Businesses in developed countries can deduct only 70.1 percent of their investment costs over time on average, according to a 2025 report on capital allowances published by the Tax Foundation. The findings show that temporary investment incentives have expired or are scheduled to phase out in several major economies, raising the after-tax cost of making new investments in equipment, buildings, and technology. As these policies lapse, roughly one-third of investment costs won't be deductible in OECD countries, a figure that accounts for inflation's erosion of deduction value.
The report tracks 38 OECD nations and reveals sharp swings in how much of their capital spending companies can write off. Between 2022 and 2024, the share of investment costs businesses could deduct dropped from 71.2 percent to 68.8 percent as temporary full-expensing regimes ended in countries including Chile, which saw its corporate tax competitiveness rank fall nine places. In 2026, that figure is expected to climb back to 70.1 percent thanks to policy changes in Germany, Lithuania, New Zealand, Canada, and the United States. However, by 2030, as additional provisions sunset, the average will slide again to 69 percent. High inflation compounds the problem: when inflation rose from 2 percent to 3.6 percent in 2025, businesses lost up to four percentage points in recoverable investment costs, the report finds.
Several countries have moved to extend or make permanent their investment deduction policies. In the United States, lawmakers made bonus depreciation permanent in 2025 after it began phasing out in 2023, and the Tax Foundation estimates the change will raise GDP by 0.6 percent and boost capital stock by 1 percent in the long run. The U.S. also introduced temporary 100 percent expensing for qualifying industrial structures built between January 2025 and January 2029, covering roughly 10 to 15 percent of all buildings nationwide. Canada reinstated immediate equipment deductions and accelerated schedules for industrial buildings in 2025, extending them through 2029 with a gradual phaseout to 2033. The United Kingdom replaced a temporary 130 percent super-deduction with permanent full expensing in 2023, a shift the report says is projected to lift long-run GDP by 0.9 percent, investment by 1.5 percent, and wages by 0.8 percent. Lithuania introduced permanent full expensing for machinery, equipment, and software starting January 2026.
The report emphasizes that temporary tax incentives deliver far weaker results than permanent reforms because businesses simply accelerate planned investments rather than increasing overall investment levels. Canada and Germany are particularly important given their share of global private investment, and policies that discourage capital spending in those nations will drag down worldwide economic output, the authors warn. The report recommends that policymakers make immediate deductions permanent for machinery and equipment and adjust all other capital investments for inflation and the time value of money. For the United States, which temporarily ranks third in the OECD for capital cost recovery, the report urges extending full expensing to all remaining building investments and locking in those provisions. Without permanent reform, the after-tax cost of investment will keep rising, and businesses will face shrinking incentives to build the factories, machinery, and infrastructure that drive long-term growth.