Corporate vehicles and taxation

Business Managers often have difficulties choosing a type of vehicle or how to finance it. These decision-making 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 utility vehicle (corporate vehicle) from a passenger vehicle.

The utility vehicle (UV) is used in a professional context and weighs (most often) 3.5 tons or more fully loaded, it can be used for the transport of people (more than 9 people) or for the transport of goods or materials. As far as the latter are concerned, the seats are limited, 2 or 3 at the front and none at the back, the passenger compartment is separated from the loading space by a metal partition.

The light utility vehicle exists in several forms: van, small truck, refrigerated vehicle, etc. The “company vehicle” is also considered a utility vehicle. It looks like a passenger car but only has two doors and no back seats.

The passenger vehicle (PV), also called a “private 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 petrol or diesel. However, more and more companies are opting for hybrid and electric vehicles, which are less polluting, which offer significant tax advantages.

I – Tax deductibility

1. 1. 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.

We will firstly examine which types of cars are affected by this limitation.

• Vehicles affected by the depreciation limitation: Cars registered in the “passenger cars” category, category N1 multi-purpose vehicles intended for the transport of passengers and their luggage or goods as well as category N1 vehicles of the “pick-up” type, comprising at least 5 places. As VAT is not recoverable, the purchase price to be considered is the purchase price of the private car, VAT included.

  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 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
  • Rental companies
  • Companies offering sports driving courses

• Calculation of the depreciation limit:
  • Passenger vehicles purchased before January 1^st, 2017: The depreciation of passenger vehicles is not deductible for the fraction of their acquisition price including tax which exceeds €18,300. For the most polluting vehicles, whose carbon dioxide emission rate is greater than 200 g/km, the limit is reduced to €9,900.

    The limit of €9,900 applies to vehicles acquired from January 1^st 2006 and whose date of first entry into circulation occurred after June 1^st 2004.

• • Passenger vehicles purchased since January 1^st, 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 according to the following table.

    This table concerns vehicles registered according to the old NEDC process.

• • Vehicles purchased since March 1^st, 2020, subject to the new WLTP registration procedure: For these vehicles covered by the WLTP registration system, effective since March 1^st 2020, the following specific depreciation limits are provided.

• • Depreciation of non-polluting vehicle equipment: Certain equipment of non-polluting vehicles is not considered 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 registered separately as an asset and is depreciated independently.

1. 2. Rental of a passenger vehicle

For passenger vehicles leased 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 they own. 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 applied in terms of depreciation (see above).

1. 3. 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 private use.

1. 4. 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 their staff who owns an allowance intended to cover the depreciation of their personal vehicle that they 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

1. 1. 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, busses, 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 for rental on the condition that this rental is subject to VAT
    • 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 their dealership
    • 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.

Thus, vehicles designed to transport people or for mixed use do not qualify for deduction, with the exception of those:

• • intended to be resold in new condition
  • rented
  • in addition to the driver’s seat, more than eight seats and used by companies to bring their staff to the workplace
  • allocated exclusively to driving instruction
  • all-terrain type assigned exclusively to the operation of ski lifts and ski areas, under conditions set by decree
  • acquired by public passenger transport companies and allocated exclusively to the provision of said transport

The constituent elements, spare parts and accessories of vehicles and machines themselves excluded do not give the right to deduction.

Note: Motorhomes are excluded from the right to deduction as motorhomes are specially fitted out to accompany exceptional convoys.

Vehicles whose characteristics are listed above, and which constitute fixed assets and used by industrial or commercial companies to transport their staff, 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.

1. 2. 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 if 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: Since 2022, VAT on petrol and diesel has been deductible at 100% for utility vehicles and 80% for passenger cars.

  There is no differentiation between these two types of vehicles in the VAT recovery rules for the following types of fuel, 100% deductible:

  • GPL (liquefied petroleum gas)
  • GNV (natural gas vehicle)
  • Butane and propane in liquefied form

On the other hand, GPL in its gaseous state is only 100% recoverable for utility vehicles. In the case of a passenger vehicle, VAT recovery on this fuel is limited to 50%.

The rules are simpler for electric or hybrid vehicles: VAT on electricity is fully deductible, in all cases.

III – Vehicle tax on companies (TVS)

Regarding this tax, we suggest that you consult the article entitled “Vehicle tax on companies” on our website.

As always, do not hesitate to reach out to hear more about corporate vehicles and taxes related to them.