Financial Lease
Financial Lease and VAT: How Does Recovery Work?
Updated
When you acquire a business car through financial lease, this has direct implications for VAT remittance. Since you are the economic owner, you do not pre-finance the VAT throughout the entire contract. In this article, you will read exactly how VAT processing works when purchasing a leased vehicle.
Recover VAT Directly at the Start
One of the key characteristics of financial lease is that you pay the full VAT amount on the car's purchase price in one go at the start of the agreement. This VAT amount can then be recovered with your very next VAT return.
Because you reclaim the VAT amount in one go, the subsequent monthly lease instalments are invoiced VAT-free. Only a small amount of VAT may be charged on any administrative costs.
Difference Between VAT Cars and Margin Cars
When selecting a car, it's important to pay attention to its VAT status. For a VAT car, the VAT is reclaimable, and you pay this amount to the dealer, after which you recover it via the tax authorities.
If you opt for a margin car, for example, from a private previous owner, there is no VAT included in the price. Read more here about the difference between VAT and margin cars to determine which option best suits your situation.
Financing VAT or Paying an Advance
As a rule, VAT cannot be financed within the lease contract. This means you must pay the VAT from your own funds to the leasing company or car dealer at the time of purchase.
Since the Tax Authorities will refund the VAT amount to your account after your declaration, this outgoing cash flow at the start is only temporary. However, ensure you have sufficient liquidity at the time of purchase.
Which VAT is Not Deductible?
For passenger cars not used exclusively for business purposes, a specific regulation applies. In such cases, the VAT on private use is not deductible. The VAT deduction may also be limited for certain maintenance costs or expenses considered luxury or representation. It is advisable to consult the specific rules of the Tax Authorities or seek advice from a tax specialist to determine which costs are fully deductible and which are not.
Consequences of Incorrect VAT Handling
During an audit, the Tax Authorities may request proof of the vehicle's business use or specifications of incurred costs. Comprehensive administration, including a mileage log if applicable, can provide a solution here. Prevention is better than cure, so ensure a clear strategy and always consult a professional in case of doubt to correctly manage VAT and avoid potential risks.
- Potential additional assessment from the Tax Authorities
- Administrative burden for corrections and correspondence
- Risk of fines for serious or repeated errors
- Impact on cash flow due to unexpected payments
Frequently asked questions
Do I have to pay VAT on the monthly instalments of a financial lease?
No, the monthly instalments (repayment and interest) are VAT-free, as you will have already paid the VAT on the entire purchase amount at the outset.
Can I finance a margin car with a financial lease?
Yes, that is possible. With a margin car, you do not have to pay VAT in advance at the start, as no VAT is due on the vehicle anymore.