Investment Deduction (IAB) in Germany 2026: How to Save Tax on Planned Purchases

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.

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.

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 IAB must be under €200,000
• The asset must be movable, depreciable, and remain in the business
• Used at least 90% for business purposes in the year of purchase
• Purchase must happen within 3 years of the deduction year

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. Examples: a €3,000 laptop → IAB up to €1,500. A €40,000 company van → IAB up to €20,000.

Worked Example

You're a freelancer with €80,000 annual profit. You plan to buy a camera kit for €10,000 next year.

• IAB: 50% × €10,000 = €5,000
• Taxable profit this year: €75,000 instead of €80,000
• Tax saved this year (~35% rate): ~€1,750

When you buy the camera kit next year, you reduce the purchase price by the €5,000 IAB and depreciate the remaining €5,000. The net effect is a genuine cash-flow advantage: you pay taxes later, not never.

What If You Don't Invest?

If you don't purchase the asset within 3 years, the IAB is reversed retroactively. The tax office reopens the deduction year, reverses the deduction, and charges interest on the resulting underpayment (§233a AO). Only use the IAB with a genuine, documented investment intention.

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. Company cars that are also used privately generally don't qualify unless the private benefit is properly taxed. See our guide to GmbH and UG taxes for the broader picture.

What to Document

• Written record of investment intention: asset description, estimated cost, planned timeline
• Purchase invoice and evidence of 90%+ business use in the year of purchase
• Correct reverse adjustment (Hinzurechnung) and adjusted depreciation in your bookkeeping

Norman's AI bookkeeping tracks your deductions and depreciation positions automatically — so you never miss a planning opportunity like 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, software infrastructure — the IAB lets you reduce your tax bill now and smooth out cash flow. Plan it early, document your intention, and track the obligation in your bookkeeping.