What happens with VAT when selling a company's leasing vehicle to an employee?

Taxation
WRITTEN BY Gerard Blanch i Llorens
22 Nov, 2023 — 3 min
What happens with VAT when selling a company's leasing vehicle to an employee?

When a company acquires a vehicle at the end of a lease with the intention of selling it to one of the company's employees, the VAT on the purchase of the vehicle by the company will be 100% deductible, both for:

  • The part of the vehicle corresponding to professional use, where VAT is deductible.
  • The part of the vehicle corresponding to private use, considering it as a benefit in return for the services performed by the employee with the company. This part of the vehicle use will also be considered related to the business activity, and consequently, the derived VAT will also be deductible.

In any case, the company must pass on the corresponding VAT to the vehicle delivered to its employee as additional remuneration in kind.

Here is an example:

  • Vehicle with Acquisition Value: €40,000 (including VAT)
  • Use of the vehicle: privat of 70%.
  • Duration of the leasing contract = 5 years (or 20% annually).
  • Monthly remuneration in kind = (€40,000 x 70% x 20%) / 12 = €466.67 (including VAT).
  • Taxable base = €385.68 and VAT quota = €80.99.

The company has the obligation to pay these VAT installments (€80.99 in our example), regardless of whether it is required to charge its employees or not.

It should be noted that the use of the vehicles will be subject to this operation throughout the life of the lease, even if it is extended and its duration is expanded.

In cases where the company decides to transfer the ownership of the vehicle to the employee who has been using it, whether at market price or free of charge, the company will have to invoice with VAT for 100% of the market value of the vehicle at the time of delivery, regardless of the VAT already passed on previously in terms of remuneration in kind.

Conclusions:

  • Monthly Allocation: Although the VAT we pass on each month is deductible, if the company does not charge it to the employee, it will end up being an additional cost for the company.
  • Final Delivery of the Vehicle to the Employee:  If at the end of the leasing period the company agrees with the employee to give the vehicle for free, the company can still require the payment of the VAT corresponding to the market price of the vehicle at that time.

In this final delivery of the vehicle, even if it is free of charge, it will be subject to VAT. The company will pass on and require the corresponding VAT, without considering the part that has been passed on as remuneration in kind throughout the life of the lease.