Business lease and taxation – what can you deduct and what types of companies is leasing suitable for?
Leasing a company car offers clear tax advantages, and under certain conditions VAT is also deductible. In addition, there are tax benefits related to electric vehicles that make them an attractive option for business lease. However, the topic is not entirely straightforward, so at Ayvens we have compiled a set of questions and answers related to business lease and taxation.
Can lease payments be deducted in corporate taxation?
Lease payments for a vehicle used in a company’s business are generally tax-deductible expenses. This means the company can deduct lease payments in its taxation and thereby reduce its taxable income. This applies especially to rental-type leases (operating or maintenance leasing), where ownership of the vehicle does not transfer to the company.
Ayvens leasing agreements are always genuine leasing arrangements, i.e. rental-based. The tax treatment of a lease agreement is determined by its actual substance, not merely its name. If the agreement includes ownership-like features (such as a fixed purchase option or residual value risk), the treatment may differ from a standard rental agreement.
Services included in lease payments, such as maintenance and other agreed service elements, are also tax-deductible to the extent the vehicle is used for business purposes that qualify for tax deductions.
Does lease car show on the company’s balance sheet?
Previously, in operating or maintenance leasing, the vehicle was generally not shown on the company’s balance sheet; lease payments were recorded as expenses during the contract period. This changed on January 1, 2019, when the IFRS 16 standard (Leases) required companies to recognize almost all lease agreements on the balance sheet. In practice, leases previously treated as operating leases are now recognized as right-of-use assets with a corresponding lease liability.
If the vehicle is purchased, acquired through hire purchase, or financed via finance leasing, it is recorded on the company’s balance sheet according to the accounting rules for that type of arrangement.
Is VAT on lease payments deductible?
The right to deduct VAT on passenger cars requires that the car is used exclusively for VAT-liable business purposes. This means no private use is allowed, including commuting between home and work.
The fulfillment of these conditions must be reliably demonstrated, typically with a mileage log. When the conditions are met, the VAT included in the monthly lease payments is deductible.
If the passenger car even sometimes is used for private purposes, VAT on the car is not deductible.
How is a leased car reported in accounting?
Monthly lease payments are normally recorded as expenses during the contract period. In addition, Ayvens provides an annual breakdown of total contractual liabilities via the MyAyvens portal, which can be used when preparing notes to the financial statements.
Accounting practices and required disclosures may vary depending on the size of the company, the accounting standard applied, and the content of the contract, so it is advisable to confirm the treatment with your accountant.
What tax advantages do electric vehicles offer?
New fully electric passenger cars and vans have a 0% car tax rate, as car tax is based on CO₂ emissions and fully electric vehicles produce 0 g/km.
If a fully electric car is provided as a company car benefit, 170€ per month can be deducted from its taxable benefit value. This benefit has been extended and is set to continue until the end of 2029.
Operating costs of electric vehicles are also tax-deductible:
- Home charging: For a free company car benefit, it is advisable to use a smart charging device, as tax authorities require reliable measurement of electricity consumption. Ayvens’ partner Plugit provides a smart charger that automatically invoices the electricity through Ayvens directly to the employer and reimburses the electricity costs to the property’s electricity payer.
- Public charging: Fully tax-deductible.
- **Workplace charging: **Until 2025 often a tax-free benefit for employees. From 2026 employer-paid workplace charging becomes a taxable fringe benefit. The taxable value is 30€ for electric vehicles and 20€ for plug-in hybrids.
Is leasing only suitable for large companies?
Leasing is not limited to large companies. Small businesses, sole traders, and self-employed individuals can also benefit from leasing in their business activities. It doesn’t have to be company car benefit—corporate leasing and company cars are separate concepts, and having employees is not a requirement.
In practice, even a sole entrepreneur can benefit from leasing under the same terms as larger companies. The suitability of leasing and its tax treatment depend on the nature of the business, vehicle use, and contract terms.
