Flat-rate VAT deduction for passenger cars also used for private purposes

Starting January 1, 2026, the Slovak Republic has decided to use an exemption based on Council Implementing Decision (EU) 2025/852 and introduce a mandatory flat-rate VAT deduction of 50% of expenses for fuel, purchase, technical improvement, operation, repair, and maintenance of passenger motor vehicles, regardless of the actual ratio of use of these vehicles for business and private purposes. The aim of this measure is to reduce the administrative burden on businesses, which is mainly associated with the current obligation to keep detailed records of journeys, as well as to prevent tax evasion resulting from the unauthorized deduction of VAT in full, even when passenger cars are also used for private purposes.

The amendment to the VAT Act significantly restricts entrepreneurs' right to deduct VAT on these purchases between January 1, 2026, and June 30, 2028, which they would otherwise be entitled to do in accordance with the principle of tax neutrality in the actual demonstrable amount in which these cars and related goods or services for their operation are used for business purposes. Whether or not to keep records of journeys, and what significance this has if I cannot deduct VAT in the actual demonstrable proportion in which I use the vehicle for business purposes, will be questions that will resonate in the business world. The mandatory introduction of flat-rate expenses for motor vehicles in categories M1 (passenger cars), L1e, or L3e (motorcycles) may simplify administration for some entrepreneurs, but those entrepreneurs who already keep records of their journeys and use vehicles for business purposes at a rate higher than 50% will suffer. They will have to consider whether to continue keeping records of journeys at least for the purposes of the Income Tax Act or to apply flat-rate expenses for income tax on fuel consumed up to 80%. If they also use passenger cars for private purposes, they will only be able to deduct 50% of VAT, regardless of whether they keep logbooks or not.

In this article, we will briefly look at the basic facts, selected ambiguities, and deficiences of this legislation, not only in relation to VAT but also in relation to income tax. It can be expected that some provisions of the law will be further clarified by methodological guidelines or information, and therefore the tax authorities may still have a different opinion on some provisions at the end of the day.

 

Which vehicles are subject to mandatory 50% flat-rate VAT deduction?

• a) Own motor vehicles of categories M1, L1e, or L3e acquired between January 1, 2026, and June 30, 2028, with an initial price exceeding EUR 1,700.
• b) Leased motor vehicles of categories M1, L1e or L3e used on the basis of a long-term lease or similar contract (including financial and operational leasing) from January 1, 2026, to June 30, 2028. Input VAT incurred after January 1, 2026, shall be adjusted. Long-term rental means the continuous possession or use of a car for a period of more than 30 days.
• c) Any other expenses for fuel, technical improvements, operation, repairs, and maintenance of motor vehicles of categories M1, L1e, or L3e from January 1, 2026, to June 30, 2028, regardless of when the motor vehicles were purchased.

The provisions on the proportional deduction of VAT on the purchase of the above goods and services and the adjustment of VAT deduction remain unaffected. This means that if a taxpayer supplies goods and services that are exclusively exempt from VAT without the right to deduct tax, or if the taxpayer has a VAT coefficient lower than 50%, they cannot claim a 50% VAT deduction on purchased goods and services for motor vehicles.

 

Which vehicles are not affected by the mandatory flat-rate VAT deduction, and are there any reporting obligations?

• a) Motor vehicles of categories M1, L1e, or L3e that were acquired or are used exclusively for business purposes, provided that the taxpayer keeps detailed records in electronic form proving their usage exclusively for business purposes.
• b) Motor vehicles of categories M1, L1e or L3e used exclusively for business purposes, which are:
  • car rental,
  • transport of persons and their luggage for consideration, including taxi services, or
  • operation of a driving school, if the vehicle is a training vehicle.
• c) Motor vehicles of categories M1, L1e or L3e used exclusively as demonstration or test vehicles or as replacement vehicles provided to a customer for the duration of the repair of the customer's motor vehicle or during which other services are performed on the customer's motor vehicle. In this case, the customer's vehicle must also be of category M1, L1e or L3e.
• d) Motor vehicles of categories other than M1, L1e or L3e.
• e) Motor vehicles accounted for as inventory.

The taxpayer is obliged to report the use of a motor vehicle under letters a) to c) to the tax office within the deadline for filing a tax return for the tax period in which the tax deduction is claimed after January 1, 2026; in the case of a vehicle used on the basis of a long-term lease or similar contract, the taxpayer is obliged to report the use of the vehicle under letters a) to c) within the deadline for filing a tax return for the tax period in which he applied the tax deduction for the first time after January 1, 2026. If there is a change in the use of a passenger motor vehicle under letters b) to c) to use under letter a) or vice versa, the taxpayer shall also report this fact to the tax office within the deadline for filing a tax return for the tax period in which this fact occurred. By December 31 of the relevant calendar year, the tax office shall also be notified that, from the next calendar year, a passenger motor vehicle for which 50% VAT has been deducted will be used for the first time exclusively in accordance with letters a) to c).

 

3. To what extent are detailed records kept in electronic form proving the extent to which a motor vehicle of category M1, L1e or L3e is used exclusively for business purposes?

• a) Vehicle identification number (VIN),
• b) vehicle registration number, name and type of vehicle,
• c) vehicle odometer reading on the date of commencement of record keeping, at the end of each tax period and on the date of termination of record keeping,
• d) records of each use of the vehicle, containing in particular the following information:
  • serial number of the journey record,
  • name and surname of the person who drove the vehicle during the journey,
  • the date and time of the start and end of the journey,
  • the purpose of the journey proving the use of the vehicle for business,
  • the place of departure and destination of the journey,
  • the number of kilometers traveled for each journey, the odometer reading before and after each journey,
• e) records of the acquisition of goods and services used for the operation of the vehicle, broken down into individual goods and services, specifying their specifications, purchase price excluding tax, and the date of acquisition of the goods or receipt of the service.

 

What if I can prove that more than 50% of the use of a motor vehicle of category M1, L1e, or L3e is for business purposes?

Even in this case, the right to deduct VAT from expenses for fuel, purchase, operation, technical improvement, repairs, and maintenance of the vehicle arises only in the amount of 50%. Full VAT deduction is only possible if the vehicle is used exclusively for business purposes, which must be proven by the relevant mileage records. Therefore, VAT deduction is only possible at 50% or 100%, not at any other provable amount.

 

5. Is the 50% non-deductible VAT a tax expense?

This VAT is not a tax deductible expense for the entrepreneur, regardless of whether it relates to private or business trips.

 

6. What if I claim flat-rate tax expenses for fuel consumed up to 80% under the Income Tax Act?

In this case, if you want to claim the full VAT deduction, you will need to keep a logbook and detailed records in accordance with the VAT Act in order to prove that the motor vehicle is used exclusively for business purposes. Flat-rate expenses for fuel consumed will therefore become unattractive for you from a tax perspective, and it is advisable to consider another way of claiming tax expenses for fuel consumed. If you also use the motor vehicle for private purposes or do not keep a logbook, you will only be able to claim a 50% VAT deduction on fuel (this VAT will be a non-deductible expense) and you will continue to claim flat-rate expenses for fuel consumed up to 80%.

 

7. What if I keep detailed records of journeys in accordance with the VAT Act, report over-consumption of fuel according to the records of journeys in accordance with the Income Tax Act, and can determine precisely that 90% of the fuel was consumed for business purposes and only 10% for the private purposes of the employee or the employee pays for privately consumed fuel at their own expense (the employee fills up the car tank before a private trip and returns the car with a full car tank after the private trip)?

The law stipulates that a taxpayer who, in connection with a passenger motor vehicle used for business purposes as well as for purposes other than business, from January 1, 2026, to June 30, 2028, inclusive, receives goods that are not investment assets, deducts 50% of the tax applicable to these goods. It is unfortunate to require a VAT deduction of only 50% on these fuels, even though they are demonstrably used for business purposes at a rate of 90% or even 100%. In our opinion, such a significant undesirable interference with an entrepreneur's right to deduct VAT should be reviewed as soon as possible. Non-deductible VAT is a non-deductible expense. Fuel consumed privately and taxed as an employee benefit in accordance with the Labor Code is a tax expense. Any fuel over-consumption for business use is a non-deductible expense.

 

8. What if I sell fuel consumed privately by an employee or consider fuel consumed privately to be a free delivery of goods for consideration?

The law stipulates that a taxpayer who, in connection with a passenger car used for business purposes as well as for purposes other than business, from January 1, 2026, to June 30, 2028, inclusive, receives goods that are not investment assets, deducts 50% of the tax applicable to these goods. Under the current wording of the law, this setting appears to be disadvantageous or inapplicable in practice. Instead of selling fuel, it would be worth considering leasing a car to an employee, including fuel – in this case, the car would only be used for business purposes, but the lease price would have to correspond to the market price of the lease and not just the price of fuel. As a rule, this would also mean an obligation to keep a logbook if you wanted to claim the full VAT deduction, and thus a possible impact on the employee's privacy.

 

9. What if I can prove that I used the motorway vignette exclusively during a business trip and I keep detailed records of my trips in accordance with the VAT Act?

The law stipulates that a taxpayer who, in connection with a passenger motor vehicle used for business purposes as well as for purposes other than business, receives services from January 1, 2026, to June 30, 2028, inclusive, shall deduct 50% of the tax applicable to these services. It is unfortunate to require a 50% VAT deduction on this motorway vignette, even though it is demonstrably used exclusively for business travel.

 

10. What other issues do we see in the current legislation, and how could a tax audit catch you out in terms of the legislation?

• The flat-rate VAT deduction is intended to simplify the work of entrepreneurs, but it is unfortunate that even if entrepreneurs laboriously prove the actual ratio of motor vehicle use for business and private purposes, they will only be entitled to a VAT deduction of up to 50%.
• It is unfortunate for car repair shops that the mandatory 50% VAT deduction does not apply only to replacement motor vehicles of categories M1, L1e, or L3e provided to the payer's customer for the duration of the repair of the customer's motor vehicle of categories M1, L1e, or L3e, or during which other services are performed on the customer's motor vehicle of category M1, L1e, or L3e. In practice, this means that if a customer has, for example, a van or truck repaired and is provided with a replacement motor vehicle of category M1, L1e or L3e, the car service will have to keep detailed records of journeys and other detailed records of the replacement vehicle, which could lead to a significant invasion of the customer's privacy (e.g., tracking the customer via a satellite system). In our opinion, this is not the intention of the law, but rather an unfortunate result of an imperfect abbreviated legislative procedure beyond the scope of Council Implementing Decision (EU) 2025/852.
• The Income Tax Act does not explicitly stipulate that in the case of applying flat-rate expenses for fuel consumed up to 80%, it is not necessary to tax employees' non-monetary income at the usual value of privately consumed fuel, as well as 1% of the annually reduced purchase price of a motor vehicle that was also provided to the employee for private use. In tax theory, the question remains as to how an employer should determine the usual value of privately consumed fuel if they do not keep a logbook.
• Published opinions of the financial administration stipulate that flat-rate expenses for fuel consumed for income tax purposes should be applied up to a maximum of 80%, i.e. if, for example, up to 50% of fuel is consumed for private purposes, flat-rate tax expenses should only be applied at a rate of 50%. In tax theory, the question remains as to how an employer should determine the actual ratio if it does not keep records of journeys, or if it can determine the actual ratio of fuel for private purposes of an employee based on records of journeys, then it is possible to consider the taxed employee benefit in the value of privately consumed fuel provided to the employee in accordance with the Labor Code as a tax expense in full, and thus flat-rate expenses for consumed fuel become practically unattractive for the employer.

 

11. Is it possible to claim additional VAT on the purchase price of the car?

Yes, the law allows for this possibility during the adjustment period for deducting VAT in the proportional amount when selling a car with VAT or if the car begins to be used exclusively for business purposes.

 

12. Does the flat-rate VAT deduction of 50% also apply to trucks or taxi vehicles?

No, for trucks or taxi vehicles, you are required to monitor the actual demonstrable ratio of vehicle use for business and other purposes for VAT purposes. However, the law does not define the method of proof in the same way as it did before.

 

13. For the sake of simplicity, can I apply a VAT deduction of up to 80% of flat-rate expenses for trucks?

No, this debatable option beyond the scope of the VAT Directive will no longer be included in the VAT Act as of January 1, 2026, and you can only claim a VAT deduction on fuel to the extent that it is used for business purposes.