Leasing training in a few minutes
Leasing company cars offers numerous advantages for businesses. It’s essential to explore different leasing options in advance to choose the best fit for your company’s vehicle needs. With operational leasing, you can plan long-term without unexpected costs or administrative burdens.
Since 2019, businesses using leased vehicles for both personal and commercial purposes have been able to reclaim at least 50% of the VAT on lease payments, without the need for mileage logs. However, it’s worth reviewing all available options, as certain leasing structures allow not only the lease fee but also 50% of the VAT on related services to be reclaimed.
Closed-end, open-end, or long-term leasing – what’s the difference?
Closed-end financial leasing After an initial down payment, you pay monthly installments to use the vehicle, and at the end of the lease term, ownership transfers to you. However, in this case, VAT on monthly fees cannot be reclaimed.
Open-end financial leasing At the end of the lease term, you can decide whether to purchase the car by paying the residual value. Ownership remains with the leasing provider until the end of the contract, similar to closed-end leasing.
Operational leasing (long-term rental) With this increasingly popular option, ownership always remains with the leasing company. At the end of the lease term, you can either purchase the vehicle at market price or return it. The fixed monthly fee includes a comprehensive service package, covering maintenance, tire changes, and insurance, eliminating unexpected costs. Unlike financial leasing, no down payment is required, allowing businesses to allocate funds to core operations. However, if a down payment is made, it can reduce monthly costs, and 50% of the VAT on the down payment can be reclaimed.
It’s important to note that in long-term leasing, the leasing company benefits when the car retains a high residual value at the end of the term. This means that lessees only finance the difference between the net purchase price and the expected residual value, making leasing a cost-effective option.
Leasing options comparison
OPERATIONAL LEASING (long-term rental) | CLOSED-END FINANCIAL LEASING | OPEN-END FINANCIAL LEASING | |
|---|---|---|---|
CONTRACT TERM | Fixed | Fixed | Fixed |
PAYMENT FREQUENCY | Monthly | Monthly | Monthly |
RESIDUAL VALUE | High, market-based. No risk for lessee. | Guaranteed by the bank. (Company must buy the car at residual value.) | The residual value is the car's liquidity value, which is risk-free for the bank. |
OWNERSHIP | Leasing provider | Leasing provider | Leasing provider |
USAGE RIGHTS | Lessee | Lessee | Lessee |
OWNERSHIP TRANSFER (after payment of all fees) | None. Lessee returns the vehicle at the fixed residual value | The lessee acquires ownership at the end of the term. | The lessee receives a purchase option right at a symbolic residual value |
ACCOUNTING | Asset remains on leasing provider’s books | Asset recorded on lessee’s books | Asset recorded on lessee’s books |
CUSTOMER'S OBLIGATION TO PAY FEES | Included in the monthly fee | Full property tax paid at contract signing | In the case of purchase at the end of the term, payment of the then applicable fee |
CALCULATION OF MONTHLY FINANCING FEES | Fully deductible | Depreciation + interest expense | Depreciation + interest expense |
VAT PAYMENT OBLIGATION ON THE PART OF THE CUSTOMER | During the rental payment, evenly, for the entire rental fee | In the case of a commercial vehicle, the total net value of the vehicle is paid in one lump sum at the beginning of the repayment period. There is no separate payment for a passenger vehicle. | During the lease payment, the capital is the basis (not the interest) |
DEDUCTIBILITY OF VAT CONTENT OF REPAYMENT FEES | The VAT content of the rental fee can be reclaimed in proportion to the business use. | Not in case of a passenger vehicle (except: taxi and rental car) In the case of a commercial vehicle, in a lump sum at the beginning of the contract | The VAT on the capital part of the lease fee is deductible. The VAT content of the residual value can only be reclaimed in the case of commercial vehicles in proportion to the business use. |
ITEMS THAT REDUCE THE CORPORATE TAX BASE IN CUSTOMER EXPENDITURES | Full rental fee | Depreciation (amortization) + interest expense | Depreciation (amortization) + interest expense |
PLANNING OF TERM | It is recommended to adjust it to the vehicle's usage time. | It is advisable to choose in proportion to the amortization period | It is advisable to choose in proportion to the amortization period |
IDEAL FOR | Businesses eligible for VAT refunds | Anyone who is required to file regular VAT returns and is usually in a paying position | Who is subject to VAT exemption and whose payment obligation can therefore be spread over the entire term |
