Discover the Latest Tax Breaks for Businesses in Europe – 2024 Update!

Capital allowances are often overlooked in discussions about corporate taxation, yet they play a crucial role in shaping a country’s tax base and influencing investment decisions with significant economic implications. Across European countries, the ability for businesses to deduct their capital investments varies widely, showcasing the importance of these policies.

1. Capital allowances impact the tax base by determining the total amount of income, assets, or economic activity subject to taxation. A narrow tax base is non-neutral and inefficient, while a broad tax base reduces costs and allows for higher revenue at lower rates.

2. Depreciation schedules define the lifespan of assets and dictate the deductions businesses can take over time, impacting taxable profits and the cost of capital investment. Failure to consider the time value of money leads to inflated profits, discouraging investment and reducing productivity.

3. The map reflects the weighted average capital allowances for machinery, industrial buildings, and intangibles across European countries. Business-friendly policies like full immediate expensing or neutral cost recovery, as seen in Estonia, Georgia, and Latvia, are crucial for supporting capital investment.

In 2023, the top three countries providing the best tax treatment for capital investment were Lithuania, Croatia, and the Czech Republic, while countries like Norway, Poland, and Hungary lagged behind. On average, businesses in Europe could write off nearly 72 percent of their investment costs, with the highest allowances for machinery and intangibles.

The US allowed businesses to recover 66.7 percent of their investment costs on average in 2023, with the impending phase-out of bonus depreciation posing challenges. As countries like Estonia, Georgia, and Latvia move towards distribution-based systems and others introduce temporary policies, the after-tax cost of investment may rise.

Looking ahead, policymakers should focus on providing immediate deductions for machinery and equipment, alongside adjustments for inflation and the time value of money, to support business investment and economic growth effectively. As tax policies evolve, staying informed on these changes is crucial for businesses to navigate the landscape effectively and plan strategically.