Bike Depreciation for a Sole Proprietor
The cost of buying a bike for your sole proprietorship (one man business) is considered as a business cost. This business cost lowers the income that you have to pay income tax over, because business expenses can be deducted from your profits. By purchasing a bicycle for business purposes, you receive a tax discount on your income tax.
For a bicycle of less than €450 (ex. VAT), all costs of the purchase are deductible from your profit in one go. This is not allowed for a bicycle that costs more than €450 (ex. VAT). Assuming that your bicycle will last for several years, then you have to make partly depreciations of the purchasing price of your bicycle over several years, instead of all at once.
In general, it becomes less attractive to buy a bike for your business if you cannot deduct the costs all at once, and have to depreciate the costs over several years. Because if you are allowed to deduct the purchase of your bicycle as costs in one go, then you would immediately receive a tax benefit. And that is of course easier to plan. Moreover, it is easier to enter one whole cost in your administration than a bunch of smaller costs.
Bicycle as an Investment
The reason that you cannot depreciate the cost of a bicycle of more than €450 (ex. VAT) all at once, but have to spread them over several years, is that your bicycle is seen as an investment instead of a regular cost. For a cost, the Dutch Belastingdienst (tax administration) assumes that you have bought something once, and that the money you have spent is then “gone”. However, with an investment, the tax authorities assume that your money is not gone, but that your money has been "converted" to another form of company assets. That is not so surprising, because if you put a half-year-old bicycle for sale, you will still get a nice price for bike (Note: it does not matter to the Belastingdienst that this probably also applies to a bicycle of less than € 450. This is an arbitrary limit to be adhered to).
Therefore, an expensive bike falls under your company assets as an investment. The depreciation of your company bike is then entered as business cost that reduces your profit, and thereby also lowers your taxable income.
For a bicycle of more than €450 (ex. VAT) you may depreciate a maximum of 20% per year on the purchase cost of your company bike. In the first year you may deduct 20% of the purchase price of your company bike (ex. VAT) from your income tax. In the following four years you can depreciate your bike again for 20%, after five years you have depreciated your company bike for 100% and the residual value is €0.
Even if your company bike is still in excellent condition, and you could still get a nice penny for it, fiscally speaking your bike will be fully depreciated from that moment on.
Suppose you buy a bicycle for €1.000 (ex. VAT) and you depreciate this bike for 20% per year of the purchase price. Each year you can deduct 20% of €1.000 (ex. VAT) from your company profits, so €200. By decreasing your profits with a depreciation of your company bike, you will lower your taxable income.
Below is an explanation with a calculation of what your advantage of a depreciation can be for tax brackets 1 and 2.
The tax rate in the Netherlands in 2022 for tax bracket 1 is 37,07%. With an income of up to €69.333 you normally pay 37,07% in taxes on the last €200 you earn. With a depreciation of €200 per year, you get a benefit of €200 x 37,07% = €74,14 per year.
However, if you earn more than €69.333 in a year, then you also pay taxes in bracket 2. The tax rate in the Netherlands in 2022 for tax bracket 2 is 49,50%. With an income of €70.000, and with a depreciation of €200, you get a benefit of €200 x 49,50% = €99 per year.
In short, the higher your income, the higher your tax deduction. If you have a very variable income every year, then it could be attractive to make use of the investment deduction in a year where you have a high income, and to depreciate your bike faster. However, if your turnover is low, because you just started your business, then it would be wise to wait with such an investment. Because if you have a turnover of less than €20.000 per year, the tax benefit of your income tax is actually nil.