Cars for rent - what VAT deduction?
Companies that use passenger cars solely for business purposes must exclude them from private use if they wish to be able to deduct full VAT on expenses related to their operation. To do this, companies are required to take specific steps. Let's check whether having cars intended for rental as part of the conducted activity is accounted for on general principles or whether the expenses incurred with such cars must be accounted for under the so-called VAT kilometers!
Cars for rent - theory
As a rule, taxpayers must report the car to the tax office on the VAT-26 form, and additionally keep a VAT mileage mark if they want to be entitled to a full VAT deduction from expenses related to the use of passenger vehicles.
This will allow for the complete elimination of the possibility of using this car for private purposes of the entrepreneur. This costs the taxpayer a lot of time and work, so exceptional situations have been created in which he will be released from these obligations.
One of these exceptions is when the car is intended for rental and car rental is the subject of the taxpayer's business. This is stated in Art. 86a paragraph 5 of the Value Added Tax Act:
Art. 86a sec. 5 of the Value Added Tax Act:
The condition of keeping records of the vehicle mileage does not apply to motor vehicles:
1) intended exclusively for:
b) sales, in the case of vehicles manufactured by the taxpayer,
c) handing over for use on the basis of a rental, lease, leasing or other agreement of a similar nature
- if the resale, sale or use of these vehicles for consideration is the subject of the taxpayer's business.
In such a situation, according to the regulations, the taxpayer is not obliged to report the car to the tax office and to keep records of the vehicle mileage in order to be able to deduct 100% VAT on expenses related to the rented vehicle. Check which group your company car belongs to. Read the article: Deduction of VAT on passenger cars in the company.
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Cars for rent - practice
Despite the clearly stating law that there is no obligation to drive a mileage kilometer or to report the vehicle via VAT-26 to the tax office in the case of rental cars, taxpayers still have doubts. They request individual interpretations to be 100% sure that they are complying with the law.
A taxpayer whose activity consisted of renting and selling vehicles applied for an individual interpretation in his case. The case concerned the information whether, if the car intended for rental is also used between rental periods, but it is closely related to the rental, then the car is obliged to drive mileage and report the vehicle on the VAT-26 form.
Activities performed between the rental period that the taxpayer had doubts about include:
- delivery of the rented car to the customer and delivery back to the company's headquarters after the end of the rental,
- trips related to the maintenance and operation of cars (car wash, gas station, vehicle inspection station).
The Director of the Tax Chamber in Warsaw issued an individual ruling on this matter on September 3, 2014, number IPPP3 / 443-486 / 14-4 / KT. In this interpretation, the tax authority indicated the following:
(...) the use of the word "exclusively" in the above-mentioned art. 86a paragraph 5 of the Act indicates that the exemption from the obligation to keep the records referred to in Art. 86a paragraph 4, does not cover situations where the vehicles are used - even temporarily - for other purposes (e.g. test drive, business use of the taxpayer, access to the customer, etc.). Thus, in relation to a vehicle that, for example, is intended to be rented for remuneration, but is used by the taxpayer as a vehicle for other business purposes before it is rented, the exemption from the obligation to keep records cannot be applied. In order to fully deduct input tax on expenses related to such a vehicle, a mileage record for that vehicle (if it is objectively used solely for business purposes) must be kept and (...) must confirm that the vehicle is not used for private purposes. (...)
If the passenger car is intended only for rental, the taxpayer is not obliged to keep records of the vehicle mileage. On the other hand, if a passenger car is intended for purposes other than rental, a taxpayer, wishing to exercise the right to full deduction of input tax (resulting from invoices documenting expenses related to this car) must:
- establish the rules of its use, confirmed by the vehicle mileage records (which excludes the possibility of using it for private purposes),
- report it to the tax office on the VAT-26 form.
In a situation where the tax authorities present such an opinion about cars intended for rental and their use, it would be risky to deduct the full VAT from operating expenses without reporting the vehicle to the office and driving mileage. In case of doubt, the best way out of such a situation is to submit an application for an individual interpretation, 100% tailored to the situation of the entrepreneur.