How to apply VAT on selected passenger cars in 2024?
In mid-January, the General Financial Directorate (GFD) issued two information pieces on the practical application of changes to VAT from 2024. In this article, we focus on the Information on the VAT Deduction for Passenger Cars with a Purchase Price of more than CZK 2 million.
For selected passenger cars (category M1 with a purchase price of more than CZK 2 million), which are part of the taxpayer's fixed assets, the right to deduct VAT is limited to CZK 420,000. If the taxpayer is obliged to claim the deduction only on a proportionate basis, the VAT deduction limit shall be reduced by the relevant coefficient.
Vehicles for which an advance has been received whose amount corresponds to normal practice and was subject to taxation before the end of 2023 shall not be subject to this limitation. Such vehicles will also not be subject to the limitation of VAT deduction where subsequent technical improvements to these vehicles have been made (the same applies to technical improvements to selected vehicles acquired before the end of 2023).
In general, however, when assessing whether the taxpayer is entitled to deduct VAT on the cost of technical improvement, it is necessary to consider the originally claimed VAT deduction (the VAT amounts are to be added together when assessing the limit).
The limitation on the right to deduct does not apply to the acquisition of vehicles that are not part of the taxpayer's fixed assets (e.g., inventories). If the vehicle is subsequently classified as a fixed asset, the taxpayer is obliged to reduce the VAT deduction in the VAT return for the period in which the vehicle was classified as a fixed asset.
Any sale of a vehicle for which the VAT deduction has been limited does not give rise to the right to adjust the VAT deduction above the limit.
An exception is made for taxpayers who acquire vehicles for the purpose of providing them via finance lease arrangements, as the vehicles then become part of the fixed assets of the customer who is already subject to the limitation. A limitation on the part of the lessor would thus in fact lead to double taxation (of amounts above the limit). The exception does not apply to vehicles provided via operating lease arrangements.
The right to deduct VAT claimed in the amount up to the limit (with the tax document showing a higher tax) is shown in the ‘full entitlement’ column of the VAT return (assuming that the entitlement reduced by the coefficient is not applied). The tax base will be declared in full (the purchase price of the vehicle) in the VAT return.
The information also provides practical examples of the above rules. Unfortunately, however, it does not address the problematic interpretation of the law in the case of demo cars that are often classified as tangible fixed assets by car dealers.