By Weronika Nazarkiewicz, senior associate, Staniek and Partners
The use of passenger cars in business is common. It is important to remember that the use of a company car, whether by employees or management board, implies different legal impacts from a VAT, CIT or PIT perspective. The tax impact depends mainly on whether the car is used only for business or private purposes, so it’s important to correctly determine tax responsibilities.
Car used only for business purposes
VAT
An active VAT taxpayer can deduct either 50% or 100% of VAT on expenses related to the purchase of a car and on operating expenses (fuel, repairs, etc.).
In order to properly account for VAT on vehicle expenses, the first consideration is whether the vehicle is a passenger car or a truck.
For passenger cars, the rule is 50% VAT deduction. However, when the following conditions are met together, 100% VAT can be deducted:
- Keep a record of the mileage of the vehicle – the mileage log (records of routes driven, odometer readings)
- It is necessary to create regulations for the use of the vehicle in the company, that is, to determine the rules for the use of cars in the company, such as who is entitled to use company cars or to what extent the car is used in the company
- You must report the vehicle via the VAT-26 form to the tax office by a certain date
- Use of the vehicle only in business (exclusion of private use)
Otherwise, the taxpayer deducts only 50% of the VAT on operating expenses – without meeting additional conditions. For trucks or special-purpose vehicles (e.g., excavator, crane), 100% VAT is generally deductible.
CIT/PIT – from the employer’s perspective
If the car is used exclusively for business purposes, the taxpayer may include 100% of the operating expenses associated with its use as a deductible expense.
Assuming that the company car is worth more than 10,000 złotys, the initial value of the car is accounted for as an expense through depreciation deductions. In the case of passenger cars, depreciation deductions are limited in amount – a taxpayer cannot recognise depreciation deductions on that portion of the initial value of a passenger car over the following amounts:
- 250,000 złotys – for passenger cars that are electric and hydrogen-powered vehicles,
- 150,000 złotys – in the case of other passenger cars.
PIT – from the employee’s perspective
In the case of employees who use a company car exclusively for company purposes, no revenues subject to taxation and contributions will arise on their side. This also means that there will be no taxpayer responsibilities on the employer’s side.
Car used for business and private purposes
VAT
Since the car will be used for both business and private purposes, the taxpayer is entitled to a 50% VAT deduction on the purchase of the car and on the operating expenses incurred.
VAT provisions in some cases equate activities performed free of charge with the provision of services for consideration. However, not every provision of company cars for private purposes will give rise to the responsibility to charge output VAT.
This is because Article 8(5) of the Law excludes from taxation the gratuitous use of cars for private purposes of employees, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax calculated in accordance with Article 86a(1) (i.e. 50% VAT) on the purchase of the car, among other things.
Therefore, in a situation where the taxpayer had a 50% right to deduct VAT on the purchase of the vehicle, providing it to an employee free of charge is not subject to VAT. Therefore, this activity is also not subject to recording on a fiscal cash register.
CIT/PIT – from the employer’s perspective
Provisions in the Laws on Income Taxes regulate the limit on fuel expenses and operating costs of a personal car used for both private and business use at 75%.
In practice, this means that in the case of mixed use of the car, the taxpayer is obliged to convert the value from invoices documenting the purchase of fuel or operating expenses in proportion to the established limit.
As a result, the tax cost is only 75% of the value of the entire invoice.
PIT – from the employee’s perspective
When employees use a company car for private purposes, the determination of the employee’s revenues is made in a simplified manner.
However, the revenues are set at a lump sum and depend on the type of fuel the vehicle is powered by and the power of the engine.
For cars with engine power up to 60 kW, electric cars (by electric cars are considered vehicles that use only electricity for propulsion), and hydrogen-powered cars, the monthly lump sum is 250 złotys.
For all other cars, the lump sum is 400 złotys per month.
If, on the other hand, the car is used for private purposes only for part of the month, then the lump sum is 1/30 for each day of such use.
According to the current position of the tax authorities, the lump sum covers all operating costs, including fuel. The employer’s contribution is not to provide the car itself, but to ensure that it can be used properly.
What about charging an electric car at home?
In the case of reimbursement by the employer for car charging expenses, the value of employer-funded fuel-current is included in the employee’s lump-sum revenues. Therefore, reimbursement of charging expenses does not constitute additional revenues for the employee.
Settlement on managerial contract
Managers (members of the management board, directors) who do not run their own business and who carry out their responsibilities under a managerial contract earn revenues from personally carried out activities within the meaning of Article 13(7) of the Law on PIT.
However, in the case of managers, the issue of accounting for the mixed use of a company car is shaped differently than in the case of employees, since the revenues of managers are not determined in a lump sum.
What does this mean in practice? For the manager, revenues will arise from gratuitous benefits, within the meaning of Article 11(1) of the Law on PIT, and in practice a sizable amount will be added to the manager’s revenues.
For example, if a company provides a leased car to a manager for mixed purposes, revenues should be determined based on Article 11(2a)(2) of the Law on PIT, that is, according to the purchase price, which de facto corresponds to the lease instalment. This means that the revenues of the manager must be increased usually by several thousand zlotys.
Similarly, the manager’s revenues will be operating fees and fuel costs. Revenues are determined on the basis of Article 11(2) of the Law on PIT, i.e. on the basis of market prices applied in trading in things or rights of the same kind and species, taking into account, in particular, their condition and degree of wear and tear, as well as the time and place where they were obtained.
The company cooperating with the manager must also bear in mind that on the aforementioned gratuitous benefits, it will be required to perform the responsibility of the payer.
This means that while in the case of employees the lump-sum settlement of private use of a company car is very beneficial, in the case of a manager, private use of a car is most often not very profitable. This is important when a manager transitions from an employment relationship to a managerial contract.
