Leasing a passenger car - everything you want to know

Leasing a passenger car is often a necessity for the company. However, this form of acquiring a vehicle is usually associated mainly with costs. How does the leasing of a passenger car look like from the tax point of view, what can be deducted and what should be included in the tax deductible costs? You can find out by reading the following article.

Operating leasing of a passenger car

An operating car that is used under so-called operating leasing is not a fixed asset. This has consequences in the form of a lack of depreciation. It is the company from which the car was leased that has the right to record it as a fixed asset and it can make tax deductions. This does not mean, however, that the entrepreneur cannot include anything as a cost. The car needs repairs, refilling and cleaning. All these costs may be recognized as tax deductible costs. At the same time, in the case of a leased car, it is not necessary to count the number of kilometres driven.

Tax deductible costs in the case of a passenger car lease are also the installments paid for the vehicle and the so-called entry fee. At the same time, VAT should be added to these costs. After the end of the instalment payment period, the entrepreneur has the right to buy the car.

Financial leasing of a passenger car

In the case of financial leasing of a passenger car, the rules of deduction of income costs are slightly different. Instalments may not be deducted in full, only interest on instalments already paid may be regarded as a cost. VAT on the financial leasing of a passenger car must be paid in advance for all the instalments and the so-called initial rent, i.e. a kind of initial payment. Although it seems less advantageous than in the case of operating leasing, it is worth remembering that under the financial leasing of a passenger car an entrepreneur may also deduct the depreciation cost of a vehicle from the tax deductible costs. It is possible to carry out individual and linear depreciation.

Individual depreciation can be applied in several cases. The first of these are used cars. Vehicles which have been in use for at least six months shall be regarded as such. Another situation in which individual depreciation can be applied is the so-called upgraded vehicles. In order for a car to be considered as an upgraded car, a trader has to bear the cost of at least 20 per cent of its value before it is entered in the register. The highest depreciation rate for leasing cars is forty percent. By choosing this option, the depreciation period can be reduced to two and a half years.

In the case of linear depreciation, the depreciation rate of the vehicle is fixed. According to the appendix to the PIT Act, it amounts to twenty percent. For this variant, the depreciation time of the vehicle cannot be reduced and always lasts five years.

Car leasing and VAT

In the case of leasing a passenger car, two methods of VAT deduction are possible. However, the choice is not entirely voluntary, as it depends on how the car is used. If the vehicle is used exclusively for business purposes, it is possible to fully deduct VAT on charges such as instalments, fuel or a car wash. However, in such a case it is necessary to report the vehicle to the Tax Office (VAT-26 form); to keep the so-called "kilometre", i.e. the driver's logbook, as well as to draw up the car usage regulations.

If the vehicle is also used for other purposes, fifty per cent VAT may be deducted from the instalments and other costs necessary for the proper functioning of the vehicle.