What is Investitionsabzugsbetrag (IAB)?

The Investitionsabzugsbetrag is one of Germany's most effective tax planning tools for SMEs. It is a pre-purchase deduction — you claim the deduction in the year before buying an asset, shifting taxable income earlier and deferring tax payment.\n\n**Who can use it**\nAll businesses subject to German income or corporate tax can use the IAB, provided they meet the size test. For GmbHs, the Betriebsvermögen (net business assets in the tax balance sheet) must not exceed €235,000 at the end of the year in which the IAB is claimed. For sole traders, the relevant measure is net profit not exceeding €200,000 in the year of claim. These thresholds make the IAB a tool for SMEs rather than large businesses.\n\n**The deduction mechanics**\nIn the year of claim (say 2025), you deduct up to 50% of the planned acquisition cost. The maximum aggregate IAB across all claims in any one year is €200,000 — so a maximum planned investment of €400,000 can be covered. The deduction reduces taxable profit in 2025, saving KSt + SolZ + GewSt on that amount.\n\nWhen the asset is purchased (within 3 years — by end of 2028 for a 2025 IAB), the previously deducted amount is added back to taxable income in the year of purchase, and simultaneously the asset's cost basis is reduced by the same amount. This means reduced depreciation in future years, making it a permanent benefit relative to straightforward depreciation.\n\n**Sonderabschreibung nach §7g**\nIn the first year after purchasing the asset, businesses can additionally claim a Sonderabschreibung of up to 40% of the remaining cost. Combined with normal AfA depreciation, this creates a very high first-year depreciation charge.\n\n**Consequences of not buying**\nIf the asset is not purchased within the 3-year window, the IAB deduction is reversed in the original year of claim with interest (§233a AO). The effective interest rate (6% per year historical, now 1.8% following a Constitutional Court ruling) is applied from the 15th month after the year of claim.\n\n**Planning implications**\nIf a GmbH pays KSt + GewSt at a combined 30% rate on €200,000 of deferred income, the one-year deferral saves approximately €60,000 of tax — money that can be invested in the business in the interim. For profitable SMEs approaching asset replacement cycles, the IAB should be reviewed annually with a Steuerberater.