New Tax Incentive for Large Capital Investment: Immediate Depreciation or Tax Credit?
To encourage productivity-raising capital investment, a new incentive is expected under the FY2026 tax reform. How do "immediate depreciation" and a "tax credit" differ, and which is better for your company? We set out the axes for the decision.
- The basic difference between immediate depreciation and a tax credit
- Which suits which case
- The impact on cash flow and total tax
- What to confirm before using it
01Immediate depreciation vs tax credit — what differs?
Incentives for capital investment come in two broad types, differing in when and how the cost of the acquired equipment is treated for tax.
| Item | Immediate depreciation | Tax credit |
|---|---|---|
| Mechanism | Expense the full cost in the first year | Deduct a set percentage of the cost directly from the tax |
| Where the effect lands | Compresses taxable income | Compresses corporate tax |
| Total tax saving | Basically a deferral (postponement) of tax | A pure reduction by the credited amount |
| Cash flow | Thickens first-year cash on hand | Directly cuts the tax due via the credit |
02Which suits you? A case-by-case view
The choice should reflect your profit situation and funding plan.
- Large profit this term and you want thicker cash on hand → immediate depreciation
- Steady profit and you want to hold down long-term total tax → tax credit
- Loss-making or thin profit → the credit may not be fully usable; check whether it can be carried forward
03What to confirm before using it
These incentives come with detailed requirements on eligible equipment, amounts and business plans. Before acting, confirm the following.
- The type of eligible equipment and the acquisition-cost requirements
- Whether prior procedures such as plan certification are needed
- The applicable period (deadlines for acquisition and putting into service)
- Whether it can be combined with subsidies
The larger the investment, the larger the tax effect of the choice. Consult a tax accountant early, at the stage of considering the investment.
Summary
Investment incentives come in two types: immediate depreciation (deferral) and a tax credit (a pure reduction).
If cash on hand is the priority, immediate depreciation; if holding down long-term total tax, the tax credit — the basic thinking.
The best answer changes with requirements, deadlines and your funding plan. Estimate it with a specialist before deciding.
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Sources & References
This article is based on information available at the time of publication. Rules and systems may change. Please consult a professional before making any individual decisions.
