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VAT deduction on fuel

2015-06-03

On the 1st of July 2015, no longer effective is the total ban on deduction of the input tax on expenses incurred on fuel for passenger cars used for tax payers’ business and private purposes. Tax payers that use cars for business purposes and for personal use will be entitled to a deduction of 50% of the input tax presented on an invoice evidencing purchase of fuels.

Rules currently in force – partial deduction

Pursuant to the applicable provisions of the VAT Act,  input tax on expenses related with motor vehicles will be deducted in the amount of 50% of the tax rate stemming from the invoice received by the tax payer. A motor vehicle should be understood as a single vehicle of the total admissible mass not exceeding 3.5 tons, whose structure allows travelling with the speed of more than 25 km/h.

The currently applicable restriction on deduction of the input tax applies to expenses related with:

  • acquisition, import or manufacture of such vehicles or their component parts;
  • use of such vehicles under lease, tenancy or other similar agreements,
  • acquisition of motor fuels, diesel oil or gas, and
  • fixing or maintenance of such vehicles and acquisition of other goods and services related with operation or use of such vehicles.

It should be emphasised that the abovementioned restriction is not applicable if a motor vehicle is used only for the tax payer’s business purposes or the vehicle is structurally intended for transporting at least 10 passengers, including the driver, and if it follows from the documents issued pursuant to the regulations of the Traffic Law stems that such a vehicle is intended for such a purpose. In such a case, the tax payer is entitled to deduct the input tax in full, certainly if other conditions that entitle to the full input tax deduction are fulfilled.

Therefore, pursuant to the general rule presented in the VAT Act, the tax payer is entitled to deduct the input tax on fuel used in a motor vehicle:

  • in the amount of 50% if the vehicle is used for mixed purposes – business purposes and personal use,
  • in the amount of 100% if the vehicle is used only for the tax payer’s business purposes

Transition period ending on 30 of June 2015 – ban on deduction

However, the Act of 7 February 2014 on amendment to the VAT Act and some other Acts introduced a total ban on the input tax deduction on fuel acquired up to a certain vehicle category in the so-called transition period, i.e. until 30th of June 2015 and pursuant to  Art. 12 sec. 1 of the quoted act, tax payers are not entitled to deduct the input tax on account of the acquisition of motor fuels, diesel oil and gas, used for driving:

  1. passenger cars;
  2. motor vehicles other than passenger cars of admissible total weight not exceeding 3.5 tons, where the number of places (seats), including the seat for driver amounts to:
    1. 1- if the permissible load is lower than 425 kg,
    2. 2- if the permissible load is lower than 493 kg,
    3. 3 or more – if the permissible load is lower than 500 kg.

The abovementioned ban on deduction of the input tax relates only to fuel acquired for driving  motor vehicles used for so-called mixed purposes – i.e. for business purposes and for personal use. If the given motor vehicle is used only for business purposes, the tax payer is entitled to deduct the input tax in the amount of 50% of the tax rate presented on the invoice.

Therefore, in the transition period from 1st of July 2015, a tax payer is entitled to deduct the input tax on the fuel used in a motor vehicle:

  • in the amount of 0% if a vehicle is used for mixed purposes – business activity and private use,
  • in the amount of 50% if a vehicle that fulfil the abovementioned criteria is used only for business purposes.

As a side note, it should be added that the permissible load and the number of places (seats) are defined on the basis of documents issued pursuant to the Traffic Law regulations. Vehicles which according to such documents do not have a defined permissible load or number of places are also recognised as passenger cars (without the right to deduct the input tax on fuel).

Therefore, starting from 1st of July, the total ban on deduction of VAT on the fuel acquired for passenger cars used both for business purposes and personal use will no longer be effective and the tax payers will be entitled to deduct 50% of the tax from an invoice evidencing acquisition of the fuel.