The question arises: is purchasing, leasing, or renting the best option? We present the main considerations and options to help you make an informed decision for your own company.
Company Owned Vehicle
The company purchases the vehicle, which becomes the property of the business. The vehicle's depreciation (amortization) is deductible, and many costs can also be claimed. VAT deduction is only possible under strict conditions and only if business use is proven.
Advantages:
- Ideal for long-term use.
- The vehicle can be sold and remains a company asset.
- Most costs are deductible.
Disadvantages:
- Requires significant one-time investment.
- VAT is generally non-deductible for passenger cars.
- Company car tax payment obligation.
Closed-End Financial Leasing
With closed-end leasing, the vehicle becomes the company's property at the end of the term. Until then, the leasing company remains the owner, but the vehicle can be recorded as a company asset. Depreciation and interest expenses are deductible. An initial fee is required, but it is lower than purchasing.
Advantages:
- Lower initial capital requirement.
- The vehicle becomes a company asset and is depreciable.
- Ownership acquisition at the end of the term.
Disadvantages:
- More administration.
- Early termination can be expensive.
- VAT deduction subject to regulations.
Open-End Leasing
In open-end leasing, a down payment must be made at the time of contract signing. At the end of the term, the lessee does not automatically become the owner of the vehicle, as they have the right to designate the buyer; therefore, they can decide who will purchase the vehicle by paying the residual value. This option is typically chosen by sole proprietors and companies, as it allows partial or full VAT reclaim or deduction on the vehicle.
Advantages:
- Based on the lease contract terms, VAT reclaim or deduction is possible for business use.
- Lease payments can be recorded as expenses: the monthly lease payment and other ancillary costs can be expensed by the company, reducing the tax base.
Disadvantages:
- Usage restrictions: some contracts include mileage and other usage limits.
- The vehicle does not automatically become the company's property: ownership requires a separate decision and payment of the residual value at the end of the term.
Long-Term Rental
With long-term rental, the vehicle does not become company property but is rented for a fixed monthly fee, which is usually deductible. At the end of the term, you can decide whether to purchase or return the vehicle. Full VAT deduction is only possible in certain cases with business use.
Advantages:
- Predictable monthly costs.
- No capital lock-up.
- Rental fees are deductible.
- Rental fees usually include service and maintenance costs.
Disadvantages:
- No ownership acquired.
- Long-term contractual commitment.
- More difficult to modify during the term.
Short-Term Rental
If you only need a company vehicle occasionally, short-term rental is the solution. It is for days or weeks, quick and convenient, and the full rental fee is deductible.
Advantages:
- Maximum flexibility, no long-term commitment.
- Quick administration.
Disadvantages:
- More expensive than long-term options.
- Limited choices and rental conditions.
Private Vehicle Used for Business
Especially for startup companies, it is common to use a private vehicle for business purposes. In this case, a travel order must be kept and costs accounted for at the flat-rate provided by the tax authority (fuel & depreciation).
Advantages:
- No need to buy a new vehicle.
- Flexible and quick solution.
- Does not appear as an asset in the books.
Disadvantages:
- Much administration.
- No VAT deduction.
- Vehicle-related costs cannot be claimed.
Fleet Management
When there are multiple vehicles, it is advisable to involve a fleet management company. They handle procurement, service, and insurance for you.
Advantages:
- Administration can be almost fully outsourced.
- More transparent cost structure, easier fleet expansion or reduction.
Disadvantages:
- Less control over certain decisions.
- Typically longer-term commitment.
Carsharing
Primarily for companies in large cities, if a vehicle is needed rarely or occasionally. Accessible via an app, you pay only for usage.
Advantages:
- Flexible, no fixed monthly fee.
- No repair or insurance costs.
Disadvantages:
- Only available in larger cities.
- More expensive than other options for regular use.
It can be said that the best company car solution is always chosen based on the type, size, financial possibilities, and goals of the business. For occasional use, rental or carsharing is more suitable, while ownership, leasing, or fleet management is recommended for continuous and central use.
Questions? Contact Everest Accounting and your Account Manager will help you to choose the best option!