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Company car

The most advised product in the Netherlands among entrepreneurs in the field of tax is the company car. Basically the entrepreneur or employee would like to drive the nicest car they can have with the lowest contribution to be made. Might sound familiar.

If you are an employee, the standard percentage added to your income is 25% over the new Dutch catalogue value of the car. That implies that if a second hand car is driven, as a new version was too expensive, 25% is still calculated over the new value. And if you drive an imported car, because it was cheaper, you still pay 25% over the new Dutch catalogue value. This percentage can only drop to 20%, 14% or 0% if certain criteria are met, set by the Dutch Government and mentioned on your purchase invoice or lease contract.

If you are an employee, but also the managing director/shareholder, the same rules apply as mentioned above. Except one more item is added, which an employee is not confronted with: VAT correction. The 25% is added to your income to compensate the private use of the car. That implies you can use the car for shopping, holiday etc. and if the private use does not exceed the business use, only 25% of the value of the car is added to your income. But if you can fully deduct all the VAT charged for the costs related to the car, that can still count as a benefit. Hence 2,7% VAT over the catalogue value of the car is due, via the VAT return. Regardless if 25%, 14% or 0% is added to your income.

If you are an entrepreneur, the same rules apply as for the employee managing director, except for one big difference: Not more value is added to the income than the actual costs made for the car. Example: You drive a EUR 100.000 new value car, hence 25% is EUR 25.000 which needs to be added to your income. But if the depreciation is EUR 10.000 and the running costs EUR 5.000, not more than EUR 15.000 is added to your income in stead of EUR 25.000. In the end no costs are deducted for the car in the annual report (plus EUR 15.000 and minus EUR 15.000), so what is the use? What is the use of having a company car in your own company when nothing is being deducted? The advantage is that the costs are paid by the company and do not come out of your own pocket. The disadvantage is that you have to sell the car one day to yourself to get it out of the company, which will cost you VAT.

There is the possibility to apply for a statement from the Government each year up front that confirms that none or not more than 500 km is driven for private use, hence no value is added to the income. The tax office will challenge this statement and demand you to show for every KM driven with the car. While proving this, the tax office will make their own calculation of certain routes driven and if you took the wrong turn (really!) you have to explain why that was done. If that was for a private reason or a business reason. In short: a nightmare and it is possible that the tax office will deny it and then for a maximum period of 5 years the tax return will be corrected. That is 5 times 25% plus a penalty. Buying a car privately is cheaper. That is exactly the reason why this is the most advised product.

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