Depreciation: linear, declining and residual value explained
Written by Ilias Aarrass7 min read · Published on · Last reviewed on 
In short
For tax you depreciate assets by at most 20 per cent of the purchase cost a year, goodwill by at most 10 per cent, each time after deducting the estimated residual value.
- Straight-line is the norm; declining-balance is only allowed when the real drop in value follows that pattern.
- Buy mid-year and you depreciate pro rata for that year.
- On sale, the difference between proceeds and book value is a profit or loss in that year.
- Purchases below € 450 need not be capitalised; you book them as a cost at once.
If you buy an expensive business asset, you may not deduct it as costs all at once. Instead you spread the costs over the years you use it. That's called depreciation. It sounds technical, but the principle is logical. This article explains the methods.
What is depreciation?
Depreciation means spreading the cost of a business asset over the years you use it. A laptop of 1,500 euros you use for five years isn't deducted all at once, but spread over those five years; the same goes for a photographer's or videographer's camera. This way your costs better match the actual use and the loss of value.
What is linear depreciation?
With linear depreciation you deduct the same amount each year. You take the purchase value, subtract the residual value, and divide that by the number of years of use. This is the most used and simplest method, and is widely accepted by the tax authorities.
What is declining depreciation and residual value?
With declining depreciation you depreciate more in the first years and less in later years, because many business assets lose value faster at the start. The residual value is the value the asset still has at the end of the period of use; you don't deduct that, because you keep it.
What should you watch out for?
Business assets under 450 euros don't need to be depreciated; you can usually deduct them directly as costs. For most entrepreneurs linear depreciation is the handiest and clearest. If in doubt about the useful life or residual value, get advice so you depreciate correctly.
A worked example and the tax limits
In practice virtually every freelancer depreciates on a straight line: the same amount each year. The tax rules set two limits: you depreciate at most 20 per cent of the purchase price per year, and you account for a residual value.
Worked example: a € 1,800 laptop, € 300 residual value
- Amount to depreciate
- € 1,500
- Useful life
- 5 years
- Depreciation per year
- € 300
Result: Buy mid-year and you depreciate pro rata that year: € 150 for a 1 July purchase
When you may depreciate faster
Declining-balance depreciation, with higher amounts in early years, is only allowed when the value genuinely falls that way and is rare among freelancers. What does exist: arbitrary depreciation for starters entitled to the starter's deduction. It lets you choose when to depreciate, for example everything in a profitable year. See arbitrary depreciation for starters.
Sale, trade-in or early failure: how book value works
Depreciation lowers your asset's book value every year: purchase price minus all depreciation to date. That book value matters the moment you sell or trade in the asset. Receive more than book value and the difference is a book profit added to your taxable profit; receive less and you deduct the loss. If you would rather not settle the book profit right away because you are buying a replacement, look at the reinvestment reserve.
If an asset breaks down before its time and repair makes no sense, you write off the remaining book value in one go as a loss that year. You need not keep depreciating something that no longer exists; do record what happened.
Depreciation is separate from your investment allowance
Depreciation and the investment allowance are often confused, but they are two separate benefits used side by side. Depreciation spreads your cost over the years; the small-scale investment allowance grants an extra deduction on top of it in the year of purchase. And if a purchase stays under the 450 euro threshold, none of this applies and it is a directly deductible cost.
Frequently asked questions
What is the difference between straight-line and declining-balance depreciation?
Straight-line is the same amount each year; declining-balance starts high and tapers. For tax, straight-line is the norm; declining-balance is only allowed when the real value drop follows that pattern.
What is the annual maximum?
For tax, at most 20 per cent of the purchase cost per year, so a useful life of at least five years. For goodwill the maximum is 10 per cent.
What is residual value and must I estimate it?
What the asset is still worth after its useful life, for example at trade-in. Yes, you estimate it reasonably up front; you do not depreciate the residual value.
From what amount must I depreciate?
From 450 euros excluding VAT per asset. Cheaper purchases are booked as costs at once. See capitalise or deduct immediately.
What if I sell an asset early?
The difference between the sale price and book value is profit or loss that year. Selling at a book gain with plans to reinvest? The reinvestment reserve can defer the tax.
May I skip depreciation in a bad year?
No, depreciation is not an annual choice; sound business practice requires a consistent line. Only starters with arbitrary depreciation may shift the timing.
Sources
- Depreciating business assets: rates and thresholdOverheid.nl · ondernemersplein.overheid.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
