Input VAT limit on passenger cars

What it means

The input VAT limit on passenger cars is a rule of the VAT Act in force since 1 January 2025. If a VAT payer uses a passenger car not only for business but also privately, it can deduct only 50 % of the VAT on buying, renting or leasing it and on running costs, meaning fuel, repairs, servicing or tyres.

The rule covers passenger cars in category M1, that is ordinary vehicles for carrying people. The flat 50 % replaces the earlier system in which the payer set the ratio of business and private use itself and had to be able to defend it. The advantage is simplicity; the drawback is a lower deduction for companies whose private use of the car is small.

Full deduction is kept if the car is used exclusively for business. The Act also lists activities to which the limit does not apply, such as taxi services, driving schools, car rental, car dealing or paid passenger transport. The exact list of exceptions should be checked in the current wording of the law.

How it works in practice

To claim full deduction, a company must be able to prove that the car is not used privately. In practice this means a detailed mileage log, an internal policy on vehicle use, parking the car on company premises outside working hours and a ban on private trips. A mere statement is not enough; in an audit the tax office looks at the actual situation.

If a company gives an employee a company car for private use as well, the 50 % limit applies and at the same time the employee receives a non-cash benefit of 1 % of the entry price per month, which is taxed and subject to contributions. VAT and income tax are two separate views of the same car and need to be dealt with in parallel.

If the way the car is used changes, for example a car bought exclusively for business starts being used privately too, the deduction is adjusted under the rules on adjustment of deducted tax for capital goods. The adjustment runs over several years, so the decision on how the car is used has long-term consequences.

What to watch out for

The VAT limit does not match the income tax rules. A different mechanism applies there, for example flat-rate fuel expenses or reduced expenses for private use of a vehicle. It is a mistake to assume that 50 % for VAT automatically means 50 % for tax-deductible expenses as well.

Watch out for lorries and commercial vehicles that do not fall into category M1. The 50 % rule does not apply to them, but if they are also used privately the deduction still has to be reduced by the actual proportion. When buying a vehicle it pays to check its category in the registration certificate before deciding how to finance it.