In a purchase of 950 euros excluding VAT, the purchase can still be encoded as an investment and its VAT in “services and miscellaneous goods”. This exempts you from having to carry out a VAT review if the good is resold, sold, stolen, or broken within five years of purchase.
Once you depreciate a good, you deduct its purchase amount over the different years of its use and not in one single year of purchase.
What are the depreciation rates in Belgium?
Once you have determined the amount to be depreciated, you still have to determine the rate at which you will depreciate your property. Will you deduct 3% of the purchase value each year for 33 years? Or 10% each year for 10 years?
Investments must be depreciated according to the likely period of use of the property. Does your purchase have a useful life of ten years? You will depreciate it at a rate of 10% per year. Unfortunately, once again, there is no official table indicating over what period a given investment should be amortized.
There are, of course, certain generally accepted periods: an investment in a building can be amortized over about 30 years, one generation, at a rate of about 3% per year. The depreciation period for computer equipment would be more like 3 years.
💡 When you enter an expense in the “investment” category with Accountable, you will see a suggested depreciation period and the depreciation rate that goes with that period.
Linear or degressive amortization?
Do you amortize at the same rate each year, i.e., on a linear basis? Or do you depreciate at a higher rate at the beginning, which then decreases over the useful life of the asset, i.e. degressive amortization?
If you are a company, you don’t even have to ask yourself this question since the corporate tax reform:
Only linear depreciation is now authorized.
Another important change for companies: since 1 January 2020, you are no longer able to depreciate your investment for a full year, regardless of the time of year in which you purchased it. You are required to calculate depreciation pro rata temporis: if you buy an asset to be depreciated on 1 December, only one month out of twelve will count towards depreciation in that year.
The opinion of our partner accountant: “You may therefore have fewer costs to deduct in the year of acquisition. This can be compensated for by deducting the accessory costs at once. At the end of the day, you always depreciate the same amount, simply over a longer period of time”
⚠️ Accessory costs relating to a car (e.g. non-recoverable VAT) must always be depreciated at the same rate as the car itself.
If you are a natural person, all options remain open, as stated by one of our partner accountants:
“The rules do not change for the self-employed person in a personal capacity. He can even after 01.01.2020 still apply the “old” depreciation rules”. In other terms, both linear and degressive amortization are possible.
💡 What is the impact of this degressive amortization? The declining balance method makes it possible to shorten the depreciation period. However, since 1 January 2020, it is only available to self-employed individuals.
You amortize for a whole year, regardless of the time of year when you make the investment.
In concrete terms, you buy a machine costing 10,000 euros, to be depreciated over ten years on 15 March 2020 or 15 December 2020. In both cases, you will be able to deduct €1,000 or €2,000 as an expense. You will deduct €1,000 if you opt for linear depreciation, and €2,000 if you opt for declining degressive depreciation.
Sounds complicated? Our application encodes and suggests an amortization period and an amortization rate for your investments. It takes care of all your tax obligations. And if depreciation gives you a hard time, our partner accountants are at your disposal!
