Can I sell a leased car?

Service-Tax

The end of the operating lease contract does not have to mean the end of use of the car for the lessee: he has the option to buy it after the contract expires. Can he then sell the leased car?

Leasing - important information

An entrepreneur whose leasing contract has expired should read some information about the possible purchase of an ex-leased car:

  • only the entrepreneur who has used the item under a leasing contract has the right to buy it at a preferential price. If a third party wanted to do so, it would have to pay the market price;

  • natural persons running a business can buy the leased object and do not have to introduce it to the company - they can use it for private purposes;

  • the price of a car purchased from leasing may be lower than its market value - the selling price may be higher than the purchase price; this will create income, which in turn will result in the obligation to pay tax.

A natural person running a business may allocate a car purchased from leasing for business or private purposes.

A car purchased from leasing for private use - sale

A car that has been purchased for private use does not constitute business property, and its sale will therefore not be subject to VAT. However, such an activity will result in a tax liability due to tax on civil law transactions. It is the responsibility of the car buyer to pay for it.

Doubts, however, are raised by the tax obligation on the basis of income tax on the sale of a car purchased from lease intended for private use and the date of such obligation. There are two positions in this regard:

  • up to six months after purchasing the car - taxable income on private land,

  • before the expiry of six years after purchasing the car - income on company land.

Until recently, the tax authorities supported the latter view, relying on the individual interpretation of the Director of the Tax Chamber in Bydgoszcz of August 1, 2011, ITPB1 / 415-552 / 11 / PES, according to which (...) revenues from the sale of assets used in business activities (and therefore also from the sale of a car used in business activities, previously leased), even if they have not been entered into the register of fixed assets and intangible assets (thus they will not be fixed assets), constitute income from economic activity referred to in art. 14 sec. 1 of the Personal Income Tax Act, unless the sale takes place after the deadline referred to in Art. 10 sec. 2 point 3 of the Personal Income Tax Act, i.e. after 6 years from the first day of the month following the month in which the asset was withdrawn from activity.

However, in 2015 this interpretation was annulled and now the tax authorities are leaning more towards the first position. This is also confirmed by the answer to parliamentary interpellation no.30892 issued in 2015:

(...) referring to the question whether Art. 14 sec. 2 point 1 of the Personal Income Tax Act also applies to the sale of cars as a result of private buy-out after operating lease ", I would like to inform you that in a situation where the car purchased after the end of the leasing contract will not be used by the taxpayer in business activity and will not be credited to the company's assets listed in art. 14 sec. 2 point 1 of the PIT Act, the income obtained from the sale of this car for consideration will not constitute income from business activity.
As a consequence, the rules of taxation with personal income tax on income from the sale of goods will apply. In such a situation, the tax obligation will not arise if the disposal of the item takes place after six months from the end of the month in which the item was purchased.

The car is leased for company use - sale

In order to properly determine the tax consequences of selling a leased car, the entrepreneur must determine whether, at the time of purchasing the vehicle, he was entitled to deduct the entire VAT, or only part of it, or whether it was not due at all.

In a situation where all or part of the VAT has been deducted, the sale of the car will be taxed at the rate of 23%, regardless of the time after which the entrepreneur has sold the vehicle.

If the entrepreneur was not entitled to deduct VAT, and the car bought from the lease was used only for exempt activities, it will be possible to apply the exemption for the sale. However, these are very rare cases in practice. As a rule, the sale of a company car is taxed at a rate of 23%.