After our post about “Amortization of a property” where we explained which ways we can use to amortize the items. Today we will focus on analyzing the amortization of vehicles and its expenses, its percentage and if they have to be affect or not by an economic activity.
How are vehicles depreciated?
As we saw in the article “Amortization of a property”, the most common way to amortize a good is by using linear amortization and the amortization tables, which establish a maximum linear percentage and a maximum amortizing period.
|
Transport elements |
||
|
Kind of elements |
Max. Linear coefficient |
Maximum period of years |
| Locomotives, cars and traction equipment |
8% |
25 |
|
Ships and aircraft |
10% |
20 |
| Internal transport elements |
10% |
20 |
|
External transport elements |
16% |
14 |
| Lorries |
20% |
10 |
In order to be able to consider some deductible expense it must be used and demonstrate its use in the economic activity of society and not in the private life. It is also a type of expenditure, which may be amortized according to their degree of involvement in economic activity.
Deduction of business vehicles
Buying a vehicle by a company is an acquisition that is considered a tangible and at the time of tax deductions usually presents some controversy over the use that is given to the vehicle, as only could benefit certain amortization based on the effect of economic activity.
50% rebate on company cars
In the case of vehicles partially allocated to business activities, the VAT on expenses related to the vehicle, such as fuel, repairs, and maintenance, will be 50% deductible, as it is presumed that the vehicle is used 50% for business purposes and 50% for personal purposes (Binding Consultation V1930-05).
100% deduction for vehicles fully allocated to business activity
However, there are certain cases in which vehicles can be presumed to be entirely allocated to business activity, allowing a 100% deduction of the VAT on their acquisition and expenses related to maintenance, repairs, parking, fuel, and tolls. To apply this deduction, the necessary evidence must be provided to prove that the vehicle is intrinsically involved in the business activity, such as parking tickets, work reports, tracking systems for certain vehicles, etc.
The 100% deduction can be applied in the following circumstances:
- Vehicles used for the provision of passenger transport services for consideration.
- Vehicles used for the provision of driver or pilot training services for consideration.
- Vehicles used for professional travel by representatives or sales agents.
- Vehicles used by manufacturers for testing, trials, demonstrations, or sales promotion.
- Vehicles used in surveillance services.
We should also note that if a vehicle is used by the company’s sales representative, the VAT can also be deducted at 100%, as specified in Law 37/1992.
Deduction of vehicle-related expenses
Expenses related to vehicle use, as mentioned earlier, can also be deducted, provided they can be demonstrated and their exclusive allocation to the business activity is proven. The most important are the following:
Fuel deduction
The DGT (Directorate-General for Taxation) has decoupled the VAT deduction on the acquisition of the vehicle from the deduction on fuel used for business activity. Therefore, even if only 50% of the VAT on the vehicle is deducted, up to 100% of the fuel costs can be deducted.
Toll deduction
Toll expenses incurred during business activities must be justified, and toll tickets collected at the toll station may be insufficient as they often lack adequate information. To deduct toll expenses, it is advisable to use the Vía-T toll system, as full invoices can be requested later.
Parking deduction
A similar issue arises with parking, as blue zone tickets are usually not accepted as proof. However, invoices from public or private parking facilities may be considered valid evidence.
Deduction of used vehicles
The depreciation of second-hand vehicles, considered as tangible fixed assets acquired in a used condition, is regulated by Royal Decree 1777/2004, of 30 July, which approves the Corporate Tax Regulations.
What can be depreciated?
Depreciation is allowed up to twice the amount derived from applying the maximum straight-line depreciation rate, which is set at 16%, as indicated in the depreciation tables. Therefore, depreciation of up to 32% is permitted.
How can depreciation be applied?
If the acquisition price is known, it is used to calculate the maximum straight-line depreciation rate. Each year, up to 16% of the car’s initial value can be depreciated.
If the acquisition price or original production cost is not known, it should be determined by an expert.
Tax treatment of vehicle leasing and renting
When a vehicle is purchased, as in the previous cases, the company’s assets increase because the vehicle becomes part of the company’s fixed assets. This does not happen when a vehicle is used through leasing or renting:
- Leasing: This is a rental agreement with an option to purchase, so the asset does not form part of the company’s fixed assets until the purchase option is exercised. However, vehicles acquired under financial leasing arrangements would be recorded as assets.
- Renting: This is a rental agreement with no purchase option, meaning the vehicle will never be considered a company asset. It should also be noted that the cost of renting is generally higher as it includes not only the rental of the vehicle but also related expenses such as maintenance, repairs, insurance, etc.
In terms of the treatment under Personal Income Tax, partial allocation is not permitted. That is, vehicles used for both private and business purposes under leasing or renting agreements cannot be deducted.
Fiscal advantage of renting over financial leasing
Renting is considered a straightforward business expense, unlike leasing, which has a more complex fiscal impact due to its effect on the balance sheet’s assets and liabilities. For this reason, companies can deduct up to 100% of their monthly renting payments in Corporate Tax, as well as the VAT, provided the vehicle is used exclusively for business purposes.
