Car in business
Today, the use of a car for business is an essential part of everyday life. However, using a car for business can bring a number of problems or doubts in terms of taxes and accounting. Let’s take a look at what possibilities are there for Czech entrepreneurs.
Car included in business assets
Including a car in business assets is the most common case. These are situations where the value of the vehicle acquired exceeds CZK 80,000, which is the limit set in Section 26(2)(a) of the Income Tax Act. In this case, the tax base is gradually reduced by the calculated depreciation (which expresses the wear and tear of the vehicle in money). The law also specifies the period of depreciation; for cars, the period is set to five years. The Income Tax Act also provides for two different methods of calculating depreciation (straight-line and accelerated) and defines the procedure. For assets included in 2020 and 2021, the “extraordinary depreciation” could have been used in conformity with the Income Tax Act, which (among other things) allowed a reduced depreciation period (for the first depreciation group, this was 12 months instead of three years; for the second depreciation group, this was 24 months instead of five years). We are currently waiting to see whether this option will be extended to the year 2022 as well. At the same time, we should point out the differences between the above-specified tax depreciation and accounting depreciation. Accounting depreciation will be described in a future article.
Finance and operating lease
Another option is using either a finance or operating lease. A finance lease means a lease of a car followed by its purchase. In this case, too, you need to comply with the Income Tax Act, which in Section 24 specifies the conditions under which lease instalments are tax deductible. The main requirement is that the term of the lease is at least the period for which the car would be depreciated; however, this period is reduced by six months (to 54 months in this case). Unlike in the finance lease, in the operating lease the car is not purchased afterwards and the subject of the lease is returned to the lessor when the operating lease terminates.
Private vehicle and flat-rate transport expenses
A private vehicle can also be used for economic activities. In that case, a value corresponding to the amount of fuel used (following from the fuel consumption of the given vehicle and the price per litre of fuel) and compensation for wear and tear of the vehicle (which is set to CZK 4.70 per kilometre travelled for 2022) will be included in tax-deductible expenses.
The possibility of using flat-rate expenses should not be omitted. This flat rate may be used for a maximum of three vehicles and covers the fuel costs and parking fees. If the vehicle is fully used for economic activities, the flat rate equals CZK 5,000.
What to do if you don’t know how to proceed
The choice of the best option for your purposes may not always be easy – each variant has its pros and cons. At AICCON, we have carefully studied the various possibilities for using a car in business, so if you need advice in this area, please do not hesitate and contact us.