VAT deduction on company cars: tolerance for 2020
May 2021 – The deduction of VAT on vehicles is a particularly complex matter. For private cars, the deduction can in principle never be higher than 50%. And if the vehicle is also used for private purposes, the limitation of the deduction can be even higher. However, in this period of the coronavirus crisis, the administration is making it easier to prove this in certain respects.
Ten years on
The regulation limiting the deduction of VAT on motor vehicles is already more than ten years old. It dates from 29 December 2010 and came into force on 1 January 2011.
The law dealt more generally with capital goods and provided that the VAT deduction on capital goods that were also used for private purposes should be limited to the business part of the use. A typical example of private use of capital goods is a company car that is also used by the employee for commuting to work.
It should also be kept in mind that the VAT deduction on motor vehicles is limited to 50% anyway. If you have a company car that you use 60% for business purposes, the 50% limit applies (at least if it is a private car). If the company car is only used 40% for business purposes, the VAT deduction is limited to 40%. Once again, we stress that business use must be considered from the perspective of the taxable company that provides the car: travel to and from work does not constitute business travel for that company.
Actual use or a flat rate
How do you determine business use and private use? The tax authorities offer you three possibilities.
The first method is based on exact actual use and involves keeping a travel log. Every day, you must therefore note the journeys you make for business purposes: date of journey, departure address, destination address, number of kilometres travelled per journey, total number of kilometres travelled during the day.
The second method is the so-called semi-fixed method. This method is intended for entrepreneurs who make a company car available to their staff members who use it for their home-work journeys. Private use is then based on the distance between home and place of work: [(home-work distance x 2 x 200 + 6,000) / total distance] x 100. If you look at this formula more closely, you will see that the taxman assumes that the member of staff makes the home-work journey and back two hundred times a year and travels another six thousand kilometres for other private purposes.
The third method is undoubtedly the simplest: the business use is 35% and the VAT deduction on the vehicle is therefore limited to 35%. If you opt for this flat-rate method, you must stick to it for at least four years. You cannot switch from one method to another depending on which method suits you best.
Impact of the coronavirus crisis
The second method requires the staff member to visit the office more or less 200 times a year. Since the introduction of the teleworking obligation in 2020, this condition is no longer met. If you nevertheless decide to apply this method, it will have a considerable impact on the VAT deduction. And if you were to opt for the application of the general flat rate, you would have to stick to it for four years.
The administration now provides a tolerance to this rule. Anyone who normally applies the second calculation method is allowed to exercise their right to deduct via the general flat rate of 35% for 2020. Anyone who wishes to do so may combine the second "semi-fixed" method with the third "fixed" method (which is not permitted in principle).
This only applies to the calendar year 2020. From calendar year 2021 onwards, the second method must be applied again. The obligation to apply the general flat rate of 35% for at least four calendar years therefore does not apply.
