VAT deduction on company cars: three calculation methods
01 January 2016
Over the years, the rules that have been applying since 1 January 2011 to determine the VAT deduction on company assets that are also used for private purposes, have been clarified in different administrative decisions.
These administrative decisions have been clustered in one volume, more specifically in circular letter No. 36/2015 (E.T. 119.650) dated 23 November 2015. Even though this circular letter does not change the calculation method for the determination of the VAT that is deductible in relation to company cars, it provides further clarifications, but also introduces new tolerances and new conditions.
Below is an overview of the calculation methods to calculate the VAT deductible in relation to company cars.
Three calculation methods*
Method 1: actual professional use
Total Km’s – home-work distance (x2) – private Km’s x 100 = percentage VAT deduction
Total Km’s on a yearly basis
Method 2: semi-fixed calculation method
The number of working days and of private Km’s are set arbitrarily per vehicle.
1 – [(200 days x home-work distance x 2) + 6,000 private Km’s] x 100 = percentage VAT deduction
Total Km’s on a yearly basis
Method 3: lump sum VAT deduction
VAT deduction is limited to a fixed rate of 35% of the car costs (i.e. 65% of VAT on vehicle costs is not deductible).
- The input VAT deduction can never exceed 50% (exception is made for light trucks…), even if the actual professional use is above 50%;
- Methods 1 et 2 may be combined (free choice, per vehicle);
- For method 1, an administrative tolerance has been introduced for employees working as a sales representative, allowing a 50% professional use of the vehicle without any obligation to keep a logbook;
- Application of method 2 requires 3 conditions to be met cumulatively:
- The vehicle has one permanent user only. Method 2 does not apply to pooling vehicles for multiple users;
- There is only one vehicle per user. If more than one vehicle is made available to ths user, method 2 can only be applied to one vehicle;
- The vehicle has to be used for professional purposes. If the vehicle is made available to the user as part of the company’s remuneration policy, the Belgian tax authorities will automatically assume that the vehicle is actually used as a working tool or a business asset
- Application of method 3 also requires three conditions to be met cumulatively:
- The deduction method is applied to all vehicles;
- There is only one vehicle per user. For other vehicles made available to the user method 1 should apply;
- The vehicle has to be used for professional purposes. If the vehicle is made available to the user as part of the company’s remuneration policy, the Belgian tax authorities will assume that the vehicle is actually used as a working tool or a business asset
- In case the vehicles are in the company’s ownership, an adjustment of the VAT deduction on the initial purchase price applies for a period of 5 years. Therefore no VAT revision applies to older cars, i.e. from the sixth year, taking into account the purchase price. However, the right to input VAT deduction in respect of the current costs is, of course, still limited in proportion to the private use of the vehicle.
Commuting traffic = from residence towards the employer’s seat
The VAT authorities have opted to consider as commuting traffic, the distance between the place of residence or abode and the employer’s registered office or establishment (branch).
Employees moving in the course of the year or being assigned to another seat/office of the company will, in principle, have to proportion the commuting traffic over the different seats.
The administrative circular also provides for a number of specific cases and administrative tolerances (e.g. for employees in the construction sector).
It is also clearly stated in the circular letter that the so-called “40-days rule”, which applies for income taxes, is not applicable to determine the place of work for VAT purposes.
More information is available via e-mail: [email protected]
* Different rules apply to light trucks