Novela zakona o danich z prijmu vstupni ceny osobnich automobilu

Amendment to the Income Taxes Act - limitation of the tax acquisition price of passenger cars

In today's alert we would like to share with you practical aspects concerning the planned introduction of the tax acquisition price limitation for passenger cars to CZK 2 million. 

According to the current version of the draft amendment to the Income Taxes Act, which should be effective from 1 January 2024, the acquisition price of M1[1] vehicles should be limited to CZK 2 million. This limit should apply to both the acquisition price, the increased acquisition price and the changed acquisition price. After the amendment, it should no longer be possible to apply tax depreciation in excess of CZK 2 million in total per one M1 vehicle.

In the case of operating leases, this limitation should only apply to the lessor, i.e., the law does not provide for any specific limitation of tax deductibility for the lessee. In contrast, in the case of financial leasing, this limitation is not applied to the lessor but to the lessee, namely for payments for financial leasing involving a vehicle of category M1. Only lease payments in a total amount of CZK 2 million should be tax deductible per one vehicle and only up to a proportional part of CZK 2 million attributable to the tax period in question. Consequently, the acquisition price for these vehicles when the vehicle is acquired at the end of the lease should be no more than the difference between the amount of CZK 2 million and the amount of the lease payments which constituted a tax deductible expense.

The tax residual value on disposal of the car should be in an amount as if the car had been depreciated from the acquisition price without limitation. The intention of the amendment is that the tax non-deductible part of the depreciation cannot be deducted from the tax base even when the vehicle is disposed of (in the form of a higher residual value). At the same time, the provisions of Section 23(4)e of the ITA (i.e., the rule that income related to a tax non-deductible expense is not subject to taxation) cannot be used when the vehicle is sold.

For the sake of completeness, we would like to add that the amendment similarly limits the right to VAT deduction for passenger cars to a maximum amount of CZK 420,000 (i.e., it will generally not be possible to claim input VAT deduction from the price of the car exceeding CZK 2 million).

The above brief commentary cannot replace a detailed tax assessment of a specific tax situation. We will be happy to help you with these and other tax aspects.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Martina Máleková

Markéta Soukupová

[1] These are vehicles with a maximum of eight passenger seats, excluding the driver's seat, or multi-purpose vehicles