We present practical scenarios addressing the VAT implications of motor vehicles and the related costs for corporate income tax purposes:
If a VAT payer acquires a motor vehicle (category M1, L1e or L3e) between 1 January 2026 and 30 June 2028 and uses it for both business and private purposes (i.e. not exclusively for business), a straightforward rule applies:
-
Only 50% of the VAT may be deducted (on a flat-rate basis).
-
The remaining 50% of the VAT is non-deductible.
Pursuant to Section 52(7) of the Accounting Procedures Act, the acquisition cost recorded in account 042 and used for placing the asset into use includes the portion of VAT on the purchase of the motor vehicle for which the taxpayer is not entitled to a deduction (i.e. 50%). However, this non-deductible VAT does not form part of, nor does it increase, the tax acquisition cost of the asset.
As a result, the taxpayer will determine different entry values for accounting and tax depreciation purposes:
-
Acquisition cost for accounting depreciation (including non-deductible VAT);
-
Tax entry value for tax depreciation.
In practice, this means that the asset will be depreciated from different amounts for accounting and tax purposes.
Accounting depreciation, calculated from the accounting acquisition cost (which includes the non-deductible VAT), will exceed tax depreciation. The taxpayer is therefore required to adjust the accounting result to the tax base by increasing the profit through an add-back item (line 150 of the corporate income tax return). The difference between accounting and tax depreciation must be assessed separately for each motor vehicle acquired between 1 January 2026 and 30 June 2028, over the entire depreciation period of the asset.
In this case, the difference between accounting and tax depreciation will result in a permanent difference between the accounting and tax residual value, which does not give rise to deferred tax.
Where the taxpayer purchases fuel or acquires goods (e.g. tyres or spare parts) and receives services (e.g. maintenance, parking or car wash services) in connection with a motor vehicle used for both business and private purposes, the flat-rate 50% VAT for which no deduction is allowed does not constitute a tax-deductible expense.
VAT relating to goods and services connected to vehicles used for both private and business purposes is treated as a non-tax expense. It affects the accounting result but does not enter the corporate income tax base. Where the flat-rate 50% VAT is recorded as an expense, it must be added back to the accounting result. In the corporate income tax return, it is reported as an item increasing the accounting result (line 130, line 16 of Table A).
The Financial Administration has published new guidance for VAT payers effective from January 2026. If a taxpayer intends to claim a 100% VAT deduction on a passenger motor vehicle, all statutory conditions must be met. The vehicle must be used exclusively for business purposes, a new Notification of Exclusive Business Use of a Passenger Motor Vehicle must be submitted, and detailed records demonstrating exclusive business use must be maintained in an electronically processable format (e.g. MS Excel; PDF format is not considered electronically processable).
The VAT payer is required to notify exclusive business use no later than the deadline for filing the VAT return for the taxable period in which the deduction is claimed. If the vehicle is acquired in January 2026 and the deduction is claimed for that period, the notification must be submitted no later than 25 February 2026. This obligation does not apply to vehicles acquired before 1 January 2026.
If electronic records are not maintained, the taxpayer is not entitled to claim a 100% VAT deduction. In such cases, only a 50% deduction may be claimed, without the obligation to submit a notification of exclusive business use. The same rule applies to fuel and other related goods and services – without electronic records, only a 50% VAT deduction may be claimed, even where the vehicle is used exclusively for business purposes.
Should you have any questions, please do not hesitate to contact us.