Courtesy cars and the possibility of VAT deduction

VAT deduction on the purchase of fuel for courtesy cars

An entrepreneur running a business for which he uses a company car, often uses a replacement car as a result of damage or an accident. In this case, is he / she entitled to deduct VAT on the purchase of fuel for such a car?

Well, it all depends on whether the replacement car meets the conditions set out in the VAT Act. If the entrepreneur used a car with a maximum permissible weight of more than 3.5 tons, or a GVW below 3.5 tons, but meeting the requirements of the VAT Act, allowing it to be considered a truck, then he was entitled to deduct VAT on fuel invoices. However, if the replacement car he receives for use during the repair does not meet the above requirements, he will not be entitled to such a deduction. If the replacement car received meets the conditions of the VAT Act, the taxpayer may deduct VAT from the purchase of fuel for its propulsion.

VAT on the purchase of replacement cars for business purposes

Usually replacement cars are passenger cars with a GVW not exceeding 3.5 tons and do not meet the requirements of the VAT Act allowing them to be considered "special" vehicles.There is no right to deduct the entire input tax from the purchase of such cars, except in specific cases. Is there a full VAT deduction when a car rental company purchases replacement vehicles for rental purposes?

The taxpayer has the right to a full VAT deduction on the purchase of:

• vehicles with a maximum permissible weight exceeding 3.5 tonnes,
• cars with a permissible total weight not exceeding 3.5 tons but meeting the requirements set out in the VAT Act,
• vehicles with a GVW not exceeding 3.5 tonnes for the purposes of the activity the subject of which is the resale of cars or putting them into paid use of cars on the basis of a rental, lease, leasing or other contracts of a similar nature, and these vehicles are intended only for these purposes for a period of not less than six months.

In connection with the above, an entrepreneur conducting business activity consisting in renting replacement cars to e.g. clients of insurance companies, etc. has the right to deduct the entire input tax in connection with the purchase of such a car, as well as to deduct tax on the fuel purchased for it. In this case, neither the permissible total weight nor other parameters of the car matters.

However, it should be remembered that the use of replacement passenger vehicles for purposes other than those specified in the Act, e.g. for business trips of employees, will exclude the possibility of full VAT deduction both on their purchase and on the fuel purchased for them.