VAT cost on company cars
During the budgetary discussions, the VAT treatment of company cars as such was not on the table. However, in parallel, the tax authorities issued a decision on 20 October 2011 which foresaw a drastic change in the VAT implication of using business assets for private purposes (Dutch | French). On 4 November 2011 however, this decision was suspended "until further notice" under strong pressure from professional organisations such as the VBO-FEB (Federation of Enterprises in Belgium). In its press release (Dutch | French), the Ministry of Finance recognises that the new regulation may "in some cases" entail "practical problems". As a consequence, the measure is currently being reviewed in order to accommodate the objections raised by the business community.
The VAT decision of 20 October is based upon a new regulation introduced at the beginning of this year, whereby a taxable person is only allowed to recover the VAT charged on expenditure related to business assets to the extent they are used for business purposes. Therefore, VAT cannot be recovered for any non-business element in the asset’s use. Historically, the private use of business assets was subject to VAT through the assessment of VAT on the fringe benefit as determined for income tax purposes. For company cars, the former regulation implied a combination of the 50% VAT recovery limitation combined with the taxation of VAT on the fringe benefit. In practice, this meant that kilometres driven for personal purposes were determined on the basis of a lump sum of 5,000 or 7,500 kilometres per annum.
According to the new regulation, the taxation of private use through a VAT assessment on the fringe benefit would be fully abandoned. Instead, private use including commuter traffic, would give rise to an immediate VAT recovery limitation, taking into account the asset’s actual private use and thus no longer the lump sum of 5,000 or 7,500 kilometres per annum. In addition, the actual private kilometres would have to be determined annually and might therefore fluctuate depending on the number of private kilometres actually driven by employees. The surplus VAT cost of this measure per company car is estimated at around €300 per year and in effect as of 2011.
Whereas the legislative change only covered fixed assets purchased by the business, the guidance published by the VAT authorities extends this approach to leased cars. Given the widespread leasing of company cars in Belgium, this extension would significantly increase the new regulation’s impact and has prompted reactions from the business community.
Based on the final budgetary agreement, the benefits in kind for income taxes would be increased particularly for certain categories of cars. To the extent that the VAT decision of 20 October 2011 remains suspended, this would mean that the basis for calculating VAT on the fringe benefit will increase. In relation to the overall VAT costs of company cars (50% deduction limitation and taxation benefit in kind) this would not be a major increase.
Discussions on the VAT calculation between the tax authorities and the business community currently continue as the tax authorities have expressed repeatedly that they are willing to steer away the VAT calculation from the lump sum approach embedded in the benefit in kind. As these discussions still continue, it has been decided in the meantime that the VAT decision rules will not be applied for 2011 on company cars (or other movable assets): hence for the year 2011, the previous regime (VAT on the fringe benefit) can be applied. However, this is optional so that companies can also decide to switch to the new regulation as laid down in the decision. The 2012 regime is still not finalised and will need to be further developed. For dwellings, the new regulation also has to be applied retroactively for 2011.