This is to let you know that the Finance Ministry has published practical guidance on how to apply income tax regulations relating to use of passenger cars for business purposes.

New regulations on the tax treatment of expenses incurred on passenger cars used for business purposes have been in effect since 1 January 2019. Among these are regulations which:

  • increase the car value limit allowing taxpayers to deduct depreciation and motor own damage (casco) insurance expenses for tax purposes (the new limit is PLN 150,000, or PLN 225,000 for electric cars);
  • introduce a car value threshold of PLN 150,000 (PLN 225,000 for electric cars) which operates to limit charges that may be deducted for tax purposes in respect of leases, rentals or similar arrangements covering passenger cars;
  • introduce a 75% limit on operating expenses that may be deducted for tax purposes in respect of passenger cars used for “mixed” purposes.

The new guidance explains a number of key matters related to those regulations, including the following:

  • The PLN 150K limit does not apply to leases and similar contracts executed before 1 January 2019 even if the contract provided for delivery of the car after 31 December 2018. However, in such a case, the contract must identify various information, including the leased asset, the vendor, the contract term, the amount of fee(s) due to the lessor, and the lease payments schedule.
  • The restrictions on the tax-deductibility of expenses relating to cars used for mixed purposes apply also to service charges under lease contracts executed before 1 January 2019. Thus, to the extent a lease payment relates to the operating expenses of a passenger car, it will fall within the 25% non-deductible portion.
  • The PLN 150K limit applies to leases and similar contracts which were amended or renewed after 31 December 2018. According to the guidance, the amendments meant must involve material changes in the legal relationship between the parties and must not follow from the very terms of the contract; examples of amendments caught by the new regulations include a change of the asset leased or of a party to the lease (e.g. assignment of the lease).
  • The new depreciation deduction limits (PLN 150K and 225K) apply to depreciation charges made as of 1 January 2019. Accordingly, the new regulations do not give taxpayers the right to adjust depreciation expenses they deducted for any periods prior to that date.
  • The new depreciation deduction limits (PLN 150K and 225K) do not apply to cars which the taxpayer leases out for a consideration as part of its core business (includes also car rental and similar arrangements). Importantly, this exclusion does not operate with respect to companies for which car leasing or rental is a side or incidental business.
  • For the purposes of computing the car value limit which operates to restrict the deductibility of charges under a lease, rental or similar contract (no deduction for such charges above the amount which reflects the ratio of PLN 150K to car value), car value should be understood to mean:

a. in the case of contracts with a term of 6 months or longer – the net contract price of the car plus VAT to the extent the VAT Act prohibits recovery of the tax;

b. in the case of contracts with a term of less than 6 months – the insurance value of the car.

  • The PLN 150K limit applicable in determining the deductibility of insurance premiums on passenger cars relates to insurance schemes where the sum insured is based on car value, being motor own damage or GAP insurance (but not third-party motor insurance).
  • The 75% limit on the tax deductibility of operating expenses applies to such items as: fuel purchase, service and maintenance, tyre replacement, car wash, repairs and parts, brake fluid or windscreen washer fluid changes, motorway tolls, car diagnostics, radio levy for car radio, garage rental, parking fees, major post-accident repairs (restoration).
  • For cars recorded as fixed assets after 1 January 2019, the net income or loss on sale is computed according to the following formula: gross income from sale – (limited purchase expenses – tax depreciation expenses).
  • With respect to passenger cars recorded as fixed assets, capital improvement expenditures (e.g. installation of reversing sensors or LPG conversion) can be fully deducted for tax purposes as running expenses to the extent they do not exceed PLN 10,000.

For the full text of the guidance (in Polish), see here:

https://www.podatki.gov.pl/cit/wyjasnienia/objasnienia-samochody-osobowe/

If this issue pertains to your business and you are interested in our assistance, please contact us.

This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.