Hi everyone,
I has just started up a business and I am thinking to buy a car for purpose of business. But I came up with a certain question as follow:
1) Can I get VAT deduction if I buy an old car (I heard buying an old car is VAT exempt, therefore there will not be VAT deduction, because one does not have to pay VAT, how can he be refunded. Can someone confirm this info?)
2) If I buy a new car how VAT can be deducted
- Will I received the whole charged VAT (from seller) from government at one time or if not how does it work?
One of my friend told me that If I buy a car which values 10,000 EUR. On the 1st year 25% of the car's value= 2,500 EUR will be plus into company's costs (VAT refund). And similarly, on the 2nd year 25% of the leftover value = 7,500 (10,000 - 2,500) that is 1,875 EUR will be added to company's costs. And these calculation will be continuously till the fourth year. Is this computation correct?
- Is there any differences if I pay the whole sum of the car at once or pay it monthly for 2 years for example?
I high appreciate your experiences and knowledge sharing. Thank you indeed!
Best regards,
Iloveocean
Buy car for Biz use - VAT deduction
Re: Buy car for Biz use - VAT deduction
1) First of all, you have to have a business ID. Then, you have to be registered for VAT. And you need to be paying VAT (so in order words, your business must be generating revenue). As far as I know, a secondhand car bought from a private seller has no VAT. So there is nothing to deduct. A secondhand car bought from a dealer may or may not have VAT depending on whether the dealer uses the marginal VAT scheme for secondhand goods.
2) This is declining balance depreciation/amortization. Your friend is explaining how to do the bookkeeping for non-current assets. You cannot deduct the total cost of the car from your business in one year. So, in the year that you buy the car you have a cash flow OUT of eg: 10,000€ But, in your Income Statement (Profit and Loss Statement) you only show 25,000€ as an operating expense. The car will sit on your Balance Sheet with a value of 10,000€ less accumulated depreciation of 2,500€ so, a net book value of 7,500€. If you don't understand, then ask your bookkeeper and s/he will explain it.
If you buy a new car, the total VAT can be offset against the current month's/year's revenue. But you don't get a refund. The balance stays in your business's Tax Account as a credit balance. So future VAT liabilities would be offset against the credit balance until it is all used up.
Or, buy a book eg http://www.dummies.com/store/Business-I ... eping.html
2) This is declining balance depreciation/amortization. Your friend is explaining how to do the bookkeeping for non-current assets. You cannot deduct the total cost of the car from your business in one year. So, in the year that you buy the car you have a cash flow OUT of eg: 10,000€ But, in your Income Statement (Profit and Loss Statement) you only show 25,000€ as an operating expense. The car will sit on your Balance Sheet with a value of 10,000€ less accumulated depreciation of 2,500€ so, a net book value of 7,500€. If you don't understand, then ask your bookkeeper and s/he will explain it.
If you buy a new car, the total VAT can be offset against the current month's/year's revenue. But you don't get a refund. The balance stays in your business's Tax Account as a credit balance. So future VAT liabilities would be offset against the credit balance until it is all used up.
Or, buy a book eg http://www.dummies.com/store/Business-I ... eping.html