Investment Deduction (IAB) in Germany 2026: How to Save Tax on Planned Purchases
The Investitionsabzugsbetrag (IAB) under §7g EStG lets you deduct up to 50% of a planned business purchase before you buy it. Here is how freelancers and GmbH directors use it, plus special depreciation, a worked example and the deadlines.
- Category
- Taxes
- Updated
- Author
- Diana
The Investitionsabzugsbetrag (IAB) under §7g of the German Income Tax Act (EStG) is one of Germany's most powerful, and most underused, tax planning tools. It lets you deduct up to 50% of a planned business asset purchase from your taxable income in the year before you actually buy it.
In short: The IAB lets you deduct up to 50% of a planned business purchase from your profit in the year before you buy. Conditions: profit before the IAB no higher than €200,000, the asset is movable and used at least 90% for business, and you buy it within 3 years. In the purchase year you add the IAB back and cut the acquisition cost. On top of that you can claim 40% special depreciation. If you don't invest, the IAB is reversed retroactively, with 1.8% interest per year.
What is the IAB (Investment Deduction)?
The IAB is a form of pre-investment tax deduction. You tell the tax office you plan to buy a specific asset within the next three years, and deduct up to half the cost from this year's profit. When you actually make the purchase, you reduce the depreciation base by the amount you already deducted. The result: lower taxes now, with an obligation to invest later.
Important: the IAB does not save tax permanently, it shifts it. In the purchase year you pull the deduction back into profit via an add-back and cut the depreciation base instead. The real benefit is a cash-flow and interest advantage: you keep the money one to three years longer and can put it to work rather than paying the tax office early.
Who Is Eligible?
All active German businesses can use the IAB, including freelancers (Freiberufler), sole traders (Gewerbetreibende), partnerships, GmbH, and UG. The key requirements:
- Profit before the IAB must be under €200,000 (one uniform ceiling for every business type)
- The asset must be movable, depreciable, and part of your fixed assets (used items also qualify)
- Used at least 90% for business purposes in the year of purchase and the following year
- Purchase must happen within 3 years of the deduction year
Non-movable assets such as buildings, and intangibles such as software or licences, do not qualify. For low-value items and software, other rules apply, for example the immediate write-off for low-value assets (GWG).
How Much Can You Deduct?
Up to 50% of the planned purchase price, with a total cap of €200,000 per business across all pending IABs. A few typical figures:
| Planned investment | Net cost | IAB up to 50% |
|---|---|---|
| Laptop + monitor | €3,000 | €1,500 |
| Camera kit | €10,000 | €5,000 |
| Company van (business-only) | €40,000 | €20,000 |
| Production machine | €80,000 | €40,000 |
You no longer have to name the specific asset (the old function description requirement was dropped in 2016). You simply state the IAB amount in your tax return. Only in the purchase year does the actual asset need to be fixed.
Combining the IAB, Special Depreciation and AfA
The IAB shows its full effect when combined with the special depreciation under §7g Abs. 5 EStG. For assets acquired from 2024, this was raised from 20% to 40%. You can claim it on top of the regular straight-line AfA and spread it flexibly across the purchase year and the following four years.
The effects stack like this for a single asset:
- Year before purchase: the IAB of up to 50% of the planned cost lowers your profit.
- In the purchase year: you add the IAB back (profit rises) and cut the acquisition cost by the same amount (profit falls), netting to zero.
- From the purchase year: 40% special depreciation on the reduced base, plus straight-line AfA over the asset's useful life.
Corporations in particular like to combine the IAB with the regular depreciation and AfA of a GmbH to push profit down in the first two years.
Worked Example
You're a freelancer with €80,000 annual profit. You plan to buy a camera kit for €10,000 next year (useful life 7 years per the official AfA table).
| Year | Step | Effect on profit |
|---|---|---|
| Year 0 (planning) | IAB: 50% × €10,000 | −€5,000 |
| Year 1 (purchase) | Add the IAB back | +€5,000 |
| Year 1 | Cut the acquisition cost | −€5,000 |
| Year 1 | Special depreciation 40% (base €5,000) | −€2,000 |
| Year 1 | Straight-line AfA (€5,000 ÷ 7 years) | −€714 |
In year 0, your profit drops from €80,000 to €75,000. At a marginal rate of about 35% (including Soli and trade tax), that saves roughly €1,750 in tax straight away. In year 1, the add-back and the cost cut cancel out, and on top you write off a further €2,714 through special depreciation and straight-line AfA. The net effect is a genuine cash-flow advantage: you pay taxes later, not never.
IAB for GmbH and UG
The same rules apply to corporations. The IAB reduces Körperschaftsteuer (15%) and Gewerbesteuer. The €200,000 profit ceiling applies to the company's taxable profit before the IAB. Because a GmbH keeps double-entry accounts, the IAB is deducted outside the balance sheet and added back outside the balance sheet in the purchase year.
Company cars that are also used privately generally don't qualify unless you prove at least 90% business use with a logbook. See our guide to the company car in a GmbH for the details, and the broader picture in GmbH and UG taxes.
What If You Don't Invest?
If you don't purchase the asset within 3 years, the IAB is reversed retroactively. The tax office amends the deduction year and charges interest on the resulting underpayment under §233a AO, currently 0.15% per month, or 1.8% per year. Interest starts running 15 months after the end of the year in which the IAB was formed.
For example: if a €5,000 IAB unwinds and triggers a tax underpayment of around €1,750 that is charged interest for one year, that adds roughly €32 in interest. The IAB does not become a trap, but you should only form it with a genuine investment intention and document that in writing.
What to Document
- Written record of investment intention: asset description, estimated cost, planned timeline
- Purchase invoice and evidence of at least 90% business use in the year of purchase and the following year
- Correct add-back and reduction of the acquisition cost in the purchase year
- A running record of open IABs so you stay under the €200,000 limit
A well-kept fixed-asset register helps you keep track of the IABs you've formed, the add-backs, and the ongoing AfA. Norman's AI bookkeeping tracks your deductions and depreciation positions automatically, so you never miss a planning opportunity like this.
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Frequently Asked Questions
Can I form the IAB retroactively?
Yes. You can still form an IAB in an open tax return or during an appeal, as long as the conditions were met in the deduction year and the assessment can still be amended. That lets you react to an unexpectedly high tax bill.
Do I have to name the specific asset?
No, not since 2016. In the deduction year you only state the IAB amount. Which asset you actually buy only needs to be fixed in the purchase year.
Does the IAB apply to used assets?
Yes. Used movable fixed assets also qualify, as long as they are movable, depreciable, and used at least 90% for business.
Can I combine the IAB and special depreciation?
Yes. Both are independent of each other. In the purchase year, on top of cutting the acquisition cost, you can claim the 40% special depreciation and the regular straight-line AfA.
Does the IAB apply to a company car?
Only if the car is used at least 90% for business and you prove it with a logbook. The flat 1% method is not enough for this.
Conclusion
The IAB is one of the most tax-efficient tools available to German business owners. If you're planning a significant purchase in the next one to three years, equipment, a company vehicle, or software infrastructure, the IAB lets you reduce your tax bill now and smooth out cash flow. Combined with the 40% special depreciation, it is one of the strongest legal tax levers available. Plan it early, document your intention, and track the obligation in your bookkeeping.
Plan the IAB, never miss the add-back, automatically
Norman records your planned investment, books the Investitionsabzugsbetrag in your EÜR and reminds you in time about the add-back in the purchase year, so the IAB never unwinds retroactively with interest. Special depreciation and straight-line AfA then post to the right account automatically. Bookkeeping and invoicing are free with Norman; you only pay for the tax filing.