Sale of post-lease car without VAT
Entrepreneurs often use cars as part of leasing, and after the end of the leasing contract, they decide to buy it for business purposes or privately. This is mainly related to the attractive buyout price offered by the lessor. What are the effects of selling a post-leasing car?
Leased car, what next?
Entrepreneurs buying a car after the end of the leasing contract can still use it for the needs of their business and enter it into the company's fixed assets register. After the purchase, the car can be used for private purposes immediately and not included in the company's assets. The second solution is to sell a post-lease car.
In which case does the taxable income arise from such a transaction? Controversy among taxpayers in the field of income tax is the sale of a post-leasing car which was previously purchased immediately for private purposes.
VAT taxation and the sale of a post-leasing car
Due to the change in regulations from April 1, 2014, the sale of a car purchased for the needs of business activity, previously used as part of this activity under a leasing contract, is subject to VAT.
Such a sale is treated as a supply of goods for consideration and is therefore taxed at a rate of 23%. In the case of buying a car for private purposes, no VAT is charged when selling it.
For the entrepreneur, the sale of a post-leasing car is associated with the fact that the amount of tax should be added to the amount he wants to get for it. This will increase the price and all input VAT will be charged to the buyer. As a result, there may be less interest among buyers, especially private individuals, who are unable to deduct input VAT. It will be less important in a situation where the buyer is a different entrepreneur. He will be able to deduct VAT from the invoice received, however, in the case of purchasing a passenger car, the deduction will be 50% or 100% VAT depending on the way it is used - only for business or private purposes.
Sale of a post-leasing car purchased for private purposes
The sale of a post-leasing car purchased earlier for private purposes is not subject to VAT. On the other hand, many different interpretations arise from the fact whether the income from the sale of the car for consideration, after purchasing it from leasing for private purposes only, constitutes income from business activity.
Thus, if the car was used before and for the purposes of the conducted business activity, the expenses related to it constituted tax deductible costs in this activity. However, after the termination of the leasing contract, the entrepreneur uses the preferential purchase of the car. In such a case, in the opinion of the tax office, the leased car is an asset related to economic activity. And the income obtained as a result of its sale for consideration constitutes the income from business activity in the personal income tax under the conditions specified in art. 10 sec. 2 point 3 of the Act on subf.
Art. 10 sec. 2 point 3
It does not apply to disposal for consideration, assets referred to in article 1. 14 sec. 2, subpara. 1, subject to the provisions of para. 3, even if before the disposal they were withdrawn from business activity, and between the first day of the month following the month in which the assets were withdrawn from activity and the date of their disposal for consideration, 6 years have not elapsed.
According to the Provincial Administrative Court in Gliwice, in the judgment of February 23, 2015, file ref. act I SA / Gl 1028/14 when selling a post-leasing car and private buyout, you can use Art. 10 sec. 1 point 8 lit. d) if 6 months have elapsed from the date of redemption, the income is not subject to income tax.
Art. 10 sec. 1 point 8 disposal for consideration, subject to the provisions of paragraph 2. 2:
- if the sale for consideration does not take place in the performance of economic activity and was made in the case of the sale of real estate and property rights for consideration referred to in point (a). a - c - before the expiry of five years from the end of the calendar year in which the acquisition or construction took place, and other things - before the expiry of six months from the end of the month in which the acquisition took place; in the case of a switch, these periods shall apply to each switching person.
Such a decision was justified by the PAC that if there is a sale of a post-lease car that was purchased for private use and was not introduced as a fixed asset of the company, it does not constitute income from economic activity. Unless the sale takes place within six months from the end of the month in which it was acquired. Then a tax obligation arises.
To sum up, the sale of a post-leasing car purchased for business purposes is subject to income tax and VAT. However, the revenue from the sale of this car will not be generated if two conditions are met:
must be purchased for private use as well
it will be sold six months after its purchase.
At the same time, with private purchase, regardless of the time that has elapsed after the sale of the car, it is not subject to VAT due.
However, it should be remembered that in the past the position of the tax authorities was not clear on the issue of post-leasing sale of a vehicle purchased for private purposes. Therefore, taxpayers, in the event of doubts as to whether this revenue should be shown as company revenue, even if the sale took place after 6 months, may apply for an individual interpretation in their case. The ODR-IN form is used for this.