Used car and individual depreciation rate

Service-Tax

Most companies use a car on a daily basis. In the course of their activities, entrepreneurs use private vehicles, accounted for as part of the vehicle mileage register, as well as company vehicles - introduced to the state of fixed assets. Business people often decide to buy a used car. How should it be amortized? We explain below.

The car is used as a fixed asset

A car, even a used one, may constitute a company's fixed asset, provided that:

  1. is owned or jointly owned by the taxpayer,
  2. was purchased or manufactured on its own,
  3. it is complete and serviceable,
  4. will be used for business purposes,
  5. the expected useful life is more than one year.

Components classified as fixed assets should be included in the register of fixed assets.

Determining the initial value of the purchased car

When a car meets the definition of a fixed asset, its initial value should be determined. In the case of a paid purchase, the initial value of a used car will consist of:

  • the purchase price of the vehicle, indicated in the sales contract, invoice or bill,
  • costs of transport, loading and unloading as well as insurance on the way,
  • registration costs incurred until the date of commissioning the fixed asset for use,
  • excise tax and duty on car import,
  • VAT in the non-deductible part,
  • cost of servicing liabilities arising in connection with financing the purchase of a vehicle, such as bank interest,
  • exchange differences, when they are realized by the date of putting the vehicle into service.

From January 1, 2018, the initial value of the assets that must be obligatorily entered into the fixed assets register was increased from PLN 3,500 to PLN 10,000. The increased initial value of fixed assets relates to assets put into use after December 31, 2017.

Used car depreciation

From January 1, 2019, the limit of passenger car depreciation, constituting a tax-deductible cost, was increased, which amounts to:

  • PLN 225,000 - for electric passenger cars,
  • PLN 150,000 - for other passenger cars.

The change means that taxpayers who invest in expensive passenger cars have the option of reducing their income tax by a greater amount than before.

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Used car - one-time depreciation

If the initial value of a used car does not exceed PLN 10,000 (net for active VAT payers, gross for entities exempt from VAT), the vehicle can be depreciated once. However, if its value is higher, then in the case of passenger cars, the taxpayer must apply depreciation over time. In the case of trucks with a value above PLN 10,000, a small taxpayer and a novice entrepreneur may apply a one-time depreciation as part of de minimis aid.

Car linear depreciation

The basic method of depreciation for means of transport, including passenger cars, is a linear 20% depreciation. The amortization period is then 5 years. The taxpayer is obliged to use it in the case of fixed assets whose initial value exceeds PLN 10,000. However, once the statutory requirements are met, a higher depreciation rate can be applied, as discussed below.

Used car - individual depreciation rate

Legislators meet the expectations of entrepreneurs who intend to introduce a used car to the fixed assets register. They are then entitled to an individual depreciation rate of 40% per annum. The amortization time is reduced to 2.5 years, which is half as much as when the straight-line rate is applied. This is a beneficial solution for companies that care about sufficiently high costs and thus lowering tax liabilities (income tax).

It is essential to establish which vehicle is considered used. Pursuant to Art. 22j paragraph. 2 point 1 of the PIT Act, fixed assets are considered used if the taxpayer proves that before their purchase they were used for at least 6 months by an entity other than the taxpayer. This means that, for example, in the case of purchase of a vehicle from an operating lease, it cannot be treated as a used vehicle because unless the taxpayer was its owner (the vehicle was owned by the lessor), it was its user until the purchase. In the case of entrepreneurs who decide to introduce a private car to the company's fixed assets, the period before the vehicle is purchased from the previous owners is also counted, and not before it is actually entered into the fixed assets register. It is up to the taxpayer to prove that a car is a used vehicle. The best and most obvious document will certainly be the vehicle card or the service book.