A car is one of the tools that allows you to run a business more efficiently, regardless of your industry. Using one reduces the time needed to travel to a customer or deliver goods. In today's article, we'll explore the tax aspects of using a car.
Where to get a car?
The method of acquiring a vehicle may have a significant impact on tax obligations.
1. Purchase
The car will be a fixed asset in the company and, as such, subject to depreciation. However, depreciation write-offs, which will be considered a tax-deductible expense, are limited. This limit depends on the type of car and is PLN 225,000 for electric and hydrogen-powered vehicles and PLN 150,000 for other cars. Depreciation write-offs above these amounts will not be considered an expense.
Upon purchasing a car, its owner will be entitled to a deduction of the input VAT. However, the full deduction of VAT depends on the vehicle's use. This option is only permitted if the car is used for business purposes. The terms of use, confirmed by the vehicle's mileage records, must exclude the use of the car for other purposes. Furthermore, to deduct 100% of the VAT, the car must be reported to the head of the tax office by the 25th day of the month following the month of purchase. The report is submitted on the VAT-26 form. If the report is not submitted by the deadline, the car will be deemed to be used exclusively for business purposes starting the following month.
If an entrepreneur uses a car for both business and other purposes, they are entitled to a 50% VAT deduction. However, they are not required to keep a mileage log or complete any other formalities.
2. Leasing
When leasing a car, you become its possessor, but not its owner (operating lease). Therefore, the car does not become a fixed asset and is not subject to depreciation. However, the lessee is obligated to pay fees to the lessor. These fees include the initial fee, the lease payment, and the vehicle purchase fee. The value and type of the car determine the proportion of these fees that can be classified as tax-deductible costs. Lease fees will constitute the entire tax-deductible cost for electric and hydrogen-powered cars, provided their value does not exceed PLN 225,000. For other cars, this value cannot exceed PLN 150,000. However, if the car's value exceeds these amounts, the tax-deductible cost is determined as the ratio of PLN 150,000/PLN 225,000 to the value of the passenger car covered by the agreement.
Example:
The value of the leased combustion car is PLN 200,000.
150,000/200,000 = ¾.
The cost of obtaining income will be ¾ of the leasing fees.
In VAT, the possibility of deducting 100% of the input tax depends on whether the vehicle will be used exclusively for business purposes or for mixed purposes, similarly to when purchasing a car.
The rules regarding leasing also apply to long-term rentals.
3. Introduction of a private car into the business
Vehicles owned by the entrepreneur but not part of the business (e.g., acquired before the commencement of business activity) can be included in the list of fixed assets and thus become part of the business. As a result, the vehicle is subject to depreciation. Cost limits of PLN 225,000 for electric and hydrogen-powered vehicles and PLN 150,000 for other vehicles apply. However, the value of the vehicle is determined according to the purchase document. In the absence of a purchase document, it should be determined at market prices. However, since the vehicle is incorporated into business activity, it is not possible to deduct the VAT paid on its purchase.
4. Using a private car
If you use a private car (not part of a business) for business purposes, you cannot depreciate the car or deduct the VAT paid.
Using the car
Using a car involves incurring operating costs (fuel, inspections, tire replacement, etc.).
If a vehicle is used exclusively for business purposes, operating costs can be deducted in full as tax-deductible expenses. The exception is the cost of voluntary insurance (NNW, AC), which is deductible in full if the vehicle's value does not exceed PLN 150,000 (PLN 225,000 for electric and hydrogen-powered vehicles). If the vehicle's value exceeds this amount, then the tax-deductible expenses are determined in proportion to the vehicle's insured value (similar to leasing costs).
However, if the car is used in a mixed manner, then the cost of obtaining income will be 75% of the operating costs incurred.
The use of a private car will entitle you to establish tax-deductible costs in the amount of 20% of the operating costs incurred, provided that the car was used for business purposes.
The deduction of VAT from invoices for operating costs depends on how the car is used: 100% in the case of exclusively business use and 50% in the case of mixed use.
Selling a car
If a car is sold as a fixed asset, it should be recognized as business income and taxed at the rate applicable to the business's tax returns. If the vehicle is removed from the business's assets, business income will also be recognized, provided the sale occurs within six years from the first day of the month following the month in which the car was withdrawn from business. The tax-deductible expense will be the undepreciated value of the vehicle (up to a limit of PLN 225,000/PLN 150,000).
The sale of a car from private assets (not being a fixed asset, or after 6 years from the date of withdrawal from business activity) will not give rise to taxable income, provided that the sale takes place after six months from the date of purchase of the vehicle.
If the sale is for a car that is a fixed asset, 23% VAT must be added to the sale price, regardless of whether the car was used exclusively for business purposes or not. Even if the car was only used for business purposes after purchase, VAT must be paid upon sale if it was used for taxable activities.
This obligation will not arise if the subject of the sale is a vehicle withdrawn from business activity, but only if the taxpayer was not entitled to deduct VAT upon purchase (e.g. purchase from a natural person who is not a VAT payer).
However, if a car used for mixed purposes was sold within 60 months of the month of purchase, or within 12 months of purchase in the case of cars valued under PLN 15,000, the taxpayer is entitled to make a VAT correction. The VAT is reduced by the amount of VAT not deducted at the time of purchase, proportionally to the number of months remaining until the end of the correction period.
Example:
The sale is for a car purchased for PLN 100,000 net. VAT was PLN 23,000. The taxpayer deducted 50% – PLN 11,500. The car is being sold 36 months after its purchase.
Amount of input tax correction for the month of sale:
11,500 / 60 months x 24 months = PLN 4,600
The input tax will be increased by PLN 4,600
As you can see, the amount of tax liability related to the use of a car for business purposes depends on many factors. If you have any doubts about the accuracy of your tax settlements, please contact our law firm.
Next week we will start providing company cars to company employees and associates.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of September 24, 2023
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