Long-term leasing allows you to have a car that you can use with peace of mind and is being adopted by more and more motorists, who are taking advantage of the fact that they do not have to pay the purchase charge and do not have to deal with other costs. It is necessary to find out about the advantageous aspects, such as rental deductibility and taxation. Certainly, long-term leasing is a winning solution, which offers numerous benefits, such as real cost-effectiveness, early formulation of costs and saving the time and means to manage a car.
Taxation of long-term leasing
The taxation of long-term leasing refers to the tax deduction of costs and the deduction of VAT tax, including on services involving vehicle maintenance and storage. Both are implemented on the monthly rent, which is divided into a rental fee and a service fee. To calculate deductibility in long-term leasing, one must first examine one and then the other item in detail. To determine the deductibility of VAT, the amount of VAT on the total rental is considered.
Deductibility of long-term rental
To calculate and understand whether or not you can deduct your long-term rental car from your taxes, you must first establish the use, in detail whether it is instrumental or not. In the case of instrumental use, the policyholder uses the car for business purposes, whereas in the case of non-instrumental use, the policyholder does so for non-business purposes.
In the first case, purely instrumental use of the vehicle (e.g. driving school activities etc.), companies can take advantage of VAT deductions and deductibility of up to 100 per cent (for purchase, leasing and rental).
In the second case (not exclusively instrumental use), companies can deduct 20% of the annual fee. Instead, the VAT deduction is 40%.
For companies that assign their employees the use of a car in a mixed manner (use of the vehicle for personal and professional reasons), and in the case of a charge to the payroll, there is the opportunity to deduct 40% of the VAT tax and to deduct up to 70% of the annual car fee. If the employee is charged with an invoice for private use, 70% of the annual fee can be deducted and 100% of the VAT can be deducted.
Self-employed persons or persons exercising arts and professions may also take advantage of this benefit (limited to one vehicle per professional), in particular the deduction is 20% of the long-term rental fee, and the deduction (depending on the use of the vehicle) for not exclusively instrumental use is 40% of the VAT tax, and for exclusively instrumental use is 100%.
In the case of agents and sales representatives, they are entitled to deduct 80% of the rental cost up to EUR 5,164.57 annually, and 80% for the service portion. In the case of vehicles rented for non-instrumental use, there is a 20% deductibility for the rental fee up to EUR 3,615.20 per year and no limitation for the service fee. In the case of agents or sales representatives, the VAT deduction is 100%.
Lastly, private individuals cannot benefit from this advantage, as they do not have a VAT number. This does not mean that it is inconvenient for private individuals to use this innovative practice. In fact, they can exploit many economic as well as management and operational advantages.
Long-term rental as Fringe Benefit
It is called fringe benefit and it is the annual taxable income concerning the use of the car: it is provided for in cases of cars assigned for mixed use (use of the vehicle for personal needs, in addition to work purposes), it therefore represents compensation reported in the pay envelope, together with remuneration.
The tax treatment of the fringe benefit also applies for exclusive business use: when the director makes exclusive business use of the vehicle, related to the mandate received, the general rule for non-instrumental exclusive business use vehicles applies.
Personal use
If the vehicle is granted for exclusive personal use to the director, the company is entitled to a deduction determined according to Article 95 of the TUIR. Thus, the limit of the remuneration in kind is expressed, based on the normal value, but the excess cost cannot be deducted.
Mixed Use
This is taxation at the employee's expense, differentiated by type of car, calculated as a percentage (varying according to the car's carbon dioxide emissions) of the amount corresponding to a conventional mileage of 15,000 kilometres, calculated on the basis of the cost per kilometre of operation inferable from the national tables to be drawn up annually by the Automobile Club of Italy.
Limitations in the tax deduction for long-term leasing
In the tax deduction and deduction, there are limitations. Thus, with regard to the deduction percentage of the monthly fee and the VAT deduction on the invoice, there can be a total, reduced or no deduction or deduction at all (e.g. 100%, 40%). In the case of artists or professionals with VAT registration who perform self-employment services, there is a 20% deductible cost for motor vehicles (limited to one vehicle per professional) with a maximum limit of EUR 3,615.20 per year (and 20%, with no limit, for the service portion), for a deductible amount of up to EUR 723.04.
In the case of agents and sales representatives, they are entitled to deduct 80% of the cost up to EUR 5,164.57 annually, and 80% for the service quota.
In the case of vehicles rented for non-instrumental use by companies, there is a 20% deductibility for the rental portion up to EUR 3,615.20 per year and no limitation for the service portion.
Obligations of the vehicle user
The policyholder, i.e. the user of the vehicle, who has concluded the long-term leasing contract is obliged to use the rented vehicle with the diligence of a good family man and to pay the established rent for the amount and term stipulated. Ordinary and extraordinary maintenance costs of the vehicle are the responsibility of the policyholder, as are the risks of its deterioration, damage and loss. If he fails to comply with all these obligations, the contract shall no longer be valid and the user shall immediately hand over the vehicle to the lessor.
Obligations of the lessor
These basically consist of the lessor handing over the vehicle to the other party following the conclusion of the contract, ensuring that it is free of defects. Upon expiry of the term, the user may decide to return the asset or extend the contract.