The tax burdens of the company car
Previously, we reviewed the details of the company car tax rules. We wrote about the tax in a separate post, as the regulation is quite substantial and was amended in July, so it deserved due attention. In the following, we review the rest of the (tax) burdens of buying a company car.
Vehicle tax or company car tax or both?
Since January 1, 2021, the taxation tasks related to the vehicle tax have been performed by the Tax Authority instead of the municipal tax authorities. From the company car tax, we can deduct the vehicle tax determined for the same car for the months of the quarter in which both company car tax and vehicle tax obligations for the car existed. The condition for this is that our vehicle tax payment obligation was fulfilled within the deadline.
It is important that the deduction cannot be enforced if two different persons are obliged to pay the two taxes.
The annual tax must be paid by the operator listed in the vehicle register on the first day of the year, if there is no operator, then by the registered owner.
In the case of several registered owners or operators, the one in whose name the traffic license was issued. In the event of a change in ownership, the former owner is not considered a taxable person only from the first day of the following year.
Registration tax must be paid for vehicles put on the market in Hungary, including
- putting the vehicle into circulation for the first time,
- when importing the vehicle,
- when purchasing the vehicle within the Community,
- and when a vehicle fleet operator leases a car to a resident.
From our point of view, it is also important to point out
that registration tax must be paid even if the fleet operator rents its car to a resident.
The limits of purchase transaction, credit, and leasing
By understanding the essence of purchasing, credit, and leasing, we can save our company significant amounts of money, and we can also use many other options. We call for help from two aspects in order to be able to define the above:
- one is the ownership which is perhaps one of our biggest aids in demarcation, as well as
- we will also look at our options regarding refunds and deductions.
In this case; our company will pay the entire purchase price at the time of purchase. It is true that we will become owners immediately; but in today’s economic situation, investing such a large amount of capital in an object that basically loses value can contain many dangers.
In the case of a purchase, there is no interest expenses (which is the other part of the monthly lease fee/loan fee in addition to the capital), however, by definition, it is not possible to account for the monthly lease fee, however depreciation can be accounted for as an expense.
In case of purchase, our company will be the owner, but in the case of leasing, the leasing company (leaser) will be the owner of the vehicle, which will rent the car to our company in exchange for a monthly fee. We will also briefly look at the possibilities of how the object of the lease can become the property of the leaseholder in the case of leasing.
Even in the case of a loan; the company owns the car, but the company takes a loan to it. From the point of view of the company’s capital, this is a better option, since the down payment (first instalments) is not the full purchase price of the vehicle; but rather 20-30%. However, additional costs include the credit assessment fee, management costs etc., and there will be monthly instalments, which can be fixed or even variable interest if we have used such a scheme.
We can see that with these two options; the car becomes the property of our company immediately, which is one of the most significant differences compared to the following lease; but there are also several types of this.
As it was mentioned, in the case of leasing; the leasing company will be the owner, and the leaseholder (our company) will be the operator. In this case, there is also an own funds; and this is where the monthly lease fee comes into play, but there is a VAT refund option.
We have several options for leasing, now we highlight the three most important ones.
Closed, so we know the end, we can plan with it. After the end of the closed-end leasing, the car becomes the property of our company. Furthermore, here are the servicing fees, possible breakdowns, the obligation to pay company car tax etc. burdens. In the case of passenger vehicles, the leaseholder cannot use the VAT refund option.
The VAT of the leasing fee can be reclaimed if we meet the conditions. It is also in its name that it is open, so at the end of the term, the leaseholder (our company) can decide whether, for example, to pay the residual value and become the owner, or we can even say that we no longer need this car, we want a to lease a new one, with a different lease agreement.
It is also worth mentioning operative leasing. In this case, the own funds are lower or even non-existent. Depending on the use; the VAT of both financing and other operating costs can be reclaimed; and the paid monthly rent can be accounted for as an expense. With this scheme; we will have to pay a higher monthly fee; since practically all other costs and expenses are included in the monthly rental fee (e.g.: company car tax, mandatory service etc.); but we will have nothing else to do.