HUGE CONTROVERSY OVER BUSINESS VEHICLES DEDUCTIBILITY

Upon the event that you were buying a car, and you wanted to use it for business, you should be made aware of the following important and relevant recommendations:

The price that you paid for the car will not be deductible as a business cost. It is not because Spanish Income tax requires the car to be deductible that it is exclusively used in the business, and it is needed to run all the different activities.

Some people think that 50% of the car price and costs can be deducted because the car is needed, but not exclusively used in the business as it is also used for private purposes. This is wrong.

Some people think that 50% of the car cost is deductible because they live in Alicante bay area, and they have to go to work to the City of Murcia every day. This is wrong.

Some people think that the car is deductible because they have a second car, and they can always argue to the IRS (= AEAT) that the other car is the one that they use for private, and the business car is exclusively used in business areas. This is again very wrong. Tax Authorities will not admit these arguments.

There are only certain activities that Spanish tax authorities will consider admitting the car purchase cost, the associated costs, and the depreciation of it as deductible expenses.

These activities are:

1) Driving Schools; 2) Car-hire business related; 3) Transportation (cabs, uber, trucks); 4) Commercial Agents, AS LONG AS the car documentation from the Spanish Ministry of Transport (DGT) stablished that car description as INDUSTRIAL. If the car is registered as PARTICULAR, the car will not be deductible even if the business activity were as those that have permission by the Tax Office. The engineers from the Vehicles Official Inspection department (ITV) will only be those allowed to permit one vehicle being considered private or industrial use.

VAT wise is completely different. There are several sentences from the Spanish TEAC that permit business owners to deduct the VAT associated to a vehicle if the vehicle is used for business in addition than private. 50% VAT deductibility will normally be generally speaking accepted, and in addition to this, it will basically be giving an indication to the Spanish tax office to consider the car NOT income tax deductible in any ways. In other words, the car owner will be indirectly assuming that car is also used for private purposes the minute that 50% of the car purchase cost, and all day-to-day costs are deductible.

In case that our Firm were assisting you in your business book-keeping or accountancy process, we shall guarantee that we do all that is required not to find yourself into any troubles.