Types of motor vehicle leasing
Regarding the types, we distinguish 2 types of leases:
- Operative leasing
Long-term lease, which means that the asset (tenant) remains temporarily with the lessor and depreciation is accounted for by the lessor. In fact, this can also be called a classic rental.
- Financial leasing
The buyer purchases the asset, which is leased to him by the financing company, and usually settles the obligation to the lessor in monthly installments. During a finance lease, depreciation is charged to the lessee.
- Open-ended financial leasing
The buyer may choose to acquire ownership of the leased item at the end of the term by paying the residual value at the end of the term or, may choose not to pay the residual value and return the leased item to the lessor.
- Closed-end financial leasing
In contrast to an open-ended finance lease, the lessee has no decision as to, or not to acquire ownership on the leased asset. Upon payment of the last lease payment, ownership of the leased object passes to the lessee.
VAT on vehicle leasing
As of CXXVII of 2007 Act on Value Added Tax (hereinafter referred to as the VAT Act), we distinguish between the provision of services and the sale of products. For VAT purposes, operating leases and open-ended financial leases are supplies of services, while closed-end financial leases are supplies of goods. In the case of open-ended leases and operating leases, VAT is charged together with the monthly installments. However, in case of a closed-end financial lease, the full purchase price is invoiced, which already includes the full VAT content.
As a closed-end financial lease is a supply of goods for VAT purposes, the VAT content included in the purchase price can only be deducted if the object of the lease is a truck. If we are talking about the leasing of a car, the VAT charged in advance cannot be deducted pursuant to Section 124 (1) d) of the VAT Act.
As open-ended financial leasing and operating leasing are services provided, in case of car leasing, only 50% of the VAT charged in advance on monthly fees can be deducted, pursuant to Section 124 (4). It is important to note that the 50% deduction can be applied only if the car is proven to be used by the business for business purposes. Truck leasing is not subject to the deduction ban.