Company car to buy or rent? Tax analysis of leased cars

Customers often ask whether the company car should be purchased or leased, which will be more beneficial in terms of taxation. I hope readers will get a satisfactory conclusion after reading this article.

For the part of business tax, whether the input tax included in the invoice can be deducted:

Note 1: The value-added and non-value-added business tax law stipulates that the input tax paid by the business owner for the purchase of passenger cars for self-use shall not be deducted from the output tax (if the purchase of a car pays 1.05 million, of which 1 million is the cost, and 50,000 is the input tax), while the so-called self-use passenger cars, value-added and non-value-added business tax law implementation rules refer to passenger cars with nine seats or less that are not used for sales or provision of labor services. In practice, the National Taxation Bureau uses The category listed on the license is the criterion for judging (for example, passenger car for private use)

In addition, some leasing companies currently deliberately design the contract as a business lease on the surface, but in essence it is a financial lease, so that leasing customers think that the input tax can be deducted in this way (such as not transferring the car to the company when the lease expires, Instead, they are directly sold to the person in charge of the company at a low price or even a third person designated by the person in charge), this kind of operation method has also been noticed by the Internal Revenue Service.

Profit Enterprise Income Tax

As for the income tax of profit-seeking enterprises , it is relatively simple. Regardless of the category listed on the business license, as long as the relevant expenses such as lease contracts and invoices are obtained, and they are indeed used as official vehicles, they can basically be declared when declaring profit-making enterprise income tax. recognized as expenses, the possible categories of expenses are listed as follows:

Note 2: For profit-making enterprises newly purchased passenger cars since January 1, 1993, when depreciation is calculated according to the prescribed service life, the actual cost shall not exceed NT$2.5 million. For a profit-making leasing business, the actual cost of purchasing a small passenger car for business use is limited to NT$5 million, and the excess depreciation amount shall not be recognized.

The following is the relevant explanation letter or press release:

Ministry of Finance 751006 Taiwan Taxation No. 7567129

The input tax of passenger and cargo vehicles can be deducted

Purpose: The input tax paid by a business person for the purchase of a nine-seater van may be deducted from the output tax. Explanation: 2. Subparagraph 5, Paragraph 1, Article 19 of the Business Tax Law stipulates that the input tax of self-use passenger cars shall not be deducted from the output tax, and the input tax paid by passenger and cargo vehicles is not allowed to be deducted according to the tax law. the regulations.

Ministry of Finance 951205 Press Release

Can the input tax paid for renting a passenger car be deducted?

The Taipei City National Taxation Bureau of the Ministry of Finance stated that how to identify whether the input tax can be deducted and offset the output tax when the business operator rents a passenger car to pay the rent due to business needs often causes troubles for the business operator, and the bureau provides a judgment for this The principles are for business operators to refer to.
The Bureau stated that the input tax amount of the business person’s purchase of passenger cars for self-use cannot be deducted from the output tax amount. Article 19, Paragraph 1, Subparagraph 5 of the Value-Added and Non-Value-Added Business Tax Law has express provisions. If the passenger car is rented in the form of leasing, it should be judged according to the type of lease. It is a financing (capital) leaser who actually buys the car in installments, except that the business person finances the passenger car for sale and service. In addition, the input tax certificate obtained by paying rent, interest, handling fees, etc., shall not be deducted from the output tax; if it is a business lease and used for business use, the input tax may be deducted. As for how to determine whether the lease is a finance lease or an operating lease, according to Article 36-2 of the Profit Enterprise Income Tax Review Standard and the Financial Accounting Standards Bulletin No. 2 "Lease Accounting Treatment Standards", a finance lease is a lease that meets one of the following conditions: Otherwise it is an operating lease:
(1) When the lease period expires, the ownership of the leased item is unconditionally transferred to the lessee.
(2) The lessee enjoys preferential purchase rights.
(3) The lease period reaches more than three-quarters of the legal service life of the leased object.
(4) At the beginning of the lease, the total present value calculated based on the rent of each period and the preferential purchase price is more than 90% of the book value of the leased asset.
The Bureau pointed out that in practice, it is found that leasing companies can deduct input tax certificates for the rental of passenger cars for business operators, and design the financial lease contract as a business lease contract in form, or enter into a three-year short-term lease contract However, when the lease period expires, the leased business operator can unconditionally acquire the ownership of the passenger car. The circumvention situation was disclosed above. Those who cannot be deducted will be punished according to the law.

Ministry of Finance 970418 Press Release

The input tax amount of the business person purchasing the dual-purpose vehicle registered according to the driving license can be deducted from the output tax amount

Reply from the Tainan Branch of the Southern District National Taxation Bureau: According to Article 19, Item 1, Subparagraph 5 of the Value-Added and Non-Value-Added Business Tax Law, the input tax paid by a business person for purchasing a passenger car for self-use cannot be deducted or offset The tax amount referred to in this item refers to passenger cars with nine seats or less that are not used for sale or provision of labor services in accordance with Article 26, Item 2 of the Implementing Regulations of the same law. However, if a business person purchases a "passenger and cargo vehicle", according to the Ministry of Finance's letter No. 7567129 issued on October 6, 1975, there is no provision that prohibits the deduction, that is, the input tax amount can still be deducted Output tax.
The branch office further explained that according to road traffic safety regulations, cars can be classified into passenger cars and freight cars according to their use nature, and are listed on the driving license. Therefore, whether the self-use car purchased by the business operator belongs to nine Passenger vehicles with under-seat passengers shall be determined based on the purpose listed on the vehicle license. If the operator purchases a recreational vehicle, the purpose listed on the vehicle license is "passenger and cargo vehicle" and is not a passenger vehicle for personal use. For automobiles, the input tax paid may be deducted from the output tax.

Ministry of Finance 1010413 press release

The business operator was punished by the National Taxation Bureau for tax deduction with the input voucher of renting a convertible sports car

The Central District State Taxation Bureau stated that according to Article 19 of the Value-Added and Non-Value-Added Business Tax Law, goods or services not used for the main business and subsidiary businesses, goods or services paid to employees, and passenger cars for personal use by business operators The input tax shall not be deducted from the output tax. The term "passenger car for personal use" refers to a passenger car with nine seats or less that is not used for sale or provision of labor services in accordance with Article 26, Item 2 of the Implementing Rules of the same law.
The Bureau stated that it recently found out that Company A rented a Mercedes convertible sports car in the form of a business lease, and paid a total of more than 5 million yuan in rent during the three-year lease period, which is quite different from the general commercial business lease situation. The company then resold the sports car to the father of Company A's supervisor. After the case, Company A admitted that it was actually a financial lease for buying a car with installment payment, and that it was not for business use, and agreed to pay back the tax and be fined.
The Bureau further clarified that the regulation that the input tax of self-use passenger cars shall not be deducted from the amount of output tax is based on the consideration that self-use cars are mostly used by senior employees of enterprises and have the nature of remuneration for employees. The amount of input tax cannot be deducted for fairness.
In order to correct the taxation atmosphere and maintain the fairness of taxation, the bureau has obtained more than 7,000 records of self-use and passenger cars obtained by the business operators under its jurisdiction, and will check one by one whether there is any situation where the input vouchers that cannot be deducted are used to declare the deduction of output tax. In addition, business operators often use uniform invoices obtained from personal or family expenses to declare and offset business tax output tax and list profit-seeking enterprise income tax costs. Businesses in the home appliance industry, tobacco and alcohol industry, gold and jewelry industry, etc., who have a high deductible ratio in the unified invoice declaration, will also strengthen the inspection.
The bureau calls on business operators to report and pay the evaded tax to the tax collection agency under their jurisdiction as soon as possible in accordance with the provisions of Article 48-1 of the Tax Collection Law if the declared input vouchers are not allowed to be declared and deducted. Prior to the investigation by the reporting and auditing agency or investigators designated by the Ministry of Finance, in addition to accruing interest, penalties may be exempted.

Ministry of Finance 990429 Press Release

When a business person rents a passenger car through financial leasing, the input tax paid to the leasing company for rent, interest, handling fees, etc. cannot be deducted from the output tax.

The National Taxation Bureau of the Central District stated that recently, some small car leasing companies have advertised that the company rents a small passenger car, which not only saves the cost of car purchase, but also can deduct the business tax from the rent paid. It is not known that the passenger car rented by means of financial leasing cannot be deducted from the output tax amount for the input tax paid.
The bureau pointed out that, according to Article 19, Paragraph 1, Subparagraph 5 of the Value-Added and Non-Value-Added Business Tax Law, when a business operator purchases a passenger car for self-use, the input certificate obtained by it cannot be deducted from the output tax amount. Business operators lease passenger cars through financial leasing, because their nature is the same as that of installment purchases. According to the Ministry of Finance's 4.15. The input tax paid by etc. shall not be deducted from the output tax.
The Bureau further clarified that the so-called financial lease refers to the leased assets of a profit-making enterprise in accordance with the provisions of Article 36-2 of the Income Tax Review Standards for Profit-seeking Enterprises. Those who have no major uncertainties and meet one of the following conditions:
1. When the lease period expires, the ownership of the leased property is unconditionally transferred to the lessee.
2. The lessee enjoys preferential purchasing rights.
3. The lease period reaches more than three-quarters of the legal service life of the leased property.
4. At the beginning of the lease, the total present value calculated based on the rent of each period and the preferential purchase price is more than 90% of the book value of the leased asset.
The Bureau appeals that if the leased car belongs to the nature of financial leasing, the business operator must not declare the business tax deduction for the input certificate obtained. Otherwise, once it is seized, not only will the 5% tax be recovered, but also a 1-1% tax will be imposed according to the amount of tax evasion. 10 times the penalty. (Note 2: The current penalty has been changed to less than 5 times)

Ministry of Finance 991013 press release

If the license of a van or recreational vehicle is registered as a small passenger car for self-use, the input certificate obtained by it cannot be declared to offset the output tax

According to the National Taxation Bureau of Taipei City, Ministry of Finance, the purchase of recreational vehicles has become a popular trend in recent years. For value-added and non-value-added business tax law enforcement regulations, the 9-seater passenger car stipulated in Article 26 of the Enforcement Rules of the Law, the input certificate obtained by it cannot be deducted from the output tax amount.
According to the bureau, in accordance with Article 19, Paragraph 1, Subparagraph 5 of the Value-Added and Non-Value-Added Business Tax Act, the input tax of passenger cars for self-use shall not be deducted from the output tax. Recreational vehicles, if the driving license is listed as a small passenger car for self-use, it is an input certificate that cannot be declared for deducting the offset tax amount; in addition, according to the Ministry of Finance's Oct. The input tax paid for a dual-purpose vehicle may be deducted from the output tax. Therefore, if the vehicle license is listed as a passenger and cargo vehicle, the input tax paid may be deducted from the output tax.
The Bureau reminded that the business operator should not determine the purpose of the vehicle based on the appearance of the vehicle or the use of cargo. It should be based on the registration of the driving license. Before investigation by investigators designated by the Ministry of Finance, please report and pay the evaded tax automatically to the tax collection agency under your jurisdiction in accordance with Article 48-1 of the Tax Collection Act. In addition to accruing interest, tax evasion penalties can be exempted.
If the company has a plan to obtain official vehicles, it is advisable to consult a professional accountant before making a purchase or lease decision, so as to legally save taxes and avoid penalties.
When a business person purchases high-end automobiles or sports cars for his own use or for employees, and the purchase form is converted into a business lease, the input vouchers shall not be submitted to declare and offset the output tax of business tax.
The Fengyuan Branch of the National Taxation Bureau of the Central District of the Ministry of Finance stated that: if a business person purchases a high-end car or a limited number of supercars for use by business owners or high-level people, it should be value-added and non-value-added. The input tax on goods or services used for the main business and its subsidiary businesses, goods or services paid to employees, and passenger cars for self-use by business operators shall not be deducted from the output tax. If a business operator converts the vehicle purchase form of financial leasing (that is, capital leasing) into operating leasing and claims deduction with input vouchers, it will involve false reporting of input, and a fine will be imposed in addition to supplementary collection.

The bureau further explained that recently it has seized a number of cases in which a business operator rents a high-end car or sports car in the form of a business lease through the lobbying of the car dealer for the purchase of a car by installment payment (or financial lease). The price is quite different, and after the lease period expires, the leasing company will immediately resell the vehicle and register it under the name of the owner's family. If it is actually a financial lease, it will not be deducted.
The branch reminded that according to the Ministry of Finance's letter No. 800771706 issued on January 9, 1981, if a business operator rents a passenger car for business needs, if it is not a financial lease, the input tax paid by it should be allowed to be deducted. tax. However, if the so-called purchase of a high-end personal-use car is purchased, although the purchase form is changed to a business lease, if it is not required for business, the input certificate obtained still cannot be deducted from the output tax. If the declared input vouchers are not allowed to be deducted and deducted, the business operator shall, in accordance with Article 48-1 of the Tax Collection Act, automatically report and pay the evaded tax to the tax collection agency under its jurisdiction as soon as possible. Prior to the investigation by the tax collection agency or the investigators designated by the Ministry of Finance, except for accruing interest, the penalty can be exempted.

Ministry of Finance 1071120 press release

Provisions for the provision of depreciation and subsequent sale of passenger cars newly purchased by profit-seeking enterprises

According to the Kaohsiung National Taxation Bureau of the Ministry of Finance, the actual cost of passenger cars newly purchased by profit-seeking enterprises since January 1, 1993 shall not exceed NT$2.5 million when depreciation is calculated according to the prescribed service life. , In addition, for a profit-making enterprise engaged in the leasing of passenger cars, the actual cost of purchasing a passenger passenger car for business use shall not exceed NT$5 million, and any excess depreciation shall not be recognized.
When the Bureau checked the income tax settlement declaration of a construction company in 2015, it found that there were 4 small passenger cars listed in the property catalogue, which were successively purchased since 2012. One of them was purchased in January 2015, and the acquisition cost was 4 million yuan, the company directly calculates the depreciation expense based on the purchase cost in 5 years, and does not calculate and adjust according to the limit of 2.5 million yuan, resulting in over-drawn depreciation. The fixed interest rate plus interest on savings will be collected together.
For example, the above-mentioned small passenger car has a service life of 5 years and is depreciated using the average method. The estimated residual value is 1 million yuan, and the depreciation amount calculated according to the actual cost is 600,000 yuan [(4 million yuan-1 million yuan) ÷ 5 year], because the actual cost of purchasing a passenger car exceeded the prescribed limit of 2.5 million yuan, so the company’s 2015 annual income tax declaration can list the depreciation expense of the car as only 375,000 yuan [600,000 yuan * (2.5 million yuan ÷ 4 million yuan)] , instead of 600,000 yuan.
The National Taxation Bureau of Kaohsiung also reminds that when the passenger car is subsequently sold, the undepreciated balance calculated by the normal depreciation method stipulated in the income tax law should still be used as the basis to calculate the profit and loss of the sale of assets. If the car is sold for RMB 1,000,000, the sales profit and loss shall be calculated by deducting the undepreciated balance of RMB 2.2 million from the selling price of RMB 2 million [purchase cost of RMB 4 million - accumulated depreciation of RMB 1.8 million [(RMB 4 million - RMB 1 million) ÷ 5 years × 3 years〕], accounting for the loss of 200,000 yuan from the sale of the car. In practice, we have seen the company mistakenly declare the loss of the sale of the car at 875,000 yuan [price 2 million yuan-[purchase cost 4 million yuan-(depreciation limit 375,000 yuan*3 Year)]], overdeclared a loss of 675,000 yuan on the sale of the car, and was later adjusted by the National Taxation Bureau to pay taxes, causing trouble.

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