A growing number of companies and self-employed workers are choosing long-term rentals in order to lower costs and not have to buy certain goods. Vehicles are the most popular assets to long-term vehicles rental in Spain.
Regarding VAT deductibility at long-term vehicles rental in Spain
Article 95 of the VAT Law states: “Entrepreneurs or professionals shall not be able to deduct the amount of input VAT incurred or paid on the acquisition or import of goods or services that are not used directly and exclusively for their business or professional activity.
Article 95.3 of the VAT Law establishes that “the amount incurred for the acquisition, import, lease or assignment” of “passenger cars and their trailers, mopeds and motorbikes, shall be deemed to be used to carry out the business or professional activity in the proportion of 50%”, although it also recognises a presumption of exclusive use, that is, 100%, for the following vehicles when used for the following activities:
- The provision of passenger transport services in return for payment.
- The provision of driving or flight instructor services in return for payment.
- Business related travel of sales representatives or agents.
- Security services.
- Vehicles used by manufacturers to carry out tests, trials, demonstrations or sales promotions.
- Multipurpose vehicles used to transport goods.
The Tax Agency allows VAT to be deducted when selling/renting long-term/leasing vehicles that are intended to be used for carrying out an activity, in addition to any repairs needed and fuel used by said vehicles.
The extent to which the vehicle is used for carrying out a business or professional activity must be evidenced by the taxpayer by any means approved by law.
Some examples of evidence could include:
- Driving the car with an advert for the company
- Keeping a record of visits and meetings held outside of the company that justify the need to travel. Ruling 953/2007 of the High Court of Extremadura.
- Work records
- A corporate parking contract including 24-hour security.
- Vehicle geolocation systems.
- Evidence of a separate vehicle for personal use
Section “Four” of Article 95 of the VAT law establishes the criteria for deducting input VAT incurred. It states that the same criteria listed above shall be followed.
That is to say, that if the input VAT incurred for the vehicle is 100% deductible, this shall also apply to the abovementioned goods and services. And if only 50% of the VAT is deductible, this percentage shall also apply to the following expenses:
- Accessories and spare parts
- Fuels, lubricants, etc.
- Parking costs
- Motorway tolls
On 18 December 2018, the General Tax Authority ruled on binding consultation Nr. V3216-18: this ruling rectified the previous ruling, Nr. V2450-18, that was then annulled.
This consultation has changed the criteria followed for the treatment of input VAT deduction in the case of employees using vehicles that were rented long-term to them by the business.
In essence, binding consultation V3216-18 concludes that when a company assigns the use of a vehicle to their employee, this constitutes a benefit in kind that said company has to provide. Hence why we find this benefit part of the total remuneration package paid to the employees.
That is to say that for the DGT, “These benefits in kind constitute services carried out in return for payment for VAT purposes, and as such shall remain liable to the abovementioned tax”.
Therefore, VAT deductibility will be subject to:
In this particular case, assigning vehicles, only the part proportional to the employee’s use of the vehicle for personal purposes will be considered a benefit in kind. As such, in the event that said vehicle is used by the employee for both business and private purposes, these benefits in kind can also be identified as services carried out in return for payment, in such a way that they amount to transactions that are subject to and, in principle, not exempt from Tax.
The company will not be able to deduct the entire amount of input VAT incurred if some of its activities are exempt.
If no exempt activity is carried out, and the vehicles are one hundred percent used for carrying out an activity that is subject to VAT and not exempt, companies shall be able to deduct the entire amount of input VAT incurred through leasing the vehicles to the employees. If the vehicle is not 100% used for the activity, only the VAT for the part proportionate to its use for the business activity of the company will be able to be deducted.
Regarding Corporate Tax deductibility
Some vehicles, acquired through renting long-term, will be used by employees for both professional and private purposes. The company attributes the amount corresponding to private use in employees’ payslips as a benefit in kind:
Rental long-term fees and other costs associated with the vehicle are fully deductible from the CIT in the example above, even though the vehicle was partly used for personal purposes. It is important to note that, in general, accounting costs are tax deductible under the CIT if they comply with the legally established requirements:
- Accounting Record;
- Assignment on an accrual basis;
- Revenue and expense matching;
- Documentary evidence;
- They are not one of the non-deductible costs specifically listed in the CIT regulation
The Tax Agency webpage also specifies as below (long-term vehicles rental in Spain):
On the assumption that this transaction was not economically comparable to a financial leasing transaction (leasing), the amount paid by virtue of contracts signed by the company for long-term vehicles rental in Spain, constitute ordinary operating expenses for using vehicles for the purposes of the activity and, as a result, the amount accrued by said contracts will be considered to be tax deductible expenses, on the condition that they are not listed as a non-deductible expense in Article 15 of the LCIT and have been assigned for accounting purposes to the profit and loss account under the conditions set forth in Article 11, without prejudice to the fact that the amount corresponding to an employee’s use of the vehicle for private purposes must be considered a benefit in kind and treated as staff costs. All of the above is entirely without prejudice to the value of said benefit in kind established in the Personal Income Tax.