Company car
Private use of company car by the entrepreneur and employees
If an entrepreneur makes a company car available to an employee or himself, the following points are important to determine the VAT due on this fictitious supply.
Calculation of VAT on the basis of actual use
The entrepreneur can fully deduct the VAT on the purchase cost of the car or the lease price (insofar as he is entitled to a VAT deduction). This also applies to the car expenses such as the VAT on petrol, tyres, maintenance and repairs. At the end of the financial year, the entrepreneur makes a VAT correction. In principle, the correction is based on the actual private use of the car; according to the Dutch TaxAuthorities, on the basis of a kilometre record.
In 2017, the Dutch Supreme Court gave room to prove the extent of private use in other ways than by means of a comprehensive kilometre record. The Supreme Court has ruled that if a taxpayer's records do not contain information from which it can be deduced to what extent the car has been used for private purposes (in short: a kilometre record) and application of the VAT flat-rate for cars would result in too much VAT being levied, the extent of private use must be reasonably determined, taking into account all the circumstances of the case.
According to the Dutch Supreme Court, when you do not have a comprehensive or too limited mileage records of your employee, you can make the extent of the actual private use plausible on the basis of, among other things:
the nature of the business;
the business purposes for which the provided car is used within that company;
the position and the activities within the company of the user of the car;
the manner in which the car may be or has been used for private purposes (such as commuting);
statistical data: If these are invoked by the entrepreneur, it must be made plausible that these data can be used in the case in question.
Annually attributable costs
The total number of private kilometres is compared with the total annual kilometres. Commuting, including travel from home to a fixed workplace agreed in the employment contract, is also private use for VAT purposes. Travel (even if this starts from home) to customers or a construction site is not regarded as commuting. The Supreme Court decided in 2023 that the option for employees to work from home does not change the nature of the journeys they make between their home and their employer's office when they do not work at home but at the office. The fact that their home is a place where they carry out their work at other times does not alter this. This circumstance does not mean that the interests of the company require the employer to provide this transport for the employees, as is the case with employees who carry out all their work in the office.
The ratio of private kilometres to total kilometres multiplied by the VAT on the actual costs of the car constitutes the correction for private use.
Actual expenses
The actual costs are the costs on which VAT is charged, such as the purchase costs attributable to the year, lease installments paid, maintenance costs and petrol costs.
When it comes to a car purchased by the entrepreneur himself, the allocation of the purchase costs to the year is based on depreciation of the car in five years. This means that in the year of purchase and the following four years, one fifth of the costs must be taken into account. If, at the time of purchase of the car, no VAT could be deducted (for example, when purchasing a so-called margin car) or if the car was used more than five years ago, the purchase costs no longer need to be taken into account.
VAT calculation on the basis of a flat rate
If the actual private use or the actual costs are not known, it is approved that the VAT correction is 2.7 percent of the list price of the car (including VAT and private vehicle and motorcycle tax (Dutch: BPM).
If it concerns a car that was purchased by the entrepreneur himself and for which the entrepreneur was not able to deduct VAT (for example, in the case of a margin car) and this car is also used for private purposes (by himself or his personnel), the Tax Authorities have made a practical arrangement. It is approved that the VAT on the car costs is normally deductible, if at the end of the year a fixed correction is made of 1.5 percent of the list price of the car (including VAT and private vehicle and motorcycle tax (Dutch: BPM).
This approval also applies if the car purchased by the entrepreneur for which the entrepreneur has deducted VAT has been in use for five years or more.
Special rules for calculating VAT
Pro rata
Entrepreneurs who perform both VAT taxed and exempt services have been able to deduct the VAT on car expenses only partially (pro rata). The VAT correction for the private use of the car based on actual use or the flat rate is also applied pro rata.
Declaration of no private use for Dutch Wage Tax
For employees with a declaration of no private use for Dutch Wage Tax, who commute between home and work every day, the employer/company must make a VAT correction for private use, as commuting is regarded as private use for VAT purposes. The same applies to a delivery van used for commuting. For VAT purposes, daily business trips to a client or, for example, by a construction worker to a building site, are not considered as commuting, which provides opportunities for optimization.
An approval has been granted for the calculation of the number of (private) kilometres for the cars of employees with a declaration of no private use for Dutch Wage Tax, when the entrepreneur is not taking the VAT flat rate for cars as a starting point for correction, but the actual use of the car.
The number of (private) kilometres is then determined as follows:
Determination of the daily commuting distance and counting the number of days this commuting takes place;
For delivery vans with changing drivers the same calculation method applies, whereby the home to work distance and the frequency must be recorded for each driver;
Instead of keeping a record of frequency, 214 working days per year may be used for commuting (to be reduced proportionally in the case of part-time work or an employment relationship that started or ended during the year).
Correction based on actual use
PwC sees opportunities for a more favourable VAT correction for private use on the basis of actual use for businesses with employees who perform work, for example, for commissioning parties.
In our experience, it is important that the entrepreneur keeps a thorough administration, which shows the expenses/costs and the use of the vehicle.
Normal value (company car with own contribution)
If there is a personal contribution for the private use of the car, in principle, no VAT adjustment can be made on the basis of a levy on the deemed supplies. Without further regulations, this would mean that entrepreneurs who charge a small contribution for the private use of the company car would not have to make a VAT adjustment and would only have to pay VAT on this small contribution. To prevent this, the Dutch VAT Act contains a provision regarding the normal value. This means that the entrepreneur must assess whether the compensation for private use is high enough (the normal value). If the compensation for private use is lower than the costs of making the car available, the compensation is 'too low' and must be increased to the normal value.
The Dutch Tax Authorities indicated that - from the viewpoint of a reasonable application of the law - the normal value is equal to the costs incurred by the entrepreneur - including depreciation costs - for a car in proportion to the private use (including commuting). If those costs or the extent of the private use cannot be determined, the Dutch Tax Authorities approve that the normal value may be determined on the basis of a fixed amount of 2.7 percent of the list price of the car (including VAT and private vehicle and motorcycle tax (Dutch: BPM).
If an entrepreneur has not been able to deduct VAT when purchasing a car, the Dutch Tax Authorities have approved that a fixed amount of 1.5 percent of the list price of the car (including VAT and private vehicle and motorcycle tax (Dutch: BPM) is used as the normal value. This approval also applies if the car purchased by the entrepreneur, for which the entrepreneur has deducted VAT, has been in use for five years or more. If this approval is used, no VAT is due during the year from the own contribution, but VAT must be paid at the end of the year on the basis of this fixed amount of 1.5 percent (approved normal value).
The flat rate may not be applied if the VAT due on the fees charged is more than what would be due according to the flat rate. The flat rate may not lead to more VAT being due than was deducted in that year (including the attributable portion of VAT on capital goods).
In practice
In practice, it is difficult to determine in which cases the provisions regarding the taxation of the normal value should be applied. Determining this normal value is also difficult. We advise you to always consult with your PwC VAT adviser if VAT may be due over the normal value.
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