VAT on vehicles and their operating costs
In general, the VAT included in the purchase price of goods or services can be deducted if the goods or services were purchased for a purpose relating to VAT liable business, and if the seller was a VAT-liable party. However, in the case of the purchase price or operating costs of a motor vehicle, there are limitations to the VAT deduction right.
When is the VAT on vehicles not deductible?
Because of the limitation, VAT may not be deducted from the purchase price of a passenger car, a motorcycle, a caravan or a vessel designed to be used primarily for pleasure or sport, or goods or services associated with their use. Goods or services that do not qualify for VAT deduction include fuels, maintenance, spare parts and accessories.
The limitation is not absolute. It does not concern a
- vehicle or vessel purchased to be sold, rented out or used in professional passenger transport services or in driving instruction
- passenger car purchased solely for VAT-deductible use.
If the vehicle or vessel is in shared use or is used for activities that do not entitle the taxpayer to VAT deduction, VAT on this part of the use is not deductible. Examples of non-deductible uses include commuting, using the vehicle or vessel for other private purposes and for business entertainment. In the case of a passenger car used in business, even a small amount of private mileage means that the whole of VAT is non-deductible.
When can VAT be deducted?
Van is a vehicle designed for transporting goods. Its maximum weight is 3.5 tonnes in total. The limitation to the deduction right does not concern the purchase of a van, a truck or a bus/coach, or goods and services associated with their use. VAT can be deducted, if the van is used in business that qualifies for deduction. If the van is also used for other purposes, you can deduct the portion of the VAT that relates to the van’s VAT-deductible use in business.
Passenger car is a vehicle designed for transporting people. The car has room for at most eight passengers in addition to the driver. Dual-purpose vehicles and camper vans are also regarded as passenger cars. VAT can be deducted on the passenger car’s purchase price and operating costs only if the vehicle was purchased solely for use in business that qualifies for deduction. Even a small amount of private use makes the VAT non-deductible.
There is an exception, however: VAT can be deducted in part on a passenger car if it was bought by a company
- to be sold
- to be rented out
- to be used in professional passenger transport (e.g. taxi)
- to be used in driving instruction.
The portion of VAT that relates to such use is deductible. The portion related to private driving or to other than VAT-deductible business use mentioned above cannot be deducted.
Motorcycle, caravan, or a vessel designed primarily for recreational or sport use: VAT can be deducted only if the vehicle or vessel was bought to be sold, rented out, or used in professional passenger transport or driving instruction. The portion of VAT that relates to such use is deductible. The portion related to private driving or to other than VAT-deductible business use mentioned above cannot be deducted. VAT on the above vehicles and vessels cannot be deducted if they are used solely in business but the business activity is not any of those mentioned above.
Example: Passenger car in work and private use
A passenger car bought by a property maintenance company is used by the company’s employees as they move around, doing maintenance jobs.
When the working day is over, the employee drives the car home. Occasionally the employee also uses the company-owned car for private purposes, and they use the car to drive to and from work on a daily basis. Because the car is used privately and for commuting, the VAT portion related to the property maintenance business cannot be deducted, either. Therefore, the portion of the VAT on the purchase price or operating costs that relates to the maintenance business cannot be deducted. If the company has already deducted VAT on the purchase price or operating costs of the vehicle, the deducted VAT must be paid to the Tax Administration.
Example: Passenger car in work use and as a company car
Passenger cars bought by a real estate agency are used by the company’s real estate agents in their daily work. Real estate agents have taxable company cars as a fringe benefit, so they can also use the cars privately. This means that the company’s passenger cars are in non-deductible use in addition to business use. Because of this, the purchase price, operating costs or lease payments of the vehicles cannot be deducted in value added taxation, not even in part.
Example: Van in work and private use
A cleaning company has bought a vehicle registered as a van. The van is in business use, but the employees may also use it privately. The portion of the van’s purchase price and operating costs that corresponds to the vehicle’s business use can be deducted. The portion related to private use is not deductible.
Example: Taxi also used for private purposes
A taxi company owns a passenger car. The company’s employees also use the car privately. Because the car was bought to be used in professional passenger transport, the company can deduct the portion of the VAT included in the purchase price and operating costs that corresponds to the mileage driven as a taxi. The portion that relates to the vehicle’s other use is not deductible.
In order to deduct VAT, you must keep a driver’s log
A company may be granted a VAT deduction only if they have kept a driver’s log.
The following information must be entered into the driver’s log for each day:
- the start and end date and time of each trip
- the starting point and destination of each trip
- the route, if relevant
- odometer reading at the start and end
- kilometres driven
- purpose of the trip
- who the car was used by.
The driver’s log can be used to divide the kilometres driven between private and business use. If a passenger car was bought for VAT-deductible use, the driver’s log is needed to prove that no kilometres are driven for private purposes. Otherwise, no deduction can be made and if any VAT has already been deducted, it must be repaid to the Tax Administration.
The driver’s logs must be stored with the company’s other accounting data. The accounting data must be stored for at least 6 years.
Car expenses in income taxation
For purposes of income taxation, the expenses related to the company’s conduct of business, including any car expenses, can be deducted from business income even if the car is partly used for private purposes.