An operating lease is essentially a long-term lease, with the landlord invoicing a monthly rent. Let’s look at a brief example of the difference between a deductible VAT for a long-term lease of a car and a truck.
Assumptions: The business does not keep a travel record, but business use is justified (prepares a posting for a business meeting to travel)
|Gross monthly leasing fee||300, 000 Ft||300, 000 Ft|
|Net monthly leasing fee||236, 220 Ft||236, 220 Ft|
|VAT charged in advance||63, 780 Ft||63, 780 Ft|
|Deductible VAT||31, 890 Ft||63, 780 Ft|
|Monthly company cost||268, 110 Ft||236, 220 Ft|
It can be seen from the table above, that due to the 50% prohibition of deducting the VAT on the rent, in the case of a car, HUF 31,890 of VAT is “caught”, which means that the company is forced to account that amount of money for as an expense. That is why, for the same monthly rent, renting a car costs the business much more.
Closed-end financial leasing
Let’s take a brief example of the difference between a closed-end financial lease for a car and a truck for deductible VAT.
Assumptions: the vehicle is described by the company with a 5-year depreciation key
|Gross price||5 000 000 Ft||5 000 000 Ft|
|Net price||3 937 008 Ft||3 937 008 Ft|
|VAT charged in advance||1 062 992 Ft||1 062 992 Ft|
|Deductible VAT||0 Ft||1 062 992 Ft|
|Yearly cost of company||1 000 000 Ft||787 402 Ft|
|Monthly cost of company||83 333 Ft||65 6417 Ft|
As the closed-end financial lease is a supply of goods, there is a total deduction ban for the car, so HUF 0 VAT can be deducted at the time of purchase, as opposed to the truck’s HUF 1,062,992 deductible VAT. From the point of view of cash flow, the type of car we buy can be very important, because in the case of a car, the total VAT content of the invoice must be accounted for as an expense through depreciation.
Open-ended financial leasing
Let’s take a brief example of the difference between a car and a truck’s open-ended finance lease in terms of deductible VAT.
Assumptions: the purchased vehicle will be settled with a 4 month installment. The vehicles are described by the company with a 5-year depreciation key.
|Car gross||Car net||Car VAT||Truck gross||Truck net||Truck VAT|
|Gross price||5 000 000 Ft||3 937 008 Ft||1 062 992 Ft||5 000 000 Ft||3 937 008 Ft||1 062 992 Ft|
|Initial installment||2 700 000 Ft||2 125 984 Ft||574 016 Ft||2 700 000 Ft||2 125 984 Ft||574 016 Ft|
|1st monthly installment||400 000 Ft||314 961 Ft||85 039 Ft||400 000 Ft||314 961 Ft||85 039 Ft|
|2nd monthly installment||400 000 Ft||314 961 Ft||85 039 Ft||400 000 Ft||314 961 Ft||85 039 Ft|
|3rd monthly installment||400 000 Ft||314 961 Ft||85 039 Ft||400 000 Ft||314 961 Ft||85 039 Ft|
|4th monthly installment||400 000 Ft||314 961 Ft||85 039 Ft||400 000 Ft||314 961 Ft||85 039 Ft|
|Residual value||700 000 Ft||551 181 Ft||148 819 Ft||700 000 Ft||551 181 Ft||148 819 Ft|
|Deductible VAT||–||–||531 496 Ft||–||–||1 062 992 Ft|
|Yearly cost of company||893 701 Ft||–||–||787 402 Ft||–||–|
Similar to the operating lease, in case of the open-ended financial lease, 50% of the VAT content of the monthly installments can be deducted in the case of the purchase of a car. In contrast to closed-end financial leasing, recoverable VAT improves the cash flow situation, while the cash flow position for the truck is still better due to the 100% deductible VAT.
All in all, it is worth considering the possibilities in all cases as there are various options, because in some cases a larger amount can be “stuck” inside, which we could reclaim with some other option.