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Company car: is it worth it?

company car: is it worth it?

Thousands of entrepreneurs in this country have already thought about this question: is it worth putting the car in the company's name or not? Will I save money? Are there tax advantages? In terms of VAT? Will I be subject to autonomous taxation afterwards? The answer to the question Is a company car worth it? comes up against a stark truth: it depends.

- This is the danger of corporate vehicles, BTOCNET Youtube

In this article, I'm going to help you clear up your doubts and find out whether the decision is good or bad in your specific case. And I'll give you the information you need to learn:

  1. What taxes are levied on a company's vehicles
  2. What tax benefits a company car offers
  3. What benefits exist for electric and/or environmentally friendly vehicles
  4. Whether it's worth outsourcing the purchase of a vehicle to the company
  5. What depreciation is accepted for tax purposes
  6. If renting offers tax advantages
Company car: is it worth it?

What taxes are there on corporate vehicles?

First of all, there's VAT, which means that if I buy a vehicle in the company's name - regardless of the deductions I get later - I'm obliged to pay VAT on that vehicle to the state. There are no magic solutions for this!

Then there's Vehicle Excise Duty (ISV) and Autonomous Taxation. I'm going to tell you about each of them so that you don't miss any details.

Vehicle Tax or ISV

Vehicle tax is levied when a car is registered. It is a one-off, non-recurring charge that affects all individuals and companies in all sectors. A common mistake is to think that an imported vehicle is exempt from this tax: this is not the case. The tax applies whether the company buys a new vehicle or imports a used one from abroad.

But there are exceptions provided for by law:

  • If the vehicle is exclusively electric, no ISV is payable
  • If the vehicle is a hybrid or plug-in hybrid you only pay 60% of the ISV
  • If you nationalize a plug-in hybrid vehicle you only pay 25% of the ISV

And only plug-in hybrid vehicles are considered to be those that:

  • Have a battery that can be charged via the mains supply
  • Have a battery with a minimum range of 50 km in electric mode
  • Produce official emissions of less than 50gCO2/Km

Autonomous Taxation

This tax doesn't only apply when you buy vehicles. You've probably heard of it because it also affects undocumented expenses, representation expenses, subsistence allowances and so on. In the case of cars, the rate varies according to the bracket of the vehicle and the bracket depends on the cost and type of car purchased.

For corporate vehicles costing less than 27,500 euros:

  • Passenger cars: 10%
  • CNG - Vehicular Natural Gas: 2.5%
  • Plug-in hybrid vehicles: 2.5%
  • Electric Vehicles: 0%

For corporate cars, the cost is between 27,500 and 34,999 euros:

  • Passenger cars: 27.5%
  • CNG - Vehicular Natural Gas: 7.5%
  • Plug-in hybrid vehicles: 7.5%
  • Electric Vehicles: 0%

For corporate cars costing between 35,000 and 34,999 euros:

  • Passenger cars: 27.5%
  • CNG - Vehicular Natural Gas: 7.5%
  • Plug-in hybrid vehicles: 7.5%
  • Electric Vehicles: 0%

For company cars costing 62,500 euros or more:

  • Passenger cars: 35%
  • CNG - Vehicular Natural Gas: 15%
  • Plug-in hybrid vehicles: 15%
  • Electric Vehicles: 10%
corporate vehicles self-employed taxation

Tax benefits for company cars: what solutions are there?

In addition to what we saw in the previous chapter, namely in terms of autonomous taxation and ISV for green options, there are vehicles that benefit from VAT and IRC deductions when added to the company fleet. I'll explain what they are and what benefits they have.

  • Light passenger and mixed vehicles

Regardless of whether it's a petrol or diesel car, you can't deduct VAT from the purchase price or the rental income. You can deduct 50% of the fuel in the case of diesel cars.

  • Light goods vehicles

In this case, value added tax on the purchase price and rental income can be deducted and you can also deduct 50% of the fuel if the car is diesel.

  • Natural Gas Vehicles (NGV)

You can deduct 50% of the VAT on the purchase, lease and conversion costs - because you may need to adapt the vehicle to be powered by gas. But remember: for the company to enjoy this benefit, the purchase price of this type of car must not exceed 37,500 euros.

  • Electric vehicles and plug-in hybrids

You can deduct the full amount of VAT on purchase, lease and conversion costs. But once again: for companies to enjoy this benefit, the value of the purchase of this type of car cannot exceed 62,500 euros; and specifically, in the case of plug-in hybrids, it cannot exceed 50,000 euros.

And there's a bonus...

...it's possible to deduct all the value added tax on the electricity used to fuel your car!

vat and irc deductions for business cars

What about depreciation?

For those unfamiliar with the term, depreciation results from the economic devaluation of an asset over its useful life. As an example: a car has a certain useful life (e.g. 4 years) and will depreciate by 25% of its purchase price per year. To make it easier to calculate the useful life of assets for tax purposes, a regulatory decree has been published which establishes the useful life of certain assets. In the case of vehicles, this decree establishes that their useful life is 4 years. The Corporate Income Tax Code establishes the limits for the acquisition of passenger cars:

Fossil fuel passenger cars

For tax purposes, the limit is 25,000 euros, so the maximum depreciation accepted for tax purposes for this type of vehicle is 6250 euros (25,000 euros divided by 4). Depreciation above this amount is not considered deductible for IRC purposes, but is subject to Autonomous Taxation according to the rate applied.

Light goods vehicles running on fossil fuels

You are entitled to annual amortization of up to 100% of the purchase price and there is no legal maximum on the purchase price.

Electric or plug-in hybrid

For tax purposes, the limit is 62500 euros (for electric cars) and 50000 for plug-in hybrids, so the maximum depreciation accepted for tax purposes for this type of vehicle is 15625 euros for electric cars and 12500 euros for plug-in hybrids.

The allocation of a car to an employee can be considered remuneration in kind for IRS purposes and, in some cases, for Social Security contribution purposes. In these cases, these vehicles will not be subject to autonomous taxation, nor will their expenses (fuel, repairs). It is therefore important to analyze the advantages of reaching an agreement with some employees in this regard.

You can consult the free simulator on our website

Are there any other benefits apart from the tax ones?

The fear of tax losses is not the only reason for a company to add a new car to its fleet. Let me quickly go through four important reasons why large, small or medium-sized companies should consider this option:

  • More reach

A company car doesn't just serve a product delivery business. There are many scenarios where your employees can make the business more efficient if they have access to a car. Examples include the repair sector, which requires a technician to travel; the audiovisual sector, which requires a photographer or videographer and their equipment to travel; or the sales sector, which requires travel to gather prospects.

  • More advertising

For companies buying a car, it's not all expenses, insurance and fuel. If you choose to personalize your vehicle with stickers, remember that every kilometer on the road means new eyes watching your brand, message or commercial offer.

  • Retaining talent

Anyone who runs a company in Portugal is well aware of the difficulty in finding and retaining quality human resources. Remember that a car can be included in the list of benefits that the employee acquires by agreeing to join the company's ranks. If you don't have the capacity to offer a salary as high as you'd like, the company can find solutions in this possibility.

  • More autonomy

A business without its own fleet is not prevented from moving resources and goods. To transport goods, you can hire the services of a distribution company. For the transportation of resources, there is public transport that allows the company to carry out its activity. But what about when you have to answer "now"?

  • More security

On the one hand, let's imagine the case of a repair company that sends its workers on the public transport network: it's less protected and they are (more) likely to be robbed. On the other hand, a company with its own fleet can take advantage of car tracking systems. Thanks to this type of tool, it is possible to pre-define safer and more economical routes or even inform the authorities of any driver irregularities.

advantages car in company name

And is it worth outsourcing the purchase of vehicles?

Some argue that owning a fleet has the advantage of being a company asset. But keeping vehicles in the company's cost structure can become an unnecessary burden in the event of an irregular need. How should decisions be made?

Let's look at the advantages of renting:

Distribution of costs

The weight of the costs in the leasing scenario is distributed: companies don't need to pay out so much at once, nor do they need to decapitalize. And it doesn't compromise access to finance or add yet another loan to your list of monthly payments.

No devaluation

There are no worries about use, theft, depreciation or resale. There is no accounting for the depreciation of the asset: because there is no asset. Please note: when companies with their own cars resell them, if the resale price is higher than the depreciation, the surplus is considered profit.

Quality of vehicles

Those who buy are subject to the ageing of the asset. Those who enter into a leasing agreement have new cars to drive as soon as the leasing contract ends.

Responsibilities

Insurance and other cover, the hassle of the purchase process, licensing, customization, maintenance, the cost of replacing parts and resale are all concerns that no longer exist in a leasing scenario.

Company car or company vehicle: advantages of renting VS buying?

So... Do I buy or rent a car? Which solution is right for my company?

Generally speaking, the big difference between buying and renting is that the costs of renting are lower than the costs of buying - which will have a positive or negative influence on the taxes you pay.

Yes: VAT, IRC and Autonomous Taxation on your own car make it more expensive. But the important thing for the business is to weigh up this extra expense against the deductions and the company's balance sheet, because it can be justified!

Here's what our founder, José Pedro Farinha, has to say on the subject. And remember to call us on 218 045 580 or book an appointment by email at this link, if you want expert help from a BTOCNET accountant.

- Company car: buy or rent?
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