Buying a car for the business

Purchasing a car for a business is the choice of most entrepreneurs. In many cases, a company car is also a necessity. It is used for transporting goods or travelling to clients or contractors. Thus, buying a car for a business seems like the obvious choice, although not the only one – some decide to use operational leasing or financial leasing. What exactly does buying a car for a business entail? Can such a vehicle be included in the fixed assets register? Who is ultimately the owner of the vehicle?

Company car - types of financing

Purchasing a car for a business is a popular way of acquiring assets used in commercial activities. Furthermore, this solution is defined by tax regulations, as buying a car for a business (with cash or a car loan) involves a range of tax reliefs and obligations. What options, besides purchasing, can entrepreneurs avail themselves of?

• Operating lease

A company car can be included in deductible costs, however, it is considered an asset of the lessor. VAT is added to each instalment, which is why the lessee is not obliged to pay the full VAT amount at the outset. An operational lease agreement also allows the down payment to be deducted from taxable income.

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• Financial lease

In the case of a car used under a finance lease, it is included in the lessee's assets. This means that the entrepreneur must make depreciation write-offs. Only the interest portion of the lease payments can be included in taxable revenue. Additionally, the VAT must be paid in full in advance along with the first instalment. After the lease agreement expires, the entrepreneur becomes the owner of the car.

• Personal use of a car

Using a private car is also common practice, particularly if the business does not require constant travel. Since 2019, it has not been compulsory to keep a mileage log – previously, business owners had to keep a detailed record of the mileage of their private car. This is both a significant simplification and a complication, as at present only 20% of expenses related to the use of a private car can be deducted as business expenses.

Planning Purchasing a vehicle for a transport company, it is worth establishing the rules for lease settlement and mileage recording beforehand.

Can you buy a car for a sole proprietorship?

Purchasing a car for a sole proprietorship is possible. It's worth knowing that with a sole proprietorship, you can take advantage of the same financing options as with larger businesses. This includes leasing, a car loan for a business, or paying cash for the vehicle. Unfortunately, it's not possible to register the car directly to a sole proprietorship.

How is a car recorded in the fixed assets register in this case? If the value of the car stated on the invoice exceeds PLN 10,000 net – for active VAT taxpayers – or PLN 10,000 gross – for taxpayers eligible for tax relief. The purchase cost of a car for the business can be included in business operating costs. However, this does not apply, for example, to the value of a car exceeding PLN 225,000 in the case of an electric passenger car or PLN 150,000 in the case of other passenger cars – in such cases, no depreciation write-offs for the passenger car can be made.

What's the most advantageous way to buy a car for a business?

Many people wonder how to buy a car for their business in a way that is beneficial. A lot depends on whether the company has the necessary cash amount or plans to take out a car loan. Furthermore, the method of taxation and whether the entrepreneur is a VAT payer are also important. The intended use of the car is also significant.

For this purchase to be beneficial, including in terms of subsequent full VAT deduction and depreciation, an individual approach to the matter is necessary. If you do not know how to register a car for your business and which solution will be the most cost-effective for you, please contact us. Our specialists at Open Profit will take a close look at the available options and guide you through all the stages of purchasing a company car.

 

 

Company car: revenue-generating costs

In many cases, purchasing a car for a business allows you to deduct associated expenses as part of your taxable income. This can include costs such as fuel, repairs, and even instalment interest if the car was bought on finance. So, how do you deduct a car for business? It's important to remember that this is only possible under certain conditions:

• all expenses included must be properly documented,
• the entrepreneur must demonstrate that these costs were incurred for the purpose of achieving or protecting the source of revenue.

Furthermore, there are two limits associated with costs incurred for running a company car:

• 75%: tax refunds relating to the use of a passenger car for mixed purposes, i.e. both private and business use,
• 100% reimbursement where a company car is used solely for business purposes (a vehicle usage policy must be drawn up).

It is also worth knowing that the purchase of a passenger car for a company and tax deductibility is a matter regulated by tax law, which treats passenger cars and lorries differently, and sets out specific rules regarding eligible refunds and their amounts, depending on the car's intended use, its value and method of financing.

Purchasing a car for a business: VAT

Purchasing a passenger car for a business and VAT is a topic that interests most VAT payers. These issues are quite complex, and incorrect VAT deductions can expose an entrepreneur to fines from the Tax Office. So, what does the purchase of a vehicle for a business look like in terms of full or partial VAT deduction?

There are also two limits here:

• 50% VAT for the mixed use of a car,
• VAT code 100% for the use of a car for business purposes only.

To claim the 100% VAT deduction, you must complete the following formalities:

• the need to draw up a set of rules for the use of the vehicle,
• registration of a vehicle using the VAT-26 form at the Tax Office,
• keeping a vehicle mileage log for VAT purposes.

Purchasing a car for a company from a private individual: VAT

So, when running a business, can you choose to buy a car from a private individual for the company? Yes, but a car purchased from a private individual for the company will not be tax-deductible. The purchase of a used car from a private individual is not documented by a VAT invoice, as is the case when buying a car from another business – a VAT-registered trader. Without an invoice, therefore, you cannot claim back the VAT. What is more, buying such a car from a private individual for business use also involves a sale and purchase agreement, which means that tax on civil law transactions must be paid.

Purchasing a car for a company from a private individual is possible, but not always cost-effective. The situation is the same when buying from a car dealership. This is because these places issue a VAT margin invoice, which is not eligible for VAT reconciliation.

Purchasing a car for your business: a sales contract

Purchasing a car under a sales contract for a business is fundamental, allowing the car to be entered into the company's assets. Regardless of whether it's a transaction with another business or purchasing a car for your business from a private individual, a sales contract is necessary for accounting purposes. Such a document should include the following information:

• subject of sale and purchase,
• item value,
• details of both parties to the transaction,
• the detailed terms and conditions governing the transfer of ownership.

If the opposite situation arises – that is, the company sells a car that is part of its assets – it is also necessary to draw up a sale and purchase agreement. At the same time, it is worth addressing the issue of purchasing a car for a business and income tax. The sale of a company car is considered revenue, so it is necessary to pay income tax in accordance with the rules under which the company is taxed.

Purchasing a car from abroad for a business

Buying a car for a business from abroad is quite a common practice. A significant number of business owners choose to import a car due to more favourable prices or limited availability of a particular model in Poland. However, in such cases, it is also important to ensure that all tax and registration formalities relating to the purchase of a car from another country are completed. These include excise duty, which is a tax on the value of the imported car.

The settlement of such a purchase is possible, however, it depends on a number of factors, which can include:

• The country from which the car was brought,
• whether the car is new or used,
• whether the buyer is a taxable person for VAT purposes.

Just as with purchasing a car for a business in the country, a sworn translation of the sales agreement and a VAT invoice are required.

Electric car for business – is it worth it?

Electric cars are increasingly popular on the Polish market, which is why many entrepreneurs decide to purchase an electric car for their company. However, it is worth knowing that despite a higher depreciation limit of up to PLN 75,000, the depreciation of an electric car itself does not differ from deductions for a combustion engine car.

Thanks to this significant difference in depreciation, substantial tax savings are possible. What's more, despite the high initial price, electric cars are quite inexpensive to maintain, which is why in many cases, purchasing an electric car for business is considered an investment.

FAQ – Frequently asked questions about buying a car for your business

1. What are the types of car financing for businesses?

There are several ways to finance the purchase of a company car. The most common are:

• Operating lease,
• Financial leasing,
• Cash purchase,
• Purpose loan or credit.

All these possibilities also apply to entrepreneurs running a sole proprietorship.

2. What's the most advantageous way to buy a car for a business?

Purchasing a car for a business involves not only tax reliefs but also responsibilities. The most advantageous form of financing a car purchase depends on numerous factors, including its intended use, the company's capabilities, and whether the entrepreneur is an active VAT taxpayer.

3. Is it worth buying an electric car for a business?

Electric cars have a higher depreciation limit – up to 75 thousand. This means that in many cases, it is more beneficial to opt for the purchase of an electric car for a company, despite the higher market price. It is also worth remembering that maintaining an electric car is cheaper than an internal combustion engine car.