Your business is growing and you are spending money more often on things that help you move forward. Think of new equipment, software, or an upgrade to your workspace. That quickly raises the question: is this just an expense, or is it an investment? The difference is important, because it determines how you record the expense in your accounting and how it affects your taxes.

In this article, we explain calmly and practically when an expense is an investment, what that actually means, and what you as an entrepreneur should pay attention to.

What is the difference between an expense and an investment?
Every investment is an expense, but not every expense is an investment. The difference mainly lies in how long you use it for business purposes and what its role is within your company.

In Dutch accounting, something is considered an investment if:

• it is a business asset,

• it is used in your business for longer than one year, and

• it costs more than €450 excluding VAT.

A business asset is something you use to do your work. It can be physical or digital. As long as it plays a fixed role in your business and does not disappear after a single job, it can be an investment.

If you are unsure whether something is an expense or an investment, the useful life of more than one year is often the most practical guideline.

When is something not an investment?
Not everything that benefits your business can be booked as an investment. Some expenses help your business but are considered regular costs from an accounting perspective.

For example:

• knowledge or skills you acquire yourself,

• services that are temporary,

• items that are directly consumed in an assignment or delivery.

These expenses usually cannot be resold and do not remain structurally present in your business. That is why you normally record them directly as costs in the year in which they are incurred.

Here too, it comes down to the difference between an expense and an investment, and how lasting the value is for your business.

What happens if an expense is an investment?
Once it is clear that something is an investment, you may not deduct the costs from your profit all at once. Instead, you depreciate the investment.

This means you spread the costs over multiple years. In most cases, a minimum depreciation period of five years applies, which means 20 percent of the amount each year. You may also choose a longer period, as long as you do not depreciate faster than allowed.

For starting entrepreneurs, more flexible rules may sometimes apply, but that depends on your situation. This is exactly the kind of moment when it is helpful to have someone take a look with you.

Important to know:
the VAT on an investment can usually be reclaimed immediately in one go, even though you spread the costs over time for income tax purposes.

Does investing provide additional tax benefits?
Yes, in some cases it does. If you make multiple investments in one year and exceed a certain amount, you may be able to use the small-scale investment deduction (KIA).

The KIA is an additional deduction on top of the normal depreciation. In 2026, the same lower threshold still applies as in the previous year. If you exceed that threshold, you may deduct a percentage of the total investment amount extra from your profit.

This can make the difference between a regular expense and an investment particularly interesting, especially toward the end of the year.

A common dilemma: expense immediately or spread it out?
Sometimes it feels more attractive to record an expense directly as a cost, because your profit is immediately lower. In other situations, spreading it out is smarter, for example if you expect your profit to increase in the coming years.

There is no standard answer that works for everyone. What is certain is that the choice between an expense and an investment affects your taxes, your profit figures, and your administration. That is why it is important to record this correctly from the start.

Summary
An expense is an investment if it concerns a business asset that lasts longer than one year and costs more than €450 excluding VAT. Investments are processed through depreciation, while regular costs are deducted directly from your profit. In some cases, investing also provides additional tax benefits through the KIA. If you are unsure whether something is an expense or an investment, that is a sign to take a closer look.

At Balancify, we look at this every day. That way, you can be sure your administration is correct and you do not miss out on any benefits.