Is VAT on company vehicles deductible in France?

As a matter of principle, VAT on passenger vehicles is not deductible

The rule is simple and provides that VAT on passenger vehicles is not deductible. By passenger vehicle, we mean “any vehicle intended to transport people” (car, motorcycle, etc.).

In practice, this means that if you are a business owner and you want to acquire a BMW X5 for the needs of your business, the VAT borne on the purchase price of the vehicle will not be deductible and will be a burden for your Company.

However, this is not the case for company vehicles made available to employees in exchange for compensation.

Many companies provide their employees with so-called “company” vehicles, which can be used for both professional and private trips.

Until recently, this practice was widely considered to be outside the scope of VAT, as no direct compensation was required from the employee.

This led companies to apply the rule of principle according to which VAT is not deductible on passenger vehicles (except for derogations). Rule that always remains applicable.

However, the details of the administration will have a significant impact for companies that make vehicles available to their employees both for professional and private needs in exchange for compensation.

In this scenario, which is very widespread within companies, VAT becomes deductible on the purchase price of the vehicle or lease, in return, the amount of the compensation identified at the employee level, becomes subject to VAT. This taxation entitles the employer to deduct VAT.

We recommend that you read our article on the subject.

Are there vehicles for which VAT is deductible even if they are not functional and made available in exchange for consideration?

VAT is deductible on vehicles that are classified as “very special vehicles” by the Highway Code.

The outlines of this category of vehicle have been the subject of multiple clarifications in order to determine the criteria that make it possible to make VAT deductible on these vehicles.

It is specified that VAT is deductible on commercial vehicles such as vans or vans designed for the transport of goods, including when they are equipped with a deep cabin including, where appropriate, a bench seat (BOI-TVA-DED-30-30-20-20170201 §20).

In other words, a craftsman who would like to acquire a Peugeot Boxer equipped with a deep cabin for the needs of his business will be able to deduct the VAT borne on this vehicle.

In addition, VAT is also deductible on vehicles called “VP derivatives” which have only two seats, which are also marketed under the names “company”, “business” or “business”.

The company vehicle category includes models such as Renault Clio or Peugeot 208 for which the manufacturer has condemned the rear seats.

For its part, case law ruled on the case of pick-ups in a judgment of 30 March 2007 (EC, 30 March 2007, no. 287600, GFA Domaine de Font Mars). The Council of State specifies that the deductibility of VAT must be assessed objectively according to the intrinsic characteristics of the vehicles and not on the use made of them.

In this respect, the Council of State has come to specify that VAT is deductible on:

• Pick-ups equipped with a simple cabin, i.e. with only two seats or one bench;
• Pick-ups comprising a simple deep cabin in which, in addition to the seats or the front seat, are placed folding seats intended for occasional use.

In fact, the Council of State considers that these vehicles are commercial in nature insofar as their cargo volume is significant.

On the other hand, VAT is not deductible on other pick-ups that have four to five seats excluding the seat seat.

Based on these comments, car manufacturers have developed double-cab pick-ups with 5 seats on which VAT is not deductible or single-cab pick-ups or extended cab pickups with folding seats on which VAT is deductible.

Thus, VAT will not be recoverable on a Mercedes X-Class with a double cabin and 5 seats while VAT will be deductible on a Toyota Hilux single cabin.

Can the use of the vehicle impact the VAT deduction?

There are exceptions to the principle of non-deduction of VAT for passenger vehicles. In other words, VAT will be deductible when the vehicle in question meets the criteria for a passenger vehicle.

These are passenger vehicles intended for taxis, paramedics, driving schools, rental companies or dealerships. For example, a taxi who purchases a Mercedes S-Class will be able to deduct all of the VAT that it has borne on the cost of acquiring the vehicle as soon as this vehicle is acquired for the purpose of carrying out the taxi business.

Similarly, if you want to create a Company specializing in the rental of passenger vehicles, the VAT borne on the vehicles making up your fleet will be deductible.

Apart from these rare exceptions, VAT on passenger vehicles is not deductible regardless of their use.

What about the VAT incurred on the rental of passenger vehicles that are not re-invoiced?

The fact that a Company acquires a passenger vehicle in the form of leasing or long-term rental will not allow you to deduct the VAT charged on the rentals.

To summarize, when buying a vehicle, it is necessary to take a close look at its technical characteristics in order to determine whether VAT is deductible. By securing the VAT regime for the acquisition of your vehicle, this will allow you to protect yourself from the risk of recovery in the event of a tax audit.