Everything you need to know about buying and operating a company car

Choosing a car for a company is not the same as choosing one for your family. While with a family car you will be mainly interested in comfort, consumption or safety, with a company car it is all about how it will affect your taxes, VAT deductions and running costs. The car does not belong to you, but to the company. We'll introduce you to how to buy a company car, how to account for it and we'll look at the combination of private and company use.

For whom is a company car worthwhile?

It is particularly worthwhile for businesses to buy a car if:

• they use the car mainly for business;
• the tax and operating savings outweigh the cost of buying and running it.

For VAT payers who apply real costs, a company car starts to pay when the VAT deduction (for the purchase of the car and fuel) outweighs the road tax and other operating expenses.

On the other hand, non-VAT payers with flat-rate expenses usually do not benefit from the purchase of a company car - they cannot claim VAT deductions or actual operating costs.

Methods of purchasing a company car

There are several ways to buy a company car (called an IČO) - from buying it with cash, to credit and finance leasing, to operating leasing or flexible leasing.

Each method has its pros and cons to consider. The choice doesn't just depend on your budget, but also whether car ownership is a priority for you and what your business needs are.

Buying a car for cash

Buying with your own funds is the easiest option if your business has sufficient financial resources. The car immediately becomes a fixed asset of the company, allowing you to claim tax depreciation, which will spread the cost of the purchase over several years.

The downside is the high one-off investment - buying a car will reduce the amount of cash you have available and may limit your ability to fund other important expenses. This method of acquisition is therefore particularly suitable for companies that have sufficient financial reserves. Also beware that cash payments must not legally exceed the daily limit of CZK 270,000.

Car loan

Buying a company car "on credit" may incur higher costs, but it allows you to keep financial reserves for other major expenses or investments.

A loan is also a good solution if you don't have enough money to buy it outright or if you want to take advantage of tax benefits, as the interest on the loan is a tax-deductible expense. In addition, a loan can help you buy a better quality or more expensive car that your own savings would not be able to afford.

The downside is that the loan will increase the total cost of the purchase, and, compared to the following options, all the expenses associated with operating and maintaining the car are yours alone.

Finance lease

Whereas with a loan you borrow money, with a finance lease you have a borrowed car that you are also paying off. Finance leases allow you to own a car without having to fork out a large sum of money at once.

You pay a down payment at the start, which is usually 10-30% of the purchase price of the car, and pay the rest monthly over an agreed period. At the end of the finance lease, you pay the balance and the car becomes your property. In addition, you can deduct the repayments from your costs, which reduces your tax base.

Operating leases

Operating leases are ideal for businesses that don't need to own a car. This way , you lease the vehicle for a fixed period and return the car to the leasing company when the contract ends.

What are the advantages of an operating lease?

• You only pay for the use of the car. Other costs, such as insurance or servicing, are already included in the monthly payments.
• If the car breaks down, you get a replacement car.
• You don't deal with residual values or tax depreciation - the payments are simply claimed as an expense.
• At the end of the contract, you can easily trade in your old car for a newer model.

Compared to a conventional loan, monthly payments on an operating lease are usually lower because you only pay for the use of the car. For a mid-range passenger car, payments range from CZK 5,000 to CZK 10,000 excluding VAT, while for larger or more luxurious cars they start at around CZK 9,000.

Prices also vary depending on the leasing company you choose and the specific terms of the lease - for example, a longer contract or lower mileage will result in a better payment.

Flexible lease

This form is one of the most expensive options. You only pay a monthly payment for a car that you can return or trade in at any time. However, you can't claim depreciation or deduct VAT on the purchase price of the car.

A flexible lease is suitable for business owners who don't want to be tied down and know that they will only use the car for short periods of time, perhaps for seasonal work. For those who want to own the car, other options are more suitable.

Using a private car in business

You can also use your own car for business purposes. However, it is necessary to keep a log book which will be used as a basis for claiming expenses. It must be clear from the log how many kilometres were driven on business and how many on private journeys.

Most often, the logbook is used in paper form, but it is easier and more practical to keep it electronically via an app or software.

How do I put a private car into the business?

If you use your car mainly for business, it is usually more economical to include it in the company's assets. Otherwise, it may be better to claim mileage allowances for business use.

A private car becomes a company car when it is included in the accounts or tax records. However, it is necessary to provide evidence of its value, for example, by means of a purchase contract, invoice or expert's report. It is then treated in the same way as other company cars.

How do I claim expenses related to running my car?

There are two ways to calculate the cost of running a company car - while you'll appreciate the simplicity of a lump sum, you'll appreciate the savings with actual costs.

How to record the car in the accounts?

Deduction of VAT on a car

While as a non-VAT payer you will pay the full price of the car including tax, VAT payers can deduct the VAT included in the price of the car, which significantly reduces their actual acquisition costs.

The following rules apply to VAT deductions for taxpayers:

• For vehicles costing up to CZK 2 million excluding VAT, you can claim the full amount of VAT. You can deduct 21% of the VAT, i.e. CZK 112,810. The purchase price of the car will be CZK 537,190.
• For cars over CZK 2 million excluding VAT, the deduction is limited to CZK 420,000. The limit applies to M1 category vehicles, which include passenger cars intended mainly for transporting passengers with a maximum of eight seats in addition to the driver. This group includes ordinary passenger cars as well as more luxurious models, for which VAT on the amount exceeding CZK 2 million is paid from your own funds.

Before buying a more expensive car, make sure you calculate whether it is a good investment for you. The deduction limit is set by legislation to prevent disproportionate tax relief on luxury vehicles.

How can I save tax through depreciation?

When you buy a new or used car for your business (by buying it with cash, on credit or as a gift or contribution from a partner), its cost is 'dissolved' into expenses through depreciation, which reduces the amount for tax purposes.

Passenger cars belong to depreciation group 2 and can be depreciated over a period of 5 years, either on a straight-line or accelerated basis, under the Income Tax Act.

In the case of finance leases, depreciation takes place over the term of the lease agreement as the vehicle is registered as an asset of the company. However, for an operating lease they do not apply because the lease company still owns the car.

For zero-emission vehicles purchased between 1 January 2024 and 31 December 2028, you have the option of applying 'exceptional depreciation', which allows you to write off the asset over 24 months (60% in the first year and 40% in the second year). By reducing your tax base quickly, you can save on taxes and improve your financial stability.

Using a company car for personal use

Using a company car for private purposes is perfectly normal. It is a nice benefit for both the business owner and the employees, but it must be taxed.

For each month of use of the car after working hours, an amount equivalent to 1% of the purchase price of the car (including VAT) must appear on your pay slip - this is called non-cash income. In the case of a car worth CZK 800,000, this means that the employee's gross salary will increase by CZK 8,000. If it is a low-emission car, the rate is reduced to 0.5%.

You will then pay income tax and social and health insurance on this amount. As a result, your net pay will be slightly lower than if you were only using the car for work.

In addition to this, you need to think about cost allocation - servicing, fuel or depreciation must be matched to how much of the mileage you drive for the company and how much for yourself.

Who pays road tax and how?

From 2022, owners of cars, buses and trucks under 12 tonnes no longer pay road tax. Operators of electric or hybrid cars are also exempt. Mandatory quarterly tax advances have also been abolished. So what is left?

• Owners of trucks over 12 tonnes must pay road tax. The amount of tax is based on the weight and number of axles of the vehicle.
• The tax is payable in one lump sum for the whole calendar year, always by 31 January of the following year.
• Failure to meet the deadline will result in penalties.

Leave the tax and depreciation worries to us

Are you worried about tax issues related to your company car? We'll sort them out for you - from the inclusion of the car in the company's assets to the correct calculation of VAT or residual value on sale.

We offer you bookkeeping, whether you are self-employed or a company. While you go about your business, we'll make sure your paperwork and finances are in order. Let us know how we can help - just fill in the form below.