CORPORATE VEHICLES AND TAXATION
Business leaders often have difficulty choosing a type of vehicle or how to finance it when purchasing it. These choice problems are often linked to tax issues, also, to facilitate this decision-making, we have summarized below the main rules in matters of tax deductibility and recovery of VAT on vehicles.
Before any development it is necessary to distinguish what is called in tax law a commercial vehicle from a passenger vehicle.
The utility vehicle (UV) is used in a professional context and weighs 3.5 tonnes or more, it can be used for transporting people (more than 9 people) or transporting goods or equipment. Regarding the latter, the seats are limited, 2 or 3 at the front and none at the rear, the cabin is separated from the loading area by a metal partition.
The light commercial vehicle exists in several forms: van, small truck, refrigerated vehicle ... The "company vehicle" is also considered a commercial vehicle. It looks like a passenger car but has only two doors and does not have a back seat.
The passenger vehicle (PV) is also called a “private vehicle”, the passenger vehicle is an ordinary car which cannot be differentiated from the vehicles used by individuals. It is indeed intended for the transport of people. It can take various forms: sedan 2, 3, 4 or 5 doors, coupe, convertible, station wagon, SUV, minivan ... The passenger vehicle runs mainly on gasoline or diesel. However, more and more companies are opting for hybrid vehicles and electric vehicles, less polluting, which offer significant tax advantages.
I - Tax deductibility
- Vehicle purchase
Commercial vehicles can be depreciated over their entire purchase price (except in exceptional cases where their value is so high that they could be considered as sumptuary property).
On the other hand, the amount of depreciation of passenger vehicles is capped. However, new vehicles sold by a garage or dealer who used them for the demonstration are considered second-hand goods which must appear in stocks.
We will first of all see which types of cars are affected by this limitation:
- Vehicles affected by the depreciation limitation: These are passenger cars in category M1, multipurpose vehicles in category N1 intended for the transport of passengers and their luggage or their goods as well as vehicles in categories N1 “pick-up truck” type, comprising at least 5 places (with the exception of those which are exclusively used for the operation of ski lifts and ski areas). As the VAT is not recoverable, the purchase price to be used is the purchase price of the passenger car, including taxes.
Charges other than depreciation (or rents) are deductible without limitation, if the general conditions for deducting charges are met.
The removal of rear seats does not by itself make it possible to change the classification of "passenger car" within the meaning of tax law.
Are not affected by the limitation of the deduction of depreciation passenger vehicles strictly necessary for the activity of companies such as:
- Ambulances, taxis, driving schools,
- Vehicle rental companies,
- Companies offering sports driving courses.
- Calculation of the depreciation limit: For passenger vehicles acquired since January 1st 2017, depreciation is excluded from deductible charges for the portion of their acquisition price that exceeds a variable ceiling of € 30,000 to € 9,900, which is determined according to the date of purchase vehicle acquisition and its CO2 emission rate.
Depreciation deductibility limit
Vehicles acquired since March 1st 2020 (1)
9 900 €
18 300 €
20 300 €
30 000 €
Vehicles acquired before January 1st 2021 and from March 1st 2020
> to 165 g
From 50 g to 165 g
From 20 g to 49 g
From 0 g to 19 g
Vehicles acquired from January 1st 2021
> to 160 g
From 50 g to 160 g
(1) Ceiling based on the number of grams of CO2 emitted per kilometer.
Depreciation of non-polluting vehicle equipment: Certain equipment of non-polluting vehicles are not taken into account for the application of the depreciation limitation. Thus, when the accumulators necessary for the operation of electric vehicles or the specific equipment allowing the use of LPG or CNG have been the subject of a separate billing or a separate mention which allows them to be identified during the acquisition of vehicles, this equipment is recorded separately as an asset and is depreciated independently.
- Rental of a passenger vehicle
For passenger vehicles leased or hired for a period of at least 3 months, the deduction of rents is limited to the same ceiling as that applied by the lessor, as depreciation on the price of purchase of the car he owns. The acquisition date to be used is the date of purchase by the lessor, and not the date of rental by the user company.
The level of deduction of rents varies according to the date of acquisition of the property and its level of CO2 emissions. The principle of calculation is the same as that applied in terms of depreciation (see above).
- Personal use of the vehicle by the manager or operator
The registration of an asset used in an interest foreign to that of the company can sometimes allow the administration to consider that it is an abnormal management act and to reinstate the corresponding expenses in taxable profit.
In all cases, the private share of all the expenses incurred relating to the vehicle should be reintegrated into the results of the company, even if some of them should, in any case, have been incurred even in the absence of private use.
- Use of a vehicle belonging to a manager or a member of the personnel of the company for the needs of the company
When a company pays a manager or a member of his staff who owns an allowance intended to cover the depreciation of his personal vehicle that he uses in the interest of the company, the part of this allowance corresponding to the part of the purchase price which exceeds this limit (€ 30,000 to € 9,900 depending on the vehicle) is not deductible. Compensation calculated on the basis of the kilometer scale published by the administration takes into account the depreciation deduction ceiling.
In all cases, we recommend paying mileage allowances fixed on the administration's scale and having a logbook of business trips kept by the user of the vehicle.
II - VAT on vehicles
- VAT on the purchase price or the rent
VAT is in principle recoverable on professional vehicles, but it is rarely recoverable on passenger vehicles.
- Vehicles eligible for deduction
- All utility vehicles,
- Road vehicles comprising, in addition to the driver's seat, more than eight seats and used by companies to bring staff to the workplace,
- Vehicles or machinery acquired by public passenger transport companies and exclusively assigned to the performance of such transport,
Clarification: companies (supermarket operators, hoteliers, etc.) which allocate passenger cars, coaches, etc., for the use of their customers are not considered as transport companies (BOFiP-TVA-DED-30-30-20- § 170-01/02/2017).
- Vehicles intended exclusively for driving instruction,
- Vehicles known as “DERIVES VP” which have only two seats,
- Demonstration cars that a trader uses for the purposes of his motor vehicle business,
- Vehicles intended for resale in new condition by dealers and traders,
- Passenger transport vehicles belonging to travel agencies which assign them exclusively to a passenger transport activity separate from their travel agency activity,
- Light medical transport vehicles assigned exclusively to the taxable activity of transporting the sick or injured,
- Funeral transport vehicles used both for the transport of bodies and for that of families,
- "Off-road" type vehicles or equipment exclusively used for the operation of ski lifts and ski areas,
- Specially equipped utility vehicles with a berth allowing a salesperson to spend the night there, since they constitute vehicles designed for the transport and presentation of goods ("mobile showrooms").
The constituent parts, spare parts and accessories of these vehicles as well as the services: repair, maintenance, rental and leasing operations are also eligible for deduction.
- Vehicles not eligible for deduction
Vehicles designed to transport people or for mixed use which constitute an asset for the company are not eligible for deduction, it is the characteristics on the date of purchase or rental that must be used.
The exclusion of the right to deduct VAT also applies to motorcycles, scooters, even if they have undergone transformations prior to their use with the aim of making them usable for a parcel delivery activity.
A vehicle with an extended cabin, which has five seats, three of which can be retracted if necessary in order to increase the load space, is designed for mixed use and, therefore, is excluded from the right of deduction (BOFiP- TVA-DED-30-30-20-§ 20-01/02/2017).
Main characteristics of these vehicles: vehicles excluded from the right to deduct are understood, in addition to bicycles and motorcycles (including those used for delivery), motor vehicles approved by the mining service as “voitures particulières” (VP).
Vehicles whose characteristics are listed above and which constitute fixed assets and used by industrial or commercial companies to transport their personnel are excluded from the right of deduction.
Likewise, light commercial vehicles are excluded from the right of deduction for which the space normally reserved for goods is equipped either with folding benches (or seats), or with anchor points for securing the rear seats.
- VAT on maintenance costs and fuel
- Maintenance: Spare parts for excluded vehicles, as well as repairs and other services relating to these vehicles are not eligible for deduction.
However, the VAT charged on the purchase of a telephone installed in passenger vehicles is recoverable provided that it is used for the purposes of taxable activity.
Likewise, VAT relating to special equipment is deductible even if it is installed on vehicles excluded from the right of deduction.
- Fuel: Petroleum products used for the lubrication of vehicles and machinery excluded from the right of deduction or those taken on hire when the lessee cannot deduct the tax relating to the hire are excluded from the right of deduction.
The deduction is total for diesel and E 85 superethanol used as fuel for vehicles which give rise to the right to deduct. On the other hand, it is partially deductible according to the following proportions:
- 80% of its amount for diesel fuel and E85 superethanol used as fuel for vehicles and machinery excluded from the right of deduction,
- 50% for petroleum gases and other hydrocarbons when these products are used for vehicles and equipment excluded from the right of deduction,
- 80% in 2021 (60% in 2020) for gasoline used for all vehicles and equipment excluded or not from the right of deduction,
- 100% for the LPG used for all vehicles excluded or not from the right of deduction.
III - Vehicle Tax on Companies (TVS)
Regarding this tax, we suggest that you consult the article entitled “VEHICLE TAX ON COMPANIES” on our website.
We would like to point out, however, that the finance law for 2021 provided for a new tariff of the CO2 component for vehicles falling under the new registration procedure applicable from then on March 1st 2020.
The rate of this tax is equal, for vehicles falling under the new registration system (WLTP), to the amount determined according to CO2 emissions, expressed in grams per kilometer (g/km) under the following conditions:
- When the emissions are less than 21 g/km, the tax rate is zero,
- When the emissions are greater than or equal to 21 g/km per kilometer and less than or equal to 269 g/km, the tariff is determined by a scale,
- When the emissions are greater than 269 g/km, the price is equal to the product between the CO2 emissions and € 29 per g/km.
In addition, an overhaul of this tax is planned for 2022.