Updated last 26.03.2021

When does the right to deduct tax credit upon the purchase and use of company vehicles arise?

Upon the purchase and subsequent use (maintenance, repair and consumables costs) of a company vehicle (which is not a car in the meaning of paragraph 1, item 18 of the Additional provisionto the Value Added Tax Act (VATA)) you may take advantage of the right to deduct tax credit as provided for art. 69, para 1, item 1 of VATA. The vehicle should meet the following requirements in order not to be classified as a car:

• To be intended for transport of cargo;
• To have permanently built in technical equipment for the purpose of the main activity carried out.

The purchase and operating expenses for a car are subject to tax credit only when:

• The car is only used for business (mainly for transport and security services, taxiing, rental, courier services or training of drivers of motor vehicles)
• The car was intended for resale.

How do you have to prove the use of the vehicle as part of the company’s activities?

In order to be recognised for tax purposes the accounting expense related to the operation of vehicles for business activities, documentary justification is required, proving that the mileage of the vehicle is entirely related to the independent economic activity of the company. The term “documentary justification” is provided for in art. 10 of Corporate Income Tax Act (CITA) and according to para 1 the accounting expense is recognised for tax purposes when justified with a document through primary accounting document in the meaning of the Accountancy Act, reflecting accurately the business transaction:

• The primary document proving the purchase of fuel, consumables or services related to the maintenance of the vehicle is the invoice;
• There is no requirement as to the type and name of the document proving the mileage (most often this is the Journey form);
• In order to prove the use of the vehicle for personal needs, the journey form should state the kilometres travelled and the route.

What is the procedure when the vehicle is used both for personal and for business purposes?

The expenses related to the use of the vehicle for personal needs are treated as expenses in kind and are subject to expense tax (better known as “Weekend tax“), as stated in art. 204, para 1, item  4 of CITA. In this case art. 215a, para 2 defines three ways to determine the expense in kind tax base:

• By multiplying the total amount of all expenses related to the vehicle by the ratio between the kilometres travelled for personal needs and the total travelled kilometres by the respective vehicle;
• By multiplying the total amount of all expenses related to the vehicle by the ratio between the hours of personal use of the vehicle and the total hours of use of the vehicle
• By multiplying the total amount of all expenses related to the vehicle by 50 percent.

Each company has discretion in the choice of each of the three methods to use for the calculation of the tax base to determine the expenses in kind tax.With regard to the right to a tax credit, you should keep in mind that if even when buying a car that is entitled to a tax credit, it is known that the same will be used also for personal purposes, the company should use incomplete tax credit, but proportional depending on the expected use of the car (Art. 71a and 71b of the VAT Act).

Important to know

With respect to the taxation of expenses in kind your company has the right to choose between the two options listed below: To treat the calculated base of the expenses in kind as income in kind of the natural persons who have used the vehicle for personal needs (and this income is subject to taxation as provided for in the Personal Income Tax Act) or; To tax the expenses in kind under the provisions of CITA (tax at a rate of 10% of the calculated tax base of expenses in kind).

 

Important to know
	The choice with respect to the taxation on the expenses in kind (Tax on expences) is declared in the annual tax return, which is filed for the previous year . When the return is drawn up there is a choice for the period the return relates to- for the new established companies only.

 

Which expenses on company vehicles are included in the tax base of the tax on the expenses?

When determining the tax base of the tax on the expenses in kind (according to art. 215а, para 1 of CITA) all accounting expenses related to the vehicle are included in the total expenses:

• Operating expenses;
• Insurance expenses;
• Local taxes;
• Vignette fees;
• Rents (if the vehicles is rented);
• Parking expenses;
• VAT reported as an expense;

Salary of the driver (if any), including the social security and health insurance contributions which are at the expense of the employer.

Important to know
	Since the vehicle is a depreciable asset for tax purposes, it should be taken into account that on the grounds of § 1, item  83 of the MP of CITA, the tax base for determining the tax on the expenses under art. 204, para 1, item 4  of the same act the depreciation of the asset for tax purposes (not for accounting purposes) should be taken into account.

 

For more information
	Additional information and answers to the most frequently asked questions related to the Weekend tax (actions that the tax liable person (TLP) should undertake upon the acquisition of a non-current asset used both for the business of the company and for personal needs) are available on the publication of the National Revenue Agency.