Let's check if it is reasonable to have a car under a company name and what are related taxes.
If a company is buying a car under a company name and using it for 🚗 business purposes 🚗 only, it is allowed to record all the costs related to the car, such as:
car purchase itself,
repair,
fuel,
etc.
If your company is liable for VAT, it is also allowed to deduct VAT in this case for all related expenses and for the car itself.
A note regarding full business usage in Transpordiamet should be made in this case.
Please note that you will need to have some kind of evidence that proves that the car is fully used for the company's purposes only. Such proof can be GPS reports, travel reports, etc.
The second option is if the car is also used for 🚗 personal purposes 🚗 as well.
In this case, the VAT return is limited to 50%. Also, fringe benefit taxes need to be paid, which amount is dependent on:
car's age
car's power:
for cars younger than 5 years old - 🛑 1,96 euros per kW 🛑 and
for the cars older than 5 years old - 🛑 1.47 euros per kW 🛑.
Let's make some calculations, about whether it is reasonable to buy a car (which will be used for personal purposes) under a company name:
Example 1. Cheaper and older car.
Let's take Skoda Octavia, year - 2015 (older than 5 years), 110kW, market price - 10 000 euros.
Monthly fringe benefit taxes will be 161.7 or 1 940.4 euros per annum.
If you had to buy 10k of worth a car with your own funds, you would have needed need to take out dividends or pay yourself a salary. Dividend tax would have amounted to
2 500 euros (20%). Salary taxes vary, and can be 30-70% depending on the income, let's take some average into account (60%) = 6 000 EUR.
If the car is planned to be used for a longer period of time, then buying it with personal money can be an option in this case. In case of shorter usage, it will be more reasonable to use the company's funds.
Example 2. A bit more expensive and newer car.
Audi Q5, year - 2020 (less than 5 years old), 140kW, market price - 30 000 EUR.
Taxes: 205.8 per month, 2 469.60 per year
Dividend tax: 7 500 EUR
Salary taxes: 18 000 EUR
Example 3. Luxury car
Mercedes, S class, year - 2020 (less than 5 years), 240 kW, market price - 100k
Fringe benefit taxes: 4.2k per year
Dividend taxes: 25k
Salary taxes: 60k
As you see, the more expensive the car is, the more reasonable it is to buy with the company's money.
But let's also consider the option of buying with borrowed funds.
Let’s say leasing for a Skoda Octavia is 3,000 per year, a special benefit is 1,940.4 euros per year. To pay 3,000 in salary, you will have to pay approximately 1,800 per year, and dividends - 750 euros per year.
In this example, buying a leased car with personal money will be cheaper.
And if we take the example of a luxury car, then leasing for a Mercedes, S class is approximately 22,000 euros per year. Taxes on special benefits: 4.2 thousand per year. To pay a salary in the amount of 22,000, you will need to pay approximately 13 thousand taxes, and on dividends - 5.5 thousand taxes.
With leasing, a similar situation arises - the higher the leasing amount, the more profitable it is to buy it from the company.
But which option is the most profitable in your particular case - it’s worth making calculations, thinking about the time of car usage, and comparing the options.
If you need help with calculations, please get in touch.
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