Your company owns a car to which you give personal use. What is the tax implication?
The situation described above is quite common. In many cases companies allow the use of their cars or other assets to employees or members of the board of directors.
If you give personal use to an asset that belongs to a company you are benefiting from a service for which you have not paid. In this case, the Tax law stipulates rules to handle this “payment in kind” and pay the corresponding tax.
In view of the fact that there is tax involved in making personal use of company’s assets, the company’s owner may wonder what option is best for him. Will he pay less tax if he buys the car or, on the contrary, will he be better off to have the company buy a car and then declare the payment in kind for his personal use of it?
Payment in Kind and Retention.
Receiving any payment from a company, such as a salary or dividends, is subjected to withholding tax (retentions): part of the payment is kept to pay income tax in behalf of the receiver.
In case of payment “in kind” there is no cash from which to withhold a part. Therefore the company should value the service provided and pay the corresponding tax in behalf of the receiver.
Example. A employee is allowed to stay in a company owned flat for a period of 2 weeks. The market value of this service is estimated to be 800€. This amount is integrated with the rest of wages received from the company in order to calculate the applicable withholding tax. In his case, it is 2%.
Value of service: 800€
The company will include this amount at the time of paying retention tax via modelo 111.
Payment in Kind and Social Security.
The value of the service should also count at the time of paying the receiver’s social security contribution.
However if the beneficiary is a director, contributing as “autonomo”, there will be no variation in his social security fee as autonomos pay a fixed amount.
Value of the Service.
How do you figure out the value of the service received? The tax law has a rule for that.
In case of a car, the attributed value is 20% of the car’s acquisition value including IVA and registration tax per year. For the purpose of this calculation the means by which the car has been obtained is irrelevant; renting, leasing, with a loan, … This is, even if the car has not been purchased but a monthly leasing quota is being paid, the reference value for the payment-in-kind is still the cost shown in the invoice. (plus IVA and registration tax)
The 20% of the car cost is the value attributed per year for a full-time usage of the car.
This is kept for as long as the car is used even when the accumulated value attributed exceeds the cost of the vehicle.
If the car is kept for 8 years with a full-time use, the beneficiary will eventually be taxed for an income equivalent to 160% of the car’s cost.
If, the company also pays for the petrol, this likewise needs to be included in the value of the service received.
On the other hand, in the meantime, the company will claim as expenses any cost that the beneficiary is not assuming himself ( leasing quotas, maintenance, etc…)
Shared Use and IVA
In case the car is given a mixed use (company and personal service ) the IVA paid in the acquisition ,or in the quotas of the lease, will be deductible only in proportion to the professional use.
Case Study. Some figures.
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