On August 24, 2018, a draft of the Act amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other laws was published on the website of the Government Legislation Center.
If the draft is accepted unchanged, the method of settling expenses related to using company cars in business activity operations will undergo a radical change.
Current regulations
Taxpayers using passenger cars for business operations settle with the tax authorities on the basis of the vehicle mileage logbook. Based on the logbook, the taxpayer can include expenses incurred in relation to using a car in the tax-deductible costs, as long as they do not exceed the limit obtained by multiplying the number of driven kilometers and the rate per 1 km.
Additionally, if the passenger car has been included in the assets of the taxpayer (i.e., in the fixed asset register), the taxpayer has the right to include costs of vehicle usage in tax-deductible costs.
Furthermore, in accordance with the current regulations, when the taxpayer uses a car under an operating lease, they can include the entire amount of fees stipulated in the contract.
What will change? No more mileage logbook!
Instead of the previously used mileage logbook, the lawmakers proposed a method of settling expenses on using a car with a percent limit. The vehicle mileage book will remain in use for employee business trip reimbursement.
Private cars – 80% non-deductible
If the taxpayer has not included the owned car in the fixed asset register, and uses such car for the purpose of business operations, he will have the right to include only 20% of expenditures incurred on using the car in tax-deductible expenses. This means that the lawmakers excluded as much as 80% of expenses from tax-deductible costs. When determining the limit, taxpayers will have the right to take into account all expenses, including also those connected to vehicle usage.
Car which is taxpayer’s property – 50% limit
According to the draft, if the taxpayer includes his private car in the fixed asset register, he will be able to deduct 50% of related expenses. According to the lawmakers, the taxpayer that uses car for both private and business activities (the so-called mixed use) is not entitled to deduct a higher rate of expenditures. This means that the lawmakers propose a less beneficial mechanism, which was already used in the law on VAT.
100% of incurred expenditures only on the basis of the logbook
The taxpayer has the right to include 100% of the incurred expenses in tax-deductible costs only when he can prove that the car is used for the business operation purposes only. This means that the taxpayer will be obliged to keep a vehicle mileage logbook, referred to in the law on VAT.
Operating costs without tax advantages
The draft provides for the unification of the rules governing the settlements of expenses on using a passenger car in business operations, regardless of the type of the agreement under which the taxpayer uses the car. Therefore, in the case of leasing, rental, lease or other agreement, the taxpayer will have the right to recognize as tax-deductible only 50% of expenses related to the usage of the vehicle (such as costs of vehicle technical inspection, fuel, changing tires, etc.) being subject of the agreement.
This limit will also apply when expenses on vehicle usage will be included in the fee (rent) under the said agreements.
New limit of expenses on depreciation write-offs. No advantages for environmentally friendly cars
The new provisions increase the current limit of the car wear and tear allowance of EUR 20,000.00 (ca. PLN 86,000.00) to PLN 150,000.00. The proposed amendment will also apply to leasing, rental and lease agreements, etc. This means that the limit will be imposed on including the above-mentioned expenses in tax-deductible costs.
Hence, the taxpayer will be entitled to deduct only a part of expenses under the said agreement proportional to the ratio of the amount of PLN 150,000.00 to the value of the car (the so-called proportional deduction).
The new limit will apply to both the initial value of the passenger car and the value of the car for insurance purposes, which allows to include car insurance premiums in tax-deductible expenses.
Employee business trips
The rules of employee business trip reimbursement remain the same. It will still be possible to settle expenses incurred by the employee using the company car for long distance and local travels using the mileage logbook.
Act’s planned entry into force
The Act is to become effective on January 1, 2019.
Transitional provisions!
Importantly, the draft will apply to leasing, rental, lease agreements, etc., concluded or modified as of January 1, 2019.
In principle, the current regulations can be used for agreements concluded by January 1, 2019, but not longer then until December 31, 2020.
However, if the taxpayer decides to modify the provisions of an effective agreement or conclude a new one before January 1, 2019, but after the Act has been published in the Journal of Laws, he will be able to settle pursuant to the previous regulations only until the end of 2018!
Source: Draft Act
https://legislacja.rcl.gov.pl/docs//2/12315309/12530089/12530090/dokument354880.pdf
Source: Statement of reasons for the act
https://legislacja.rcl.gov.pl/docs//2/12315309/12530089/12530090/dokument354882.pdf
