Special Investment Fund – what does depreciation look like?

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In addition to Estonian Corporate Income Tax (CIT), entrepreneurs have gained the option to choose a special investment fund (account) that allows for a faster accounting of business investments in tax-deductible costs than before. In essence, this mechanism allows for a one-time deduction of future investment expenses as tax-deductible costs for the company. The establishment and use of a special investment fund require meeting several formal criteria. This is an alternative instrument to Estonian CIT – it is worth analyzing which solution will be more economically advantageous.

What are the conditions for a deduction to the investment fund?

A taxpayer who chooses a special investment fund – after meeting the conditions specified in the CIT Act – can account for the costs of obtaining income for the deductions to the special investment account without the requirement to physically purchase a fixed asset. The taxpayer will be able to invest in machinery, means of transport excluding passenger cars, equipment, and other devices categorized in groups 3-8 of the Classification of Fixed Assets. The taxpayer generally has 3 years to spend the funds on investment purposes. Transferring funds to a special investment fund is done through a deduction from the reserve capital from the profit of the previous tax year. A prerequisite for taking advantage of this form of tax optimization is for the capital company to generate a profit.

Jakie są warunki odpisu na fundusz inwestycyjny?

What about depreciation after the deduction to the investment fund?

New inclusions in the costs of obtaining income have been added to the CIT Act. Article 16, points 48a and 48b of the law state that the following are not considered costs:

  1. Expenses for the acquisition or production of fixed assets or deductions for the depreciation of fixed assets made based on Article 16a–16m of the CIT Act – for the part of their value financed from the investment fund,
  2. Deductions to the fund – for the part spent on fees, commissions, and other costs related to the management of the investment account.

The purpose of these exclusions is to ensure that the mentioned categories of expenses do not repeatedly reduce the tax base. In the case of an investment fund, there could be a deduction in costs, followed by the depreciation of the purchased fixed asset. If the fixed asset was only partially financed by a deduction from the fund, this limitation applies only to the part corresponding to the deduction made from the fund.