In this article I am going to talk about deductible car expenses and tax deductions in Spain both when we buy a vehicle that is necessary for our business, and when we fill up the petrol tank of this vehicle, as well as the repairs and revisions necessary for the maintenance of the vehicle.
In general term, deductible expense meets this requirements:
- They must be expenses linked to the economic activity carried out by the self-employed, or, as the Treasury says, they must be “related” to it.
- They must be properly justified by means of the corresponding invoices. Sometimes, and with certain requirements, the old receipts may be valid today, and after the new invoicing regulation, simplified invoices.
- They must be recorded in the self-employed person’s accounting records in the corresponding expenses and be considered as an investment.
With regard to the deductibility of vehicles in economic activity, as well as their expenses, we must begin by analysing the tax regulations for each of the taxes we are going to deal with, Personal Income Tax (or company income taxes, on private companies) and Value Added Tax (VAT).
Buying a car, there are not 100% VAT deduction in Spain.
The VAT regulations establish that self-employed persons may deduct the goods and services acquired, provided that they are directly and exclusively used for the performance of the business or professional activity, not fulfilling this condition, and therefore goods that are used alternatively for different business activities or of another nature, when they are used simultaneously in business activities and for private needs, etc., will not be 100% deductible….
However, 100% VAT deduction in Spain for some activities:
However, a specific rule is established for capital goods, including vehicles and their expenses, according to which vehicles and other capital goods are deductible to the extent that they will foreseeably be used for the activity, even if they are not fully used or are used for different business activities. This kind of activities, are very clear, like a company that hires cars for holidays.
50% VAT deduction for passenger cars and their trailers, mopeds and motorbikes.
For the application of this partial deduction of 50% VAT while buying a car in Spain for economical activities, special and specific rules are also established for vehicles, according to which in the case of passenger cars and their trailers, mopeds and motorbikes, it is presumed that they are 50 percent used and therefore 50 percent of the VAT paid on the acquisition and other maintenance costs of the vehicle may be deducted, provided that it can be demonstrated that it is used for the business activity; otherwise, it will not be deductible in any proportion. This can be demonstrated, for example, by submitting to the tax authorities a list of your customers and their places of residence, a schedule of visits, visits agreed with e-mails, documents, accepted quotations showing where the service is provided or where the goods are delivered, i.e. any documentation that proves that your vehicle is used for the purpose of earning income.
The tax authorities will allow a total deduction of 100% when the vehicle complies with the following characteristics:
- Mixed vehicles used for the transport of goods.
- Those used in the provision of passenger transport services for consideration.
- Those used in the provision of driver or pilot training services for consideration.
- Those used by their manufacturers in the performance of tests, trials, demonstrations or sales promotion.
- Those used in the business travel of commercial representatives or agents.
- Those used in surveillance services.
- Mixed vehicles (vans, minivans…) are defined as mixed vehicles according to the regulations in the Annex to Royal Legislative Decree 339/1990, those vehicles specially designed for the transport, simultaneously or not, of goods and people up to a maximum of nine, including the driver, and in which the load can be replaced, partially or totally, by people by adding seats.
In Spain, you can get a second van with 100% VAT refund, if this van will be used for economical reasons.
Example of 100% VAT deduction on your vehicle: Now, what happens if we have a minivan/van that we use for the transport of materials, if we also have this vehicle, for example, labelled with our commercial name, if we also have another vehicle for our private use, and this minivan/van that we have is not a top of the range vehicle and it is classified on the market as a vehicle with an industrial alternative, we will be able to deduct 100% of the VAT that we have paid for the acquisition and/or maintenance of this vehicle, as long as we can prove to the tax authorities that this vehicle is 100% linked to the activity and that it meets the definition of Mixed Vehicle indicated in the regulation.
Be careful, ask specialist on that issue.
However, the deductibility of the vehicles in the economic activity, as well as the deductibility of its expenses, will be unique for each situation and will depend on what, when the time comes, is alleged before the inspection so that the Tax Agency considers the deductibility of these quotas to be correct.
Car deductions on personal income tax or company income taxes
With regard to personal income tax or company income taxes and the deductibility of vehicles in the economic activity, the situation is less conflictive, given that either the vehicle is 100% used for the activity or it is not, i.e. either the vehicle and its expenses are 100% deductible, as the vehicle is fully used for the activity, in accordance with the requirements set out above, or it is not possible to deduct it in any percentage whatsoever. Now, if you decide to allocate part of the vehicle expenses because you consider that you can prove, if you are required to do so, that the vehicle is used for your economic activity, do not forget that ultimately it is the Tax Agency who reserves the right to consider it as a tax-deductible expense, or not.
However, I should point out that there are court decissions that recognise this right to a partial deduction in personal income tax.
If you want to know more about the best option of being seld employer in Spain or set up a limited company (Soliedad Limitada), please take in consideration the following post:
Self-employed or Limited Company: Which pays more?
Thanks for reading this article. If you still having questions regarding company formation in Spain, you can contact me or get an appointment here: +49 1520 8381499 or Email to Erica@taxandlawspain.com