Is there a cost limit in a passenger car lease contract?
By entering a passenger car with a value in excess of PLN 20,000 into the fixed assets register of the company, euro, the entrepreneur may include only a part of the depreciation charges as tax costs. This principle arises directly from the Personal Income Tax Act. Does this provision also apply to leased cars?
Passenger car cost limits
Depreciation of a fixed asset is a way of recognizing its purchase as tax expense. This means that its value does not go directly to tax deductible costs, but it is done through the so-called depreciation charges that cover a specific portion of the asset's original value each month. The necessity of depreciation also applies to passenger cars, but in their case, the legislator provided for a certain limitation.
According to Art. 23 sec. 1 point 4 of the PIT Act, write-offs for wear and tear of a passenger car are not deductible for the amount determined on the value of the car exceeding PLN 20,000. euro. Conversion into zlotys is made according to the average euro exchange rate announced by the National Bank of Poland on the day the car is put into use. This means that if the entrepreneur introduces a vehicle into the company's fixed assets, the initial value of which (if the taxpayer is not entitled to deduct the input tax on goods and services - gross value, if such right is entitled - the net value) exceeds the equivalent of PLN 20,000. euro, then he may include only part of the write-offs as costs. The value of the total and monthly depreciation charge will be determined according to the proportion of the amount of PLN 20 thousand. Euro to the total purchase price of the car.
This is not the only restriction on passenger cars whose value exceeds PLN 20,000. euro. In their case, only part of the insurance may be included in tax deductible costs. According to Art. 23 sec. 1, point 47, the cost shall not be considered to be premiums for car insurance in the amount exceeding their part determined in such proportion as the equivalent of PLN 20 thousand. Euro, converted into PLN according to the selling rate of foreign currencies announced by the National Bank of Poland on the date of concluding the insurance contract, in the value of the car adopted for insurance purposes. It should be noted that this restriction applies only to the AC policy, i.e. voluntary car insurance (while premiums for third party liability insurance, accident insurance and assistance are included in the costs without limitation).
How do the discussed restrictions relate to passenger car leasing?
Operating lease of a passenger car
The most frequently chosen type of leasing by entrepreneurs in the case of renting a passenger car is operating leasing. A distinctive feature of such a contract is the fact that the vehicle remains the property of the lessor throughout the entire period of the long-term rental. He is also responsible for making depreciation charges. Therefore, the entrepreneur does not enter the car used in this way into the register of fixed assets of his company. In this case, the cost is the invoices received for individual leasing installments, most often together with the interest part.
In this case, is the entrepreneur bound by the aforementioned cost limit? No, because it relates only to depreciated fixed assets, and as mentioned, in the case of operational leasing, the car remains the property of the leasing company and it depreciates. The sole responsibility of the business owner is to pay the agreed installments, without any restrictions.
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However, it should be mentioned here that in order for leasing to be a tax cost, it must meet certain conditions. The provisions of the PIT Act specify the conditions that must be met in order for the fees related to the leasing contract to be included in tax costs. And so the leasing contract should:
- be concluded for a definite period of time, constituting at least 40% of the normative depreciation period (in the case of cars it will be a period of 24 months), if the subject of the lease agreement are movables or intangible assets subject to depreciation;
- determine the sum of the agreed fees, which, reduced by the due tax on goods and services, corresponds to at least the initial value of fixed assets or intangible assets, and in the event of the conclusion by the financing party of the next fixed asset lease agreement or intangible asset previously subject to such an agreement, it corresponds to what the lowest market value on the day of concluding the next lease agreement.
Therefore, if the above conditions are met, and the lease agreement is an operating lease, the entrepreneur is not subject to any cost limit taking into account the value of the lease agreement. So if a car with a value exceeding the equivalent of PLN 20,000 is leased, euro, the tax expense of the entrepreneur will also be the value exceeding the limit of 20 thousand. euro, which here only applies to cars depreciated by the entrepreneur.
It will be different with the limit on voluntary AC insurance. The cost of premiums for this type of policy purchased for a passenger car used under an operating lease agreement will be eligible for tax deductible costs in the amount not exceeding their part determined in the proportion equal to the equivalent of PLN 20,000. Euro, converted into zlotys according to the selling rate of foreign currencies announced by the National Bank of Poland on the date of concluding the insurance contract, in the value of the car adopted for insurance purposes. This means that also in the case of this type of leasing, the general rule regarding car insurance applies. Such a position was presented in the interpretation issued on April 7, 2010 by the Director of the Tax Chamber in Warsaw (IPPB1 / 415-98 / 10-4 / ES).
Financial leasing of a passenger car
Financial leasing is a less popular form of leasing. In this case, the passenger car is owned by the entrepreneur from the beginning of the contract and he is responsible for making depreciation write-offs, which, together with the interest installment, are entitled to tax deductible costs. Due to the fact that this vehicle will constitute a fixed asset in the conducted activity, the cost limit provision will apply here.
This means that if the entrepreneur purchases a car with a value exceeding PLN 20,000, euro under a financial lease agreement, he will be entitled to include only a part of depreciation charges as tax costs.
The issue of insurance of such a vehicle is similar - as in the case of operating leasing - costs include only the value of contributions for voluntary AC insurance in the amount not exceeding their part determined in such proportion as the equivalent of PLN 20 thousand. Euro, converted into zlotys according to the selling rate of foreign currencies announced by the National Bank of Poland on the date of concluding the insurance contract, in the value of the car adopted for insurance purposes.
In summary, whether the entrepreneur will be limited by the cost limit resulting from the PIT Act regarding a passenger car, depends on the type of contract concluded. In the case of operational leasing of a vehicle with a value exceeding the equivalent of PLN 20 thousand. euro, the tax expense of the entrepreneur will also be the value exceeding the aforementioned limit. It will be different in the case of financial leasing, where the entrepreneur is responsible for making depreciation write-offs. In this case, it must take into account the limit resulting from Art. 23 sec. 1 point 4 of the PIT Act.
However, in the case of AC insurance, regardless of the type of contract concluded, for a car whose value exceeds PLN 20,000. EUR, the entrepreneur may include only part of the contributions as tax costs.