Limits on deducting costs for a passenger car

The purchase of a company passenger car is usually quite an expense. The advantage of such a situation is the fact that it may constitute a tax deductible cost, and thus reduce the income tax payable. However, before an entrepreneur decides to purchase a very expensive company vehicle, it is worth getting acquainted with the limitations in terms of costs.

Passenger cars with an initial value of at least PLN 3,500 should be included in company costs in the form of depreciation charges. However, if the cost of such a car exceeds EUR 20,000, it is not possible to include the entire expense in tax deductible expenses. This limitation results directly from Art. 23 sec. 1 point 4 of the Personal Income Tax Act, according to which write-offs for the consumption of a passenger car in the part determined on the value of the car in excess of the equivalent of EUR 20,000 converted into zlotys, according to the average EUR exchange rate announced by the National Bank of Poland in the day the car is put into use.

Therefore, if it turns out that the value of the car is greater than the indicated 20,000 euros, then the company costs should not include the entire amount of the depreciation, but its proportional part.

Importantly, the above rule also applies to the AC insurance that the entrepreneur buys for his car. It is related to Art. 23 sec. 1 point 47 of the above-mentioned of the Act, according to which company costs cannot include premiums for car insurance in the amount exceeding their part determined in the proportion equal to the equivalent of EUR 20,000, converted into PLN according to the selling rate of foreign currencies announced by the National Bank of Poland on the date of conclusion of the insurance contract in the value of the car assumed for insurance purposes.

The above provision does not apply to contributions other than AC. This is due to the fact that the third party liability insurance, accident insurance or assistance insurance does not apply directly to the vehicle itself, but rather to events resulting from its use. Moreover, the amount of any of these premiums - apart from AC - is not dependent on the value of the car. Therefore, it is assumed that third party liability insurance, accident insurance and assistance insurance may be included in the costs in their actual amount.