What is new?
Final piece of a sweeping reform
The government waited until the very last moment, New Year’s Eve 2024, to finalize the investment deduction reform, the broad outlines of which had already been announced months earlier. The aim of the reform is to simplify the existing regime and provide tax relief for specific investments to increase energy efficiency and lower CO2 emissions.
Details were published in two Royal decrees dated December 20th, 2024, enacting the long-awaited ‘investment lists’ as well as a series of important procedural changes.
Spectators of this grand finale of an arduous reform are left with mixed feelings. Today a range of new investments qualify for deduction. This broadening of the scope comes, however, with more stringent application conditions and procedural changes that can lead to more uncertainty.
Investments eligible for new thematic investment deduction?
For investments made as from January 1, 2025, companies can apply for the new thematic investment deduction (40% for small companies, 30% for others), for investments included in one of the official ‘investment lists’ in the following four areas:
- Energy efficiency and renewable energy (energy investment list): The energy investment list partly revives the existing list of energy efficiency investments, but has fewer categories (9 instead of 12). Some investments are reintroduced, such as insulation of buildings, double glazed windows, replacement of HVAC installation or investments in equipment needed for renewable energy production. In addition, entirely new categories of investments have become eligible, i.e. investments for the electrification of industrial processes, heat pumps used for running industrial processes, as well as in temporary storage of electrical or thermal energy (storage systems, converters, equipment for optimization storage and release of energy, etc.). The conditions for application are more restrictive than before. For instance, the investments included in 6 of the 9 categories should be ‘mentioned in a preliminary energy study or audit’ to qualify for the deduction. The mandatory prior audit/study calculates the energy consumption of a process or installation, before and after its adaptation/replacement. For large companies, the study should also include the ‘internal rate of return’ (‘IRR’), i.e. the calculated profit expressed as a percentage of the investment itself. Investments with an IRR exceeding 13%, including the investment deduction, are excluded from deduction. This mandatory inclusion in a prior study strikes us as an unnecessary administrative burden (of proof) for companies. Companies making socially desirable investments, such as the electrification of their production processes, risk missing out if their investments are not the subject of a prior energy study. It is also unclear what exactly the study/audit should be ‘preceded’ by (investment decision, order, certificate request, tax filing, etc.)? As the ink of this reform dries, explanations are already needed.
- CO2-free transport (transport investment list): The transport investment list contains four groups of investments eligible for deduction, in particular: 1) rail transport, 2) road transport, 3) maritime and inland waterway transport and 4) charging infrastructure.This list replaces and, albeit slightly, expands the current investment deduction for CO2-free trucks, hydrogen refueling infrastructure and electric charging infrastructure. For example, employers that install changing rooms and equip them with sanitary facilities for staff coming to work by bicycle or speed pedelec, will now be able to benefit from the deduction. Only charging infrastructure meant for sea and inland vessels, CO2-free goods transport vehicles, buses and coaches can qualify for deduction. Other charging infrastructure, i.e. for company cars, is thus excluded from this measure.
- Environmentally friendly investment (environment-friendly investment list); Furthermore, a series of investments that have a favorable environmental impact are eligible as from January 1, 2025. These investments are listed in the environmental investment list, which consists of four groups: 1) resource management, 2) climate, 3) promoting adaptation and 4) promoting the environment. The list contains quite comprehensive and technical definitions for each particular group, some of which are further detailed in sub-annexes. They include: equipment needed for (re)collection of reusable products (packaging, technical return systems, inspection lines, filling equipment, etc.); industrial cleaning equipment making use of non-toxic detergents; replacement of paving with vegetation, a water feature, permeable or water-passable pavements, or a combination thereof; replacement of the use of dangerous chemicals; …
- Supporting digital investments (digital support investment list): No list of qualifying investments was issued for the fourth and final field. The Secretary of State for Digitalization had failed to provide his opinion on a list and the government then decided not to make a list itself. In an era where AI-driven technology is growing in importance, the failure to set up a list of qualifying investments is undoubtedly a missed opportunity.
Consequential procedural changes
Besides the publication of the lists of qualifying investments, some changes to applicable procedure have been introduced as well.
The certificates required for the investment deduction (both thematic and technology deduction) should in the future be annexed to the corporation tax filing. We have some questions regarding the practicality of this requirement. After all, the regional government agencies are already struggling with a backlog and acquiring a certificate can take a very long time. The renewed rules oblige these agencies to decide within a period of six months, but exceeding this period is not sanctioned in any way. Businesses must already think of creative solutions when faced with an approaching tax filing deadline. In the future, they’ll have to be even more vigilant and proactive. They could request an extension of the tax filing deadline, or choose to apply the investment deduction retrospectively (i.e. with a notice of objection or request for detaxation).
Furthermore, the government wanted to provide more certainty to companies wishing to make use of the thematic deduction for multi-year projects. For such long-term projects, companies can now apply for an ‘investment certificate’ from the same government agencies responsible for issuing certificates. If a company obtains this certificate, it will still have to obtain the annual certificate as well. These annual certificate requests will be examined on the basis of the ‘lists’ that applied for the taxable period in which the investment certificate was requested. Since the lists are valid for a limited period (3 years, extendable by 2 years), a company will therefore be able to continue to benefit from the thematic deduction beyond this period, provided that a prior investment certificate was obtained. No maximum duration for the investment certificate was foreseen.
Conclusion
When the broad outlines of the investment deduction reform were announced in spring 2024, the government seemed keen to take a big step in the right direction. The tax scheme urgently needed modernization. Companies that need to do their bit for the energy transition need certainty and support, and with the new ‘thematic deduction’, the government seemed to have an answer
One year later, these initial objectives have somewhat faded to the background, probably because of fears about the budgetary impact.
The procedure for establishing the ‘lists’ was so complex that companies had to wait until New Year’s Eve to hear which of their investments the next day would qualify or not for the deduction.
The required ‘certificates’ provided well-needed certainty to companies. That certainty is now considerably reduced by the fact that the administration can disregard a delivered certificate if, in its opinion, it was insufficiently justified.
The lists themselves include some new investments that were previously ineligible, such as the electrification of production processes and soil softening. However, this widening is coupled with some new and stricter requirements that will unnecessarily prevent access to the investment deduction.
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