Author: Juraj Ďuratný, SEVA Associate and D-Tax Tax Expert
Buying an electric car is becoming an increasingly popular choice for many companies, not only because of the environmental benefits, but also because of the financial advantages that electromobility brings with it. A proper understanding of acquisition costs, depreciation and VAT rules is key to maximising the financial impact of an EV investment. In this article, we look at what all is good to know when buying and acquiring an EV for your company fleet.
Acquisition costs: more than just the price of the vehicle
When acquiring an EV, it is important to consider that the acquisition cost is not just the purchase price of the car itself. It also includes other costs – for example, the registration fee, if paid before the vehicle is put into operation. Other costs that are part of the acquisition costs can be found in the accounting procedures. This amount is then shown in the accounting statements and also affects the calculation of tax depreciation.
An electric vehicle that a company purchases from its own resources, on credit or through a finance lease will appear on the company’s balance sheet as a tangible fixed asset. However, if the vehicle is used by the company under an operating lease contract, the balance sheet is not changed and the rent is expensed, which reduces the tax base only when it is paid.
How to take advantage of faster depreciation of electric vehicles
The accounting depreciation is a way for a company to gradually reduce the book value of its assets, including electric vehicles. The accounting depreciation is used to show the real wear and tear on the assets, giving the company the freedom to set the depreciation rate according to the expected useful life of the assets. Accounting depreciation reduces the profit that a company reports in its financial statements, which has a direct impact on its profit and loss.
Tax depreciation, on the other hand, is governed by income tax law and determines how much of the value of an asset a firm can deduct from its tax base. In the case of personal electric vehicles and plug-in hybrids (BEVs and PHEVs), Slovak legislation allows for faster depreciation of their value over two years, which positively affects the company’s cash flow. For EVs that are used for private use or rental, tax depreciation is reduced and limited in certain circumstances.
When and how can you deduct VAT?
From a VAT perspective, the way in which the electric car was acquired plays a key role. If you bought it with your own funds or on credit, you can deduct the VAT immediately when you take delivery of the vehicle. However, if you have opted for an operating or finance lease, the VAT is deducted gradually, with each instalment. This situation will change from 1 January 2025, when most finance leases will allow you to deduct all the VAT at the outset.
Another important factor is whether the electric car is used exclusively for business purposes or also for private purposes. For business use only, you can deduct the full VAT. However, if the car is also used for private purposes, the VAT can only be deducted to the extent of the business use and the unapplied VAT to the extent of the private use ends up as an expense.
Take full advantage of the benefits of electric cars
Buying an electric car can bring many financial benefits to a company if it understands and applies the rules on procurement, depreciation and VAT correctly. At the same time, it is important to keep in mind the difference between accounting and tax depreciation and take advantage of faster tax depreciation for BEVs and PHEVs, which allows the company to optimize cash flow.