VAT deductions for vehicle expenses
May 8, 2023
When purchasing vehicles or using them under a rental or leasing contract, taxpayers often ask themselves whether they have the right to deduct VAT. If so, to what extent? Let’s take a closer look at the law that relates to this matter and see what are the exceptions to the rules.
When can you deduct VAT on car expenses?
The general rule resulting from art. 86 of the VAT Act is that the taxpayer has the right to deduct input tax if the purchased goods and services are used to perform taxable activities. Therefore, if we use the car to provide services or sell goods subject to VAT (regardless of the VAT rate), we are generally entitled to deduct VAT shown on invoices, whether it is the purchase of a car, payment of a leasing installment or purchase of fuel. If, on the other hand, we provide only services exempt from VAT (e.g. medical services or financial intermediation), then we do not have the right to deduct VAT on broadly understood expenses related to the purchase or use of a car.
A general rule in the area of deducting VAT on car expenses
The principle indicated above finds a certain limitation in Art. 86a of the VAT Act. Pursuant to this provision, taxpayers are entitled to deduct only 50% of the VAT amount indicated on invoices related to the purchase or use of cars. This provision can be defined as a general rule in the area of deducting VAT on car expenses.
As is usually the case in tax regulations, the VAT Act provides for exceptions to this rule – giving the right to full (100%) VAT deduction. To exercise this right, the taxpayer must meet one of two conditions:
- demonstrate that the cars are used only and exclusively for running a business or
- the car is structurally designed to transport at least 10 people (including the driver) – which must result from documents issued on the basis of road traffic regulations.
The second condition seems to be clear – it concerns the construction of the car. Therefore, we will focus on the first condition and determine what is meant by the term “using the car only for business activities”.
When is a car considered to be used exclusively for business purposes?
According to the VAT Act, motor vehicles are considered to be used only for business activity if:
- the way of their use by the taxpayer, in particular specified in the rules of their use established by him or her, additionally confirmed by the vehicle mileage record kept by the taxpayer for these vehicles, excludes their use for purposes not related to business activity or
- the construction of these vehicles precludes their non-business use or makes their non-business use negligible.
How the car is used by the taxpayer
When it comes to the first (1) of the indicated conditions, it is considered to be met if:
- a vehicle mileage record is kept – the so-called mileage log (records of routes traveled, odometer reading)
- the regulations for using the vehicle in the company are in force, i.e. the rules for using cars in the company are defined, e.g. who is entitled to use company cars or to what extent the car is used in the company.
In addition, such a vehicle should be reported to the tax office via the VAT-26 form by the 25th day of the month following the month in which the first expense related to the car was incurred, but not later than on the date of sending the JPK_V7 records.
It is worth noting that taxpayers who resell vehicles, lease them or make them available under a rental agreement, have the right to fully deduct VAT – without the need to keep a vehicle mileage record or submit a notification to the tax office.
The construction of the vehicle vs. VAT
When it comes to the second condition (2), the right to full VAT deduction is available to taxpayers who have purchased or used certain groups of vehicles, and these are
- A. cars, other than passenger cars, with one row of seats, which is separated from the part intended for the carriage of goods by a wall or a permanent partition: classified as multi-purpose, van or with an open part intended for the carriage of goods;
- B. cars, other than passenger cars, which have a driver’s cabin with one row of seats and a body intended for the transport of cargo as structurally separate elements of the vehicle;
- C. special vehicles that also meet the conditions contained in separate regulations, specified for the following purposes: electric/welding generator, for drilling works, excavator, backhoe bulldozer, loader, lift for maintenance and assembly works, truck crane– if the documents issued in accordance with the road traffic regulations show that the vehicle is a special vehicle.
Important! The fulfillment of the technical requirements by the cars indicated in points a and b above must be confirmed by a technical examination and an appropriate certificate issued by a diagnostic station, and by making an appropriate note in the registration document.
Tags car for business purposes, vat, VAT deductions for vehicle expenses
