A kilometer distance is a way to fully deduct VAT on passenger cars


In connection with the decision of the Council of the European Union announced in December 2013, Polish entrepreneurs from January this year follow the changes to the provisions of the VAT Act regarding the deduction of tax on goods and services on cars weighing up to 3.5 tons. It allowed Poland to apply restrictions in the field of VAT settlements for the purchase and use of motor vehicles. We already know that these modifications will enter into force on April 1, 2014. What will they be about?

Restrictions accepted by the Council of the EU

The decision of the Council concerned the consent to a limitation of up to 50% of the right to deduct tax on goods and services on the purchase, intra-Community acquisition, import, rental or leasing of motor road vehicles, as well as VAT on expenses related to these vehicles, if the vehicle is not such used exclusively for business purposes. By design, entrepreneurs also use company vehicles privately.

It might seem that these are changes for the better, because so far entrepreneurs had no right to deduct VAT on fuel for passenger cars. However, an analysis of the provisions of the amended Act amending the Act on tax on goods and services and some other acts shows that it will not be so rosy ...

Used for business purposes only - what does that mean?

As the discussed modifications introduce the term “used only for business purposes”, its explanation is crucial for understanding the new regulations. In the proposed changes, the legislator specifies that "motor vehicles are considered to be used only for the taxpayer's business if:

1) the method of using these vehicles by the taxpayer, in particular as specified in the rules of their use, additionally confirmed by the vehicle mileage records kept by the taxpayer for these vehicles, excludes their use for purposes not related to economic activity or

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2) the design of these vehicles precludes their use for purposes not related to business activity or makes their use for non-business purposes irrelevant.

As exempt from the obligation to drive mileage, the legislator lists the following vehicles:

  • intended solely for resale, sale or rental, rental or leasing;

  • for which the taxpayer applies a partial deduction of 50%, i.e. used not only for business purposes;

  • for which there is no right to deduct VAT from related expenses, i.e. e.g. cars that are used for the purposes of activities exempt from VAT.

Obligation to keep mileage for fixed assets

The discussed changes mean considerable difficulties for entrepreneurs, because in order to prove that a given vehicle is used only for business purposes (which involves the possibility of deducting VAT in the full amount), they will have to drive a mileage allowance. Such a vehicle mileage record for VAT purposes should include, inter alia, odometer reading, date and purpose of departure, route description (from where-to-where) and the number of kilometers traveled on a given day. Importantly, this obligation will apply to each of the cars constituting fixed assets in the company, therefore entrepreneurs will have a lot of additional work to do.

Entrepreneurs will be additionally required to submit information about such vehicles to the tax office on a specially prepared form.

As you can see, from April 1, entrepreneurs are facing a significant revolution in the field of VAT on cars weighing less than 3.5 tons. Yes, they will be able to deduct 100 percent. tax on goods and services, e.g. on the purchase of such a vehicle, but in order to deduct its full amount, they will be required to submit to the office information about the cars they own and drive mileage also for vehicles that are fixed assets in the company.