VAT and cars under the new rules: who is entitled to half the tax

The change introduces exceptions for certain types of use, but when applying the full deduction, it requires stricter electronic recording of journeys and reporting to the tax administrator.

Entrepreneurs who use company cars outside of work should pay close attention. Limits and obligations have been added to the rules for deducting value added tax on cars and their operation. The new settings will benefit those who can clearly demonstrate the use of the vehicle and, conversely, will be stricter with mixed use, which has been a source of controversy until now.

Under the new rules, the flat-rate deduction for selected motor vehicles is reduced to 50%. This is another change in the area of value added tax that will affect entrepreneurs who use a car or motorcycle for both business and private purposes. A temporary 50% flat-rate VAT deduction is being introduced for the purchase of a motor vehicle and for its operating expenses if it is used for both business and private purposes. The measure applies to M1 category vehicles, i.e., passenger cars, and L1e and L3e categories, i.e., motorcycles.

Vehicle purchase

However, the flat rate does not mean an automatic entitlement to half the tax in every situation. The taxpayer must continue to comply with the rules of the Value Added Tax Act, including the application of the coefficient. If, after recalculation, the deduction entitlement is less than 50%, only the lower amount may be deducted. At the same time, non-deductible value added tax is not a tax expense for income tax purposes. The provisions on the proportional deduction of value added tax on the purchase of related goods and services and the rules on the adjustment of the deduction also remain unaffected.

In practice, this means that if a taxpayer supplies goods and services that are exclusively exempt from value added tax without the right to deduction, or has a coefficient of less than 50%, they cannot claim a flat-rate deduction of this amount. In such a case, they remain limited by their own deduction parameters. According to experts, the problem arises for entrepreneurs who use their vehicle predominantly for business purposes, for example, 80 or 90% of the time. Despite this, they will generally only be able to claim 50% of the value added tax.

Electronic form

The law does not specify in which specific application the taxpayer should keep records. It can be Excel, Word, or another format. The important thing is that the records can be made available to the tax office electronically. When claiming a 100% VAT deduction on fuel and other costs related to car operation, in addition to the electronic logbook, it is also important to keep documentation of purchases, i.e., receipts and invoices.

In any case, the taxpayer must provide these records to the tax administrator upon request. The entire change stems from Slovakia's decision to use an exemption based on an implementing decision of the Council of the European Union and to introduce a mandatory flat-rate VAT deduction of 50% on expenses for fuel, procurement, technical improvement, operation, repairs, and maintenance of selected vehicles, regardless of the actual ratio of their use for business and private purposes. Even entrepreneurs who use passenger cars exclusively for business purposes will generally not be able to claim the full deduction without detailed mileage records.