The choice between buying or leasing a company vehicle, as well as the deduction of mileage allowances has a fiscal and financial importance for companies.
Purchasing allows the vehicle to be depreciated, while leasing, which is often more flexible, sometimes offers advantages in terms of cash flow. On the other hand, the mileage allowance option is suitable for employees or managers who use their personal vehicle for business trips.
Each option has specific tax consequences, influencing the deductibility of expenses and the calculation of taxable profit.
I – Buying a vehicule
Purchase with cash payment
When the company has sufficient cash flow, this solution allows you to avoid credit costs while ensuring a speedy transaction. The vehicle will be entered as an asset on the company’s balance sheet, which will have the effect of increasing the value of its assets.
Depreciation is deductible, in full for a utility vehicle, or capped at the following amounts for a passenger vehicle (i.e. with, in principle, more than two seats):
- €30,000 for vehicles with a CO2 emission rate of less than 20 grams per kilometer;
- €20,300 for vehicles with an emission rate of greater than or equal to 20 grams and less than 50 grams per kilometer;
- €18,300 for vehicles emitting between 50 and 160 grams per km;
- 9,900 euros for vehicles emitting more than 160 grams per kilometer.
However, the business manager must check, before any decision, that such a cash payment will not have serious consequences on the company’s cash flow.
Obtaining financing
Obtaining a bank loan also allows you to own and dispose of your property at any time and, in addition, the cash flow is not affected by this purchase. In addition, the taxpayer also benefits from the tax deduction indicated above.
On the other hand, the tax deduction of loan interest will be capped with the same limits as depreciation. The amount of the repayments is determined at the time of signing the contract with the banking institution.
II – Rent a vehicle
Leasing (lease with option to purchase)
This type of leasing allows you to rent a new vehicle for a period of 2 to 5 years, with the possibility of purchasing this vehicle at the end of the contract. The purchase price of the vehicle is set from the start in the contract, so it cannot fluctuate depending on the vehicle’s more or less rapid loss of value. However, we recommend that you be aware of this value when signing the contract because a low rental can mask a very high buyback price at the end of the contract.
The advantage of this type of financing is that the company deducts from its taxable profit exactly the amount of the sums it pays out (unlike the purchase). The rents paid to the lessor are in fact entirely deductible except for a cap (according to the same limits as above) concerning vehicles intended for the transport of people. In this case, the lessor must inform the lessee annually of the amount of rent not deductible from the taxable income as well as the amount of the special tax for passenger transport vehicles (ex TVS).
In addition, a company can request to pay a higher first rent, this will reduce the amount of future rents and allow a larger amount to be deducted from taxes at the time of purchase (provided that the limit permitted by case law is not exceeded).
Note: The contract usually sets a limit on the annual mileage. Check the terms carefully because you will have to pay additional fees if this limit is exceeded.
Long Term Rental
In this option, the tenant benefits from the services associated with the vehicle. He therefore does not have to worry about maintenance or relations with the insurer in the event of an accident. Other options may also be chosen when concluding the contract, such as fuel or tire replacement. The company controls its budget thanks to negotiable costs known in advance. In addition, it retains its investment capacity. Long term rental has no influence on the balance sheet because the monthly rental is perceived as a deductible expense and not as an investment.
Generally, there is no need to pay a contribution or an increased first rental.
On the other hand, if the car or professional vehicle is not returned to a perfect state of conservation, heavy repair costs will have to be paid by the tenant.
Short or medium term rental
This option is generally more economical when it concerns a professional vehicle whose use is not regular. The tenant only pays for what he consumes. Maintenance and insurance costs are included in the price. In addition, the tenant also has breakdown assistance, the loan of another vehicle and the ecological penalty does not apply.
Possibly, additional costs are to be expected in the event of exceeding the mileage limits.
Note 1: When the duration of the financial lease contract for a passenger car does not exceed three months, the lessee is not liable for the “tax on the allocation of passenger vehicles for economic purposes” (ex TVS).
Note 2: The VAT recovery regime always remains the same regardless of the method of financing. With the exception of certain professions, VAT on the purchase price, rentals and maintenance is recoverable only on utility vehicles.
Note 3: Concerning the rental of passenger transport vehicles, whatever the mode and duration of the rental, part of the rent must possibly be reintegrated into the taxable income as we have indicated in the “leasing” paragraph. In all cases, the lessor must inform the lessee as indicated in this same paragraph.
Note 4: Regardless of the method of investment (purchase or rental of a vehicle) by the company, only the professional use of the vehicle is considered a professional expense for the company. The use of the vehicle for personal purposes, particularly by a manager, represents a taxable benefit in kind for the manager.
III – Use your personal car and get reimbursed a mileage allowance
Mileage allowances allow a manager or employee to be reimbursed for expenses related to the use of their personal vehicle for the purposes of their professional activity. The amount paid is deductible from the company’s taxable income provided that the business trips are justified and that the amount reimbursed does not exceed a mileage scale set annually by the administration.
Keeping a register summarizing the movements of each vehicle can be complicated. In addition, the payment of such compensation is only accepted by the administration for passenger vehicles. This compensation is only deductible when paid to active company managers, employees or holders of non-commercial income (BNC). It is not applicable for Industrial and Commercial Profits (BIC). They cannot concern the home-work journey.
The advantage of this option is that the tax on the allocation of vehicles for economic purposes is not payable if the reimbursed compensation covers less than 15,000 kilometers traveled annually for professional purposes.
But the amount to be paid is reduced by the application of the weighting coefficient below:
Number of kilometers reimbursed by the company | Percentage of tax on allocation to be paid |
From 15,001 to 25,000 | 25 % |
From 25,001 to 35,000 | 50 % |
From 35,001 to 45,000 | 75 % |
Over 45,000 | 100 % |
Conclusion & Summary
The acquisition of the vehicle entails a significant immediate financial cost or the need to take steps to find financing. In return, you have total freedom of use, maintenance and mileage management. The total cost may be lower than for other options, but you should consider that maintenance expenses and the administrative procedures for acquiring and selling the vehicle will be added.
Long-term rental (with or without purchase option) involves the payment of regular monthly payments (except in the case of a high first rental). However, you must respect the conditions of the contract, in particular the maximum mileage. Fees may apply for any excess. The administrative process is simplified: signing the contract and paying the first rental. This facilitates rapid access to the vehicle.
Monthly payments often cover maintenance, support, and other services, making it easier to manage your budget.
Be careful! Sometimes a lease with option to buy can be more expensive in the long run.
Short-term rental is advantageous in cases where a vehicle is not used permanently. It also allows you to avoid being liable for tax on the allocation of vehicles for economic purposes.
The payment of mileage allowances often remains advantageous when it comes to passenger vehicles and if you manage to avoid “tax on allocation of passenger vehicles for economic purposes” (ex TVS). However, it is advisable to check this for each vehicle concerned.
If there are any points that are not clear to you and you need more information, please don’t hesitate to contact us!
