Low-value assets (GWG) are movable assets of fixed assets whose acquisition or production costs are so low that they can be deducted immediately as a business expense for tax purposes or, alternatively, included in a pooled asset account. The rules for GWG are intended to reduce administrative effort for small purchases and are anchored in German tax law, in particular the Income Tax Act (EStG).
Basics and legal basis
The main regulations on GWG are found in the EStG (§ 6 et seq.). Two options are decisive:
- Immediate write-off: Assets with acquisition costs up to 800 EUR net (since 2018) can be fully deducted as a business expense in the year of acquisition.
- Pooled asset account: Alternatively, you can choose to include assets with acquisition costs between 250.01 EUR and 1,000 EUR net in a pooled asset account and depreciate this over five years (20% per year) on a straight-line basis.
Important: The amounts refer to the net amount (excluding VAT) if you are entitled to input VAT deduction. If you are a small business owner under § 19 UStG, the gross price applies to you, since no input VAT deduction is available.
Application in accounting
For freelancers and small businesses, the GWG rules reduce bookkeeping effort and tax complexity. Practically, you should observe the following points:
- Proof: Keep invoices and, if applicable, internal evidence of use (e.g. assignment to projects or users).
- Make a decision: For purchases in the range of 250.01–1,000 EUR net: immediately write off or choose the pooled asset account? The immediate write-off reduces profit right away; the pooled account smooths the burden over five years.
- Posting: With immediate write-off you post the expense directly as an operating expense and, if applicable, record the input VAT. For the pooled asset account, create a pooled asset ledger account in the fixed-asset accounting and post 20% depreciation each year.
- Private use: For mixed-use items, estimate the business portion and claim only that portion for tax purposes.
Concrete accounting examples
- Smartphone for 600 EUR net (+19% VAT = 714 EUR gross), input VAT deductible: If you choose immediate write-off you post 600 EUR as other operating expense and 114 EUR as input VAT.
- Laptop for 950 EUR net: No GWG immediate write-off (since >800 EUR). Option: pooled asset account possible (if you make that election) and annual depreciation 190 EUR (= 950 EUR / 5 years) or regular depreciation over the useful life if not included in the pooled account.
Practical examples and typical use cases
Freelancers and small firms frequently buy computer accessories, tools, office furniture or trade fair equipment with low individual costs. Typical cases:
- A graphic designer buys a graphics tablet for 450 EUR net: immediate write-off reduces taxable income in the year of acquisition.
- A craft business acquires 20 drills at 120 EUR net each: these individual amounts are small; immediate write-off is usually sensible; with many purchases a pooled asset account can be used to spread the depreciation.
- A GmbH decides at year-end whether to include several procured small items in a pooled asset account to smooth the tax burden.
Tips and audit notes for freelancers and small businesses
Observe the following practical notes to facilitate audits by the tax office and to make optimal use of tax advantages:
- Documentation: Maintain a simple GWG register (asset list) with acquisition date, invoice, acquisition cost and posting decision (immediate write-off or pooled asset account).
- Use the election consciously: The election for the pooled asset account applies for the entire fiscal year; once made you cannot change it afterwards for already completed years.
- Coordinate with your tax advisor: For high purchases near the threshold or many similar purchases the tax effect can differ — seek advice before year-end.
- Private shared use: Estimate and document the professional usage share; only this portion is to be considered as GWG for tax purposes.
Conclusion: GWG rules offer a simple way to account for smaller purchases quickly for tax purposes. For correct application the net amounts, the choice between immediate write-off and pooled asset account, and careful documentation are decisive. If in doubt, consult your tax advisor, particularly regarding input VAT treatment and long-term profit planning.