The expenses, repairs, road tax and insurance of the vehicles used by the company’s personnel are tax deductible, regardless of whether the use is for work or personal purposes.
Consideration of the expenses generated by the vehicle
An entity has two vehicles by means of a renting contract,the use of which will be transferred to a worker posted to Spanish territory and who has benefited from the special tax regime for posted workers (LIRPF art.93).
One of the vehicles is intended to be used both in the activity of the company and for particular purposes, while the second will be used only for particular purposes.
In relation to Corporation Tax, in general, the accounting expenses are tax deductible if they meet the requirements established for this purpose, that is: accounting registration, imputation according to accrual, correlation of income and expenses, documentary justification, and that they are not expenses that the IS regulations expressly consider as non-deductible.
Therefore, if these requirements are met, the expenses related to renting,repairs and other expenses related to vehicles, are tax deductible.
As for its justification,the Directorate-General for Taxes recalls the following:
(1) Tax regulations require taxpayers to keep accounts in accordance with the provisions of the Commercial Code and to keep invoices, documents and supporting documents related to their tax obligations (LIS art. 120; LGT art.29.d and e).
For these purposes, the commercial regulations establish that every entrepreneur must keep an orderly accounting, appropriate to the activity of his company, which allows a chronological follow-up of all his operations, and must keep the books, correspondence, documentation and supporting documents concerning his business, duly ordered for six years, in order to be able to prove the reality of the operations reflected in the accounting entries (CCom art.25 s.).
2) As for deductible expenses and deductions, when they are originated by operations carried out by entrepreneurs or professionals, they must be justified,as a priority, by the invoice delivered by the employer or professional who has carried out the corresponding operation that meets the requirements indicated in the tax regulations (LGT art.106.3).
Deductible expenses in corporation tax
In principle, accounting expenses are considered tax deductible in the determination of the tax base, unless a specific precept of the Corporate Tax regulations limits this deductibility.
For the deductibility of an expense it is necessary that it meets the following requirements:
a) Accounting(LIS art.11.3): the deductibility of the expense is conditional on it being accounted for in the profit and loss account or in a reserve account, provided that this is expressly established by a legal or regulatory rule. Consequently, expenditure that is not accounted for cannot be taken into account in the taxable amount.
b) Justification(LGT art.106.4): the expenses require their justification by means of the corresponding invoice delivered by the entrepreneur or professional who has carried out the operation. Keep in mind that the invoice is configured as a priority test medium, but not exclusive.
c) Imputation according to accrual criterion(LIS art.11.1): as a general rule, the expense accounted for and justified is charged to the tax base of the tax period in which it has accrued.
However, the IS regulations establish two exceptions to the criterion of allocation of expenses according to the accrual principle: use of a different accounting criterion, accepted by the Tax Administration, upon request; and expenses accounted for in tax periods subsequent to that of their accrual, deductible in the tax period in which they have been accounted for, provided that it does not determine a lower taxation than that which would have resulted from charging them to the period in which they were actually accrued.
(d) Correlation with income: an expense is not considered a liberality and is therefore deductible, insofar as it is correlated with income, a concept that can be interpreted as meaning that the expenditure has a relationship, direct or indirect, mediate or future, with income of society.
If they offer me a renting… for machinery
Imagine that you are considering acquiring a new machine for your company, but when you request financing from the bank, it puts obstacles in your way. Instead, it offers you the possibility of hiring a ‘renting’. To what extent are you interested in hiring it?
What is a ‘renting’?
When you go to the bank they inform you that a new machine can be financed through a “renting” contract. However, you thought that this form of financing is only used for vehicles; so, in principle, you find it interesting to analyze this renting proposal.
Renting is equivalent to a rent.
In this sense, your company will be able to use the machine during the term of the contract, in exchange for a fee that already includes maintenance and insurance, without the need to agree on a purchase option at maturity.
The advantages you could get with this type of financing are:
- In some cases, renting is not counted as a debt in the company’s accounting, but the rental fee is directly accounted for as a monthly expense,and nothing else.
In this way, your annual accounts will reflect a lower debt.
- In addition, renting will not limit your possibilities of financing yourself in the future, because, as it is a rental, banks do not count it as a risk for the purposes of the information they provide to the Central Risk Information Center of the Bank of Spain (CIRBE).
On the other hand, when doing numbers with the director of your bank office, you have seen that this form of financing is not much more expensive than a normal loan. Thus, for a machine valued at about 20,000 euros (excluding VAT), the costs will be as follows:
Option 1:
A three-year renting will involve an approximate monthly fee of 660 euros.
Option 2:
If you request a loan of 20,000 euros for the same term and at 8% interest, the monthly fee will be 627 euros.
However, you must assume the annual maintenance costs (which in renting are assumed by the leasing company).
| concept | ‘Renting’ | loan |
| Total three-year assessments | 23.760 | 22.572 |
| difference | 1.188 | |
Analyze all the details
Although renting may seem like an interesting alternative, do not analyze it only for the monthly fee to be satisfied. Also consider the type of machine you intend to finance, as well as the time during which you are going to use it in the company:
- Acquisition: In renting, you will decide the machine, model and supplier (although, in general, it is usually ‘recommended’ to acquire it from the manufacturer or an official distributor).
- Machine type: If the machine is specific to your activity (“tailor-made”), you may have more difficulties in formalizing renting, or maybe you will get something more expensive; since the lessor company will calculate the fees so that at the end of the contract it has recovered all the cost of the good, given the difficulty of “placing” it back on the market, as a second-hand machine.
- Shelf life: Also think that at the end of the contract the machine will not be yours (while with a loan it will be, so you can continue using it or even sell it to recover part of its value). The renting offered by banks, therefore, will be interesting when the machines need to be renewed quickly, but not in cases where they have a long service life.
The cost of ‘renting’ is comparable to that of a loan, so it is an interesting alternative to finance yourself. However, if you do not plan to renew the goods at the end of the contract, this alternative will not be as attractive.
If you have any questions, you can contact any of our advisors to help you resolve them as soon as possible.
