In this article we will analyze the problem of an element widely used in the business sector and that raises many doubts about its tax treatment, such as the company car. We will analyze the impact it has on VAT and personal income tax.
A) A very frequent issue is the deductibility of VAT when a company buys a “company car”.
We must take into account the degree of affectation of the car to the professional activity if we want to deduct the total or part of the VAT paid on the purchase of the company car, since depending on its affectation we will apply a certain deduction percentage.
The article that regulates this deduction is 95 of the VAT law.
Art95.Tres.2ª: "In the case of passenger motor vehicles and their trailers, mopeds and motorcycles, they will be presumed affected to the development of business or professional activity in the proportion of 50%."
The case of 50% would be that of a high-ranking employee (manager) who spends most of his working day in offices.
It should be borne in mind that if the company can demonstrate through a series of tests that the car is only used for business or professional activity, a 100% deduction will be totally legal. The demonstration of the affectation of the car to achieve this deduction of 100% is quite difficult, but it occurs with all normality when the car is used by representatives or commercial agents.
The following are also presumed affected by the development of business or professional activity in the proportion of 100%:
a) Mixed vehicles used in the transport of goods.
b) Those used in the provision of passenger transport services through consideration.
c) Those used in the presentation of training services for drivers or pilots for consideration.
d) Those used by their manufacturers in conducting tests, trials, demonstrations or in sales promotion.
e) Those used in the professional travel of representatives or commercial agents
f) Those used in surveillance services.
B) Another question on the issue of "company car" is whether it affects the employee's personal income tax return.
We find three assumptions to value this income in kind:
1- The delivery of the vehicle used, that is, the transfer of ownership.
2- The transfer of use of the worker's vehicle.
3- Use and subsequent delivery.
In this article we will cover the second case of Assignment of Use.
In the case of the high-ranking worker (manager), the company car will be charged to him in his personal income tax as compensation in kind, since he can use that car for totally personal use not related to business activity. A clear example is the use of that car for the weekend.
In this case, the value of the ceded vehicle will be 20% of the market price that would correspond to the vehicle if it were new, plus the expenses inherent to the acquisition of the same (Art. 47 of IRPF)
To calculate the compensation in kind, the corresponding proportion of use for private purposes must be applied to the valuation of the vehicle.
The calculation of private use cannot be limited to the effective disposition that the employee has on the vehicle outside the hours that constitute his working day. The faculty of disposition or possibility of effective use of the same must also be taken into account, a faculty that may also exist on working days outside of working hours, provided that this partial disposition is totally free and not conditioned by company circumstances.
The example of the manager would be:
Vehicle acquisition cost:
€ 50,000 (all expenses included)
Remuneration in kind:
20% of 50,000: € 10,000
Utilization ratio:
50% is applied, since it is used for professional use and for private use (mixed use in equal parts, because in addition to the weekend, it is used every day to go to and from work)
50% of 10,000: € 5,000
RESULT: An amount of € 5,000 per year will be charged as compensation in kind for the use of the vehicle, an amount that will be subject to withholding along with the rest of your income.
In practice, if it can be shown that the vehicle is only used on weekends, the compensation in kind to be attributed to the worker can be reduced from half to two-sevenths.
