Who will use the car for private purposes?
First, it is important to establish who will drive it. The situation differs depending on whether you are self-employed, a managing director or a shareholder, or whether you offer private use to an employee as a benefit.
Use by a self-employed person
The general rule is that you can only claim business journeys as expenses.
Things are simplest for self-employed people in the scheme for flat-rate tax or those who are not VAT-registered and also claim lump-sum expenses. As they do not have to keep expense records, they have nothing to worry about. 🙂
Not VAT-registered – tax records
If you are not VAT-registered but keep tax records, you need to maintain a mileage log. Based on the ratio of business to private journeys, you split all car running costs into deductible (business) and non-deductible (private) expenses. Under the Income Tax Act, you can then claim only 80% of the car’s annual depreciation each year when using a company car privately.
A simpler option is to use the flat-rate transport allowance. You can claim up to CZK 5,000 per car per calendar month. If you also use the car privately, you can claim the reduced transport allowance of CZK 4,000 per calendar month. With the flat-rate transport allowance, you still claim depreciation each year, again at only 80%.
VAT-registered businesses
The situation is more complicated for VAT-registered businesses.
For VAT purposes, the car purchase itself and its running expenses (fuel, repairs, small car accessories, etc.) must be reduced using a proportionate-use coefficient. This expresses the expected ratio of business to private use. To establish this ratio, you must keep a mileage log. For example, if the car is used for business 65% of the time, the business owner is entitled to deduct only 65% of the VAT paid (on the car purchase, fuel, repairs, etc.).
In the first year, the coefficient is based on anticipated business and private use. In subsequent years, it equals the actual usage ratio from the previous year. At the end of the calendar year, the estimated coefficient must be compared with the actual ratio of business to private journeys. If the actual ratio differs from the coefficient used by more than 10%, you must repay or claim additional VAT through the December VAT return. Note that this also applies to VAT on the purchase of the car itself!
Regarding income tax, the situation is similar to that of a non-VAT-registered business keeping tax records. The business owner has two options: claim proportionately reduced actual car running costs or use the flat-rate transport allowance. Both options entitle them to 80% of the car’s annual depreciation.
Private use by an s.r.o. shareholder
Since 2021, paid use has been the only way a shareholder can use a car privately. Essentially, the shareholder pays the company to hire the car. The company issues the shareholder an invoice for the hire. The hire charge must be the usual market price, meaning the amount it would cost to hire a similar car at a similar time and in a similar location. If the car used privately by the shareholder is only rented or leased by the company under an operating lease, the shareholder pays the market rate for private use. This must then be adjusted according to how long they had the car or how many kilometres they drove. 🙂
If you are VAT-registered, the invoice issued to the shareholder for car hire must include 21% VAT.
Private use by an employee or managing director
This is the most complicated option. Let us examine it from 3 angles: buying the car, running the car and the employee’s/managing director’s position.
Buying the car – if you are VAT-registered, you can again claim only part of the VAT, as described above. On invoices for car maintenance and repairs, the employer is always entitled to deduct all VAT. For fuel, the key question is whether the employee or managing director pays for fuel for private journeys themselves. If they do, the employer can deduct all fuel VAT, since all employer-paid fuel relates to business journeys. If they do not, the company can again deduct only a proportion of the VAT. If the company pays for fuel but re-invoices the employee, it can again deduct all VAT. These rules are similar for income tax purposes, for both VAT-registered and non-VAT-registered businesses.
The employee’s wages or managing director’s remuneration are another consideration. By law, 1% of the car’s purchase price must be added to taxable pay in every wage/remuneration payment (the price including VAT). For a low-emission car, only 0.5% of the purchase price would be added to taxable pay. Low-emission cars include plug-in hybrids, electric vehicles and hydrogen-powered cars.
If it is a one-off private journey in a company car (for example, a holiday), you can take the same approach as with shareholders. The company would issue the employee an invoice for car hire at the usual market price. 🙂 As this is car hire, an income-generating activity, no coefficients would apply. This method can also be used for regular use of a company car by an employee. It is up to you which option seems less demanding administratively and more economical.
I appreciate that this article has been rather exhaustive, but it covers the full picture of private use of company cars, which is complicated in itself. If you are unsure what to do, please get in touch and we can look at it together. 🙂