In what circumstances is the selling of a vehicle subject to VAT?
In general, if a company with a Finnish VAT registration has a vehicle used for business and the company sells it, the selling is a transaction subject to VAT. The vehicle’s purpose of use determines whether the sale is subject to VAT or exempt from VAT. Whether VAT was included when the company bought the vehicle is not important in this regard.
- When selling the vehicle, you must add VAT to the selling price if the vehicle’s purpose of use was connected to your company’s business that entitles it to VAT deductions. Then you must add VAT to the selling price even if the vehicle’s purchase price had not included any deductible VAT. The VAT related to the sale must be reported on the company’s VAT return.
- However, you do not need to report or pay VAT if the vehicle was in private use or operated for some other purpose that does not entitle the company to VAT deductions.
Example: Construction company’s van is driven for business purposes only. When the company bought the van, its price did not include VAT.
The company bought the van used, and the seller was a private individual, so the purchase price did not include VAT and the construction company did not claim a VAT deduction for it. The van is not operated for any private driving; it is only driven for the construction business that entitles the company to VAT deductions. The company can claim VAT deductions in respect of the van’s operating costs. However, when the company sells the van, the company will have to declare and pay VAT on the sale, because the company has operated the van for purposes that have entitled the company to VAT deductions.
Example: Company’s van was driven both for VAT-liable business and for private purposes
A cleaning company has had a van, for which the vehicle registration category is “van”, as well. The company has operated the van both in its cleaning business and in addition, the company’s employees have driven it for private purposes. The company has deducted the appropriate parts of the value added taxes included in the purchase price and operating costs, reflecting the extent of driving the van for business that entitles the company to VAT deductions. The company has claimed no VAT deductions related to the costs connected to the van’s private use.
The company sells the van. VAT must be added to the part of the selling price that relates to the van’s business use, i.e. to the use for which the company has been entitled to VAT deductions. No VAT needs to be added to the remaining part of the selling price, which relates to private use.
Example: Car’s purpose of use is company car
A construction company bought a car for use as the managing director’s company car. The company is not allowed to deduct the VAT included in the car’s purchase price or operating costs. If the company sells the car, the company should add no VAT to the selling price.
Example: Taxicab doubles as a private vehicle
The owner of a taxi company has a passenger car that he drives for the taxi business and for his private purposes, too. Private driving equals 30% of the kilometres driven, and professional passenger transport — 70%. Some time later, the owner trades in the car for a new one from a motor dealer company. The transaction consists of first selling the used vehicle to the dealer, and then purchasing a new vehicle. The extent that the traded-in vehicle served the professional passenger transport purpose (70%) determines the part of its selling price that value added tax should be added to. Correspondingly, the extent of the owner’s private driving (30%) determines the VAT-exempt part of the selling price.
Regarding the new car’s purchase price, the owner can claim a VAT deduction to the extent the new car is used for business purposes, i.e. for professional passenger transport.