In the realm of car ownership, you have the option to lease a vehicle for either personal or business use. When it comes to your business, you can choose to put the vehicle under the company’s name or use your private car for business purposes. Alternatively, you might be considering a commercial vehicle with a gray license plate. But be aware, opting for business use can have implications for income tax and VAT. Let’s unravel these complexities and understand what they mean for you.
Car Registered Under the Business
When you register a car under your business, it means the company owns the vehicle. If you also intend to use this business vehicle for personal reasons, you’ll encounter something called “bijtelling.”
In the case of a BV (Besloten Vennootschap or Private Limited Company), the entity assumes ownership and responsibility for the car. However, in a sole proprietorship or VOG (Vennootschap onder Firma or General Partnership), you can’t separate ownership from the owners. In such cases, the car is always registered in your name, but it’s still possible to classify it as a business asset for tax purposes.
Some vehicles, like hydrogen or electric cars, may qualify for environmental investment deductions.
Purchasing a Car Privately
When you purchase a car for private use, it’s registered in your name. For business-related travel, you can declare the kilometers driven as expenses for your business. You can even pay yourself a tax-free allowance of €0.19 per kilometer, which is tax-deductible within your company.
Income Tax and VAT Considerations
The decision to use a car for business or personal purposes comes with implications for both income tax (privately) and VAT benefits (business). It’s crucial to maintain clear documentation in your records to demonstrate the choice made and the tax category you fall under.
Please note that for income tax purposes, if you drive 500 kilometers or less privately with your car, it must be considered a business asset.
Using a Car for Both Personal and Business: The Consequences
When you own a car privately, it’s entirely feasible to use it for business purposes as well. In this scenario, you can declare each kilometer driven for business purposes as a tax-free reimbursement, up to a maximum of EUR 0.19 per kilometer. For instance, commuting to work is already considered a business use. This reimbursement is tax-deductible from your profits, thereby reducing the overall taxable income. However, other expenses like maintenance, parking, cleaning, and gasoline are not tax-deductible.
The VAT you pay when purchasing a car for private use is not recoverable. Nevertheless, if you use the car entirely for business purposes, you can deduct VAT on maintenance and operating costs (such as fuel), based on the percentage of business use. Be mindful that when it comes to fuel, it should be paid with a company-registered card to facilitate proper invoicing for tax purposes. Several providers in the Netherlands offer this service, ensuring you receive a clear invoice for tax authorities.
Example: Suppose there are repair costs for your car with €100 in VAT. In this case, only the portion corresponding to the car’s business use is deductible.
If the car is used 60% for business and 40% for private use, you can only deduct 60% of the VAT in your VAT return. However, at the end of the year, your actual business usage percentage will be determined based on your travel records. You will then need to make a correction in the final VAT return for that year, commonly known as a “supplementary return.”
Keeping a Travel Log
Maintaining a travel log is essential to demonstrate how many business kilometers you’ve genuinely driven. This log serves two purposes: calculating the mileage reimbursement for income tax purposes and claiming the expenses in your VAT return. We recommend utilizing an automated system to record your journeys and manage your records effectively, ensuring accuracy during potential tax audits.
The Implications of Business Vehicle Ownership
Let’s delve into the tax implications of keeping a car for business use and potential private use.
Income Tax
- Bijtelling: If you use the car for private purposes (more than 500 kilometers annually), you must include a percentage of the car’s catalog value in your taxable income. This is referred to as “bijtelling,” and you are required to pay income tax on this additional income. The bijtelling rate depends on the type of car. In most cases, it is 22% of the catalog value. However, electric cars had a reduced bijtelling rate of 12% on the amount up to €40,000 in 2021, and 16% for 2022 onwards, with the remainder at 22%. Older cars (15 years or older) follow a different rule: you pay 35% of their current market value as bijtelling.
Cost Deductions: All expenses associated with your car are tax-deductible, including parking fees, fuel costs, and vehicle tax (excluding fines). Additionally, you can depreciate the car’s value over time.
VAT on Private Car Use
- For VAT purposes, if you use your car primarily for business (more than 50%), you can deduct VAT on expenses according to the percentage of business use. When purchasing a car for the business, VAT on the purchase price is also deductible. However, this rule doesn’t apply if you transfer an existing car to the company. For fuel expenses, it’s essential to pay using a company-registered card to receive a proper invoice for tax authorities. Various providers in the Netherlands offer this service, ensuring accurate documentation.
Leasing Options
Leasing comes in various forms, each with its implications for your business assets.
Operational Lease
The most common form of car leasing is operational lease. You pay a monthly fee to the leasing company, and at the end of the lease term, the car is returned. In this scenario, the car remains private and is not associated with your business. Consequently, you can’t depreciate it (the purchase price isn’t tax-deductible) or claim investment deductions. However, you still need to decide on income tax and VAT aspects, as explained earlier.
Financial Lease
With financial lease, you assume the risks of maintenance costs. At the end of the lease term (typically 4 to 5 years), you pay a residual amount to become the car’s owner. It’s similar to buying a car with a loan. In this case, the car is regarded as a business asset and appears on your balance sheet. You can depreciate it and potentially claim investment deductions. You’ll still need to decide on income tax and VAT aspects, similar to operational lease.
Choosing Between Business and Private for Income Tax
The decision to keep a car under your personal or business name (for income tax purposes) primarily depends on the ratio of business to personal kilometers you drive, the actual costs of the car, and the applicable bijtelling rate.
If you have many business kilometers (relative to personal ones) and you drive a less expensive car (lower cost per kilometer), it may be advantageous to keep the car in your name privately. You can then claim €0.19 per business kilometer as a cost deduction.
However, if your car is significantly more expensive than €0.19 per kilometer, you may consider keeping it under your business’s name. In such cases, if you also use the car for personal purposes, you will need to pay bijtelling.
Bijtelling can be costly, so weigh the pros and cons carefully. For older cars, the answer is often “no” since bijtelling is calculated based on the catalog value (the original price). In such cases, keeping the car privately, unless it’s over 15 years old, is generally more favorable. The Chamber of Commerce (KVK) offers a handy calculator to evaluate various scenarios.
If you find these decisions daunting, don’t hesitate to reach out to our staff. They can provide guidance and help you make the right choice between private and business car usage.
Curious about how you, as an entrepreneur, can benefit optimally from the discussed topics? Read further in our blogs and discover the keys to current insight and solid financial management, where our office does more than just accounting. Whether it’s tax benefits, payroll administration, or optimizing your accounting, we have the insights you need. Contact our specialists today for a personal advisory session. Discover how we can help you optimize your financial strategies and achieve relational insight so you can steer based on facts rather than assumptions.
