Higher tax depreciations announced
A bill proposing higher tax depreciations is awaiting approval by the Danish Parliament. Taxpayers can look forward to a depreciation basis of 116% of the acquisition price for new assets; an increased limit for immediate depreciation of small acquisitions; and an extension of increased deductions for R&D expenses for the income year 2022.
Bill L 178 is part of Denmark's green tax reform plans and the efforts to reduce emissions by 70%. The bill includes:
- 116% depreciation basis for new fixed assets.
- Immediate depreciation of fixed assets costing no more than DKK 30,000.
- 130% deduction of R&D expenses until 31 December 2022.
116% depreciation basis
The bill introduces a 116% depreciation basis for brand-new assets acquired between 23 November 2020 and 31 December 2022. It is a condition that the equipment is used exclusively for business purposes.
The increased depreciation basis is depreciated by up to 25% per year corresponding to the applicable depreciation rate for ordinary assets.
Since the purpose of the bill is to help promote the green transition, it is proposed that the right to increased depreciation does not include machinery that runs or may run on fossil fuels. The increased depreciations also exclude passenger cars and ships.
Increase in immediate depreciation limit
Further, the bill introduces an increase in the limit for immediate (full) depreciation of new fixed assets from DKK 14,100 to DKK 30,000 (2020 rate). The increase is proposed to apply to assets acquired on or after 23 November 2020. The increase is permanent.
130% deduction of R&D expenses
Finally, the bill introduces an extension of the existing 130% deduction for R&D expenses until 31 December 2022, i.e., a 25%-point increase of the standard 105% deduction, with a limit of DKK 910 million on group level.
Expenses for R&D activities must have the necessary connection to the taxpayer's business to qualify for the increased deduction for R&D expenses. The costs associated with R&D must have a commercial purpose – i.e., not an abstract scientific purpose. The R&D activities must be linked either to the business the taxpayer is already operating or to one that is planned for later.
Effective date
The new rules on immediate depreciations will apply to income years expiring on or after 23 November 2020. The new rules on the 116% depreciations basis will apply to income years expiring from 23 November 2020 until 31 December 2022. The 130% deduction of R&D expenses is valid for income years 2021 and 2022.
The bill is currently being debated in Parliament and is scheduled for a final hearing on 13 April 2021.
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