For the levy income tax in the Netherlands, depreciation of tangible and intangible business assets is allowed within certain parameters.

The law does not prescribe a particular depreciation method, but instead refers to principles of 'sound business practice'.

The general principle of 'sound business practice' is that annual depreciation should properly reflect the decrease in value of assets, considering the acquisition price, the economic life of the asset involved and the residual value of the asset. This means that virtually all generally applied depreciation methods (straight-line method, declining-balance method, etc.) are allowed, provided that they provide for a reasonable outcome (in accordance with sound business practice) and the method is consistently applied.

Land is generally not depreciable as that is considered to keep its value.

For certain particular business assets, Dutch income tax law provides for a maximum depreciation. As such, it is important to deviate between the depreciation terms for the following assets:

• Intangible assets
• Buildings
• Other business assets

Intangible assets

For intangible assets a distinction should be made between goodwill and other intangible assets.

Goodwill

According to Dutch tax law, acquired goodwill may be depreciated over 10 years with a maximum of 10% per year. Self-produced goodwill cannot be depreciated.

Other intangible assets

For tax purposes, other intangible assets follow the depreciation rules of other business assets. This implies that the maximum annual depreciation is generally set at 20% of the historic cost price. The depreciation may not exceed the aforementioned 20%.

In addition, the cost of self-produced intangible assets (with the exception of self-produced goodwill, which is not deductible at all) can be depreciated at once.

Buildings

In general the amount of depreciation on buildings is calculated as follows. The acquisition value of (the business part of) the building (= A) reduced by (a proportional share of) the value of the land which belongs to the building (= G). Furthermore, the residual value of the property (= R) and the useful life (say 50 years) are of relevance. This leads to a maximum depreciation per year of A - R - G x 2%.

The depreciation on buildings for tax purposes is however limited; for tax purposes depreciate on buildings is only possible if the book value exceeds the so-called minimum tax value. The minimum tax value is based on the Law on Valuation of Immovable Property (in Dutch: 'Wet waardering onroerende zaken'), which is defined as 'WOZ' value, i.e. the value that the municipality gives to the building every year.

This means that it is not possible to depreciate on buildings for tax purposes if the book value of the building drops below the so-called minimum tax value (i.e. 'WOZ' value).

In case a building is rented to third parties and as such is mainly used for investment purposes, the building cannot be depreciated below its 'WOZ' value. This may imply that no depreciation can take place. In case a building is used for your own business, the minimum tax value is determined at 50% of the 'WOZ' value. For example, if the book value of the building is € 400,000, the 'WOZ' value is € 350.000 and the building is used for your own business, it is possible to depreciate on the buildings up to a book value of € 175,000 (i.e. 50% of € 350.000).

In addition to the above, it is noted that no depreciation take place on land.

Furthermore, we note that other special rules may also apply with respect to the depreciation of buildings. If more clarity is required in your situation, please do not hesitate to contact us.

Other business assets

As indicated, the maximum annual depreciation is generally set at 20% of the historic cost price. The depreciation may not exceed the aforementioned 20%.

In addition, assets with a relatively low value (2020: less than € 450) can be depreciated at once in the year of acquisition.

Furthermore, it may be possible - under certain conditions - to apply for accelerated depreciation. As such, it is possible to apply accelerated depreciation for assets which are important for environmental protection (appointed by the government). Furthermore, special rules may apply for starting entrepreneurs, ships, etc.

If you want to check whether you apply the right depreciation term for your assets for tax purposes, or have questions regarding the above, please do not hesitate to contact us via e-mail or call us at our offices in Amsterdam at + 31 20 5709440 or in Rotterdam + 31 10 2010466