Purchase of a passenger car from leasing after the end of the contract
The choice of a specific leasing offer affects the purchase of a leased passenger car. Leasing companies offer two types of leasing contracts - operating and capital (financial) leasing. The vast majority of leasing contracts in Poland are contracts relating to the former. However, many entrepreneurs ask themselves: what is the difference between the tax settlement of the car purchase from leasing for private purposes and related to business? Let's check it out!
Operating and financial leasing - basic differences
Both forms of leasing differ in the way contracts are concluded. In addition, they cause different tax consequences for both parties to the contract and they treat the matter of the transfer of ownership of the leased object differently. In the case of a financial lease agreement, the ownership of the item is automatically transferred to the user after the end of the contract period, because it was a fixed asset of the user already at the time of signing the contract. In operating lease, the existing user may exercise the right to purchase the object (eg a car) after the end of the basic contract period. Taxpayers may purchase a leased passenger car for private purposes or as part of their business.
Purchase of a lease passenger car and an operating lease agreement
An operating lease agreement is one of the most popular forms of purchasing a passenger car by companies in Poland. It is a convenient solution because it allows you to use a passenger car as part of your business without the high cost of buying your own car. Companies are very profitable because the contract mentioned above gives the possibility to buy the leased asset at a lower price than the initial one. What are the consequences of the decision to purchase a car after the end of the operating lease agreement? It depends on whether the entrepreneur decides to buy a leased passenger car as part of his business or for private purposes.
Purchase of a passenger car from leasing as part of business activity
In connection with the purchase of a leased car, the entrepreneur receives a VAT invoice documenting the sale. It should be noted that this is an activity separate from the invoicing of leasing installments, because operational leasing under the VAT tax is a service, while the purchase of a passenger car from leasing is a delivery of goods. The purchased leased passenger car can be entered into the company as a fixed asset or included in company costs once.
Settlement of the purchase of a car with a value above PLN 10,000
If the initial value of the invoice documenting the purchase of a leased passenger car exceeds PLN 10,000 (net for active VAT payers and gross for VAT-exempt taxpayers), the taxpayer is required to enter the vehicle into the fixed assets register and depreciation on the basis of the created the amortization schedule.
Then, the initial value should be the purchase price, which is understood as the amount due to the vendor, increased by the costs related to the purchase, accrued until the date of commissioning the fixed asset for use and reduced by the deductible input VAT and corrected by any exchange rate differences (Article 22g section 3 and 5 of the Personal Income Tax Act).
Depreciation write-offs on fixed assets that are passenger cars in the part that exceed the statutory limit, i.e.
PLN -225,000 - in the case of a passenger car which is an electric vehicle within the meaning of Art. 2 point 12 of the Act of 11 January 2018 on electromobility and alternative fuels (Journal of Laws of 2021, item 110),
PLN -150,000 - in the case of other passenger cars.
Settlement of the purchase of a car with a value below PLN 10,000
However, if the initial value of the purchased car does not exceed PLN 10,000 (net in the case of active VAT payers or gross in the case of taxpayers benefiting from VAT exemption), the entrepreneur may include the expenses for its purchase directly as tax deductible costs in the month when it is put into use. . In the case of a vehicle with a value below PLN 10,000, there are no reasons why it should be entered in the register of fixed assets and depreciated over time.
Purchase of a leased passenger car and VAT settlement
Active VAT payers are entitled to deduct input VAT based on an invoice documenting the purchase of a leased passenger car, provided that it will be used for taxable activities. The method of using the purchased car will affect the value of the VAT deducted. In the case of passenger cars, the entrepreneur has the right to deduct VAT in two variants:
50% of the VAT value - in the case of using the vehicle for private and business purposes
This type of car use allows you to deduct only half of the VAT from the buyout invoice. In addition, it is worth knowing that the remainder of the tax may be added by the entrepreneur to the initial value of the car subject to depreciation.
100% VAT - if the vehicle is used solely for business purposes
Entrepreneurs who want to take advantage of the right to deduct 100% VAT on expenses related to a passenger car must meet additional conditions that prove that the vehicle is used only for business purposes.
The taxpayer is entitled to deduct 100% VAT if 4 conditions are met simultaneously:
1. The vehicle is used only for business purposes,
2. Mileage is kept for VAT purposes,
3. The vehicle has been reported on the VAT-26 form,
4. The regulations for the use of the vehicle in the company have been created.
Mrs. Anna runs a grocery store and is an active VAT payer. After the termination of the operating lease contract, it bought the vehicle for the company, and therefore received a VAT invoice. The purchase value on the invoice significantly differs from the market value of the car. Ms Anna decided to enter the vehicle into the fixed assets register. Should it therefore be valued at current market prices, or should the initial value be the amount from the invoice received?
Pursuant to Art. 22 g of paragraph 1. 1 point 1 of the PIT Act, in the case of purchase of fixed assets for consideration, they are valued at the purchase price. Therefore, in the case of buying a passenger car from a lease, which has been documented with a VAT invoice, the current value of the vehicle on the market is irrelevant. Ms Anna should evaluate the vehicle at the value of the invoice received, plus any costs incurred before entering the car into the register (e.g. vehicle registration).
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Purchase of a leased passenger car for private purposes
If the leasing company presents a private buyout offer, there is nothing to prevent the passenger car previously used under the operating lease agreement in the conducted business activity be bought for private use. In such a situation, however, it is not possible to exercise the right to deduct VAT resulting from the invoice. We will also not include the costs related to the redemption as tax deductible costs.
Pursuant to Art. 10 sec. 2 point 3 of the PIT Act, the sale of property after 6 months of acquisition does not generate income. However, it should be remembered that according to the interpretation of the tax authorities (IBPBI / 1 / 415-1252 / 11 / ESZ; ITPB1 / 415-552 / 11 / PSZ), if the car purchased from the lease was previously used in business, and the expenses related to its use constituted the tax cost of operations, then in the case of sale of such a car before the expiry of 6 years, the generated revenue should be treated as revenue from the business. This position was taken by the tax authorities in the issued interpretations for many years. In 2016, however, an interpretation of the Minister of Finance of February 25, 2016, ref. No. DD9.818.104.22.1686.KZU, according to which in the case of the sale of such a car, income "(...)should be qualified as a source of income referred to in Art. 10 sec. 1 point 8 lit. d) the act, i.e. for the sale of things against payment. In a situation where the sale of the car took place after six months from the end of the month in which it was purchased, the Applicant's tax obligation will not arise. "However, it should be borne in mind that no general ruling on accounting for the sale of a car leased out for private purposes has not been issued. It is also worth paying attention to the individual interpretations issued by the Director of the National Tax Information of May 10, 2018, ref. 0114-KDIP3-1.4011.116.2018.3.MJ in which we read that"(...) in a situation where the car purchased after the end of the leasing contract will not be used by the taxpayer in business activities and will not be included in the company's assets, listed in Article 14 (2) (1) of the Personal Income Tax Act, then the income from the sale of this car will not be business income.
The tax consequences of the sale of this car should be considered in terms of income from the source referred to in art. 10 sec. 1 point 8 lit. d above. the act, i.e. the sale of things against payment. In such a situation, the sale of the car indicated in the application will result in the generation of income from this source, if it took place before the lapse of six months, counting from the end of the month in which it will be purchased. However, the tax obligation will not arise if the sale of the car took place after six months from the end of the month in which the car was purchased. "
According to the current position of the tax authorities, the sale of a leased car purchased for private purposes, which is not used in the course of business, constitutes the sale of goods for consideration. This means that if you sell such a car after 6 months, no taxable income will arise from your business. The package of changes introduced together with the Polish Government unifies the method of settling the sale of cars purchased from leasing for private purposes. A car bought out of lease after December 31, 2021 for private purposes will be sold free of tax only after 6 years. Therefore, the sale of the car after 6 months from the date of purchase will result in the obligation to tax the transaction.
If the entrepreneur decides to use the car purchased from leasing for private purposes also in his business activity, then he can only include 20% of the value of incurred expenses as the company's costs.
Art. 23 sec. 1 point 46 of the PIT Act:The costs of obtaining revenue are not considered to be incurred in respect of the costs of use, which is the property of the taxpayer carrying out business activities, a passenger car that is not a component of the assets referred to in article 1. 14 sec. 2, paragraph 1, and insurance premiums for such a car; these expenses and contributions of 20%, however, constitute tax deductible expenses, provided that the car is also used for purposes related to the economic activity carried out by the taxpayer.
Ms Anna is an active VAT taxpayer and privately bought the vehicle from operating lease in December 2021. Three months after the buyout, she wants to sell the car by concluding a sale and purchase agreement. Will the proceeds he derives from the sale be taxable?
As a rule, if the car was used in business before the buyout and the expenses related to its use constituted a tax expense, the sale of the car within six months of the buyout will be tantamount to earning business income and therefore will be taxable. If Ms Anna sold the car after 6 months, the "old" regulations apply and she could benefit from tax exemption due to the fact that the repurchase took place before the end of 2021.
Purchase of a passenger car from leasing for business-related purposes - booking in the wFirma.pl system
The invoice for the purchase of a leased passenger car should be posted in the wFirma.pl system via the EXPENSES »ACCOUNTING» ADD »VAT INVOICE» PURCHASE OF A PASSENGER CAR - KŚT 741. In the window for adding a new expense, complete the required fields.
If, before entering the vehicle into the register, the taxpayer incurred additional costs, e.g. vehicle registration, they should be entered in the INITIAL VALUE + field. In the REGISTRATION NUMBER field, enter the vehicle number that will appear on the list of vehicles available when posting operating expenses related to the current use of the car and the purchase of fuel.
The posted expenditure will be included in column 13 of the KPiR in the form of monthly depreciation write-offs and in the VAT purchase register (in the case of active VAT payers). In addition, the vehicle will be included in the fixed assets register, and therefore the system will automatically generate an OT document, which should be printed using the RECORDS »FIXED ASSETS tab, where, after clicking on the name of the fixed asset, go to the ASSET DOCUMENTS tab. The printed OT should be kept in the company documentation along with a copy of the documents confirming the initial value of the fixed asset.
Purchase of a leased passenger car for private purposes and its use in business - booking in the wFirma.pl system
A car leased for private purposes can be used in business.
First, enter the vehicle into the system (not to the fixed assets register) through the tab RECORDS »VEHICLES» ADD VEHICLE. In the TYPE field, select PASSENGER CAR, select PRIVATE AND ACTIVITY FOR USE, and PRIVATE FOR OWNERSHIP.
The expenses related to the car should be booked through the tab EXPENDITURE »ACCOUNTING» ADD »VAT INVOICE / INVOICE (without VAT)» PURCHASE OF FUEL FOR THE VEHICLE / OTHER EXPENSES RELATED TO THE CURRENT USE OF THE VEHICLE. They will be included in the VAT purchase register in accordance with the right to deduct VAT (for active VAT payers) and in column 13 of the KPiR - Other expenses in 20% of the value of the expenditure.