Limitace odpisů vozidel M1 z pohledu DPPO u hmotných majetků

Limitation of depreciation of M1 vehicles from the point of view of CIT for tangible assets

Effective from 1 January 2024, provisions limiting tax-deductible expenses and the input value added tax deduction for selected vehicles have been implemented into the Income Tax Act ("ITA") and the Value Added Tax Act.

The limitation applies to M1[1] vehicles that meet the definition of tangible assets under the ITA (with certain exceptions) and that have been put in use since 1 January 2024. The limitation precludes claiming tax depreciation above CZK 2,000,000 as tax deductible expenses.

For vehicles with a purchase price exceeding CZK 2,000,000, only a proportional part of the depreciation can be included in tax-deductible expenses. Such part is calculated as the ratio of the limitation amount (CZK 2,000,000) to the purchase price of the vehicle. This limit also applies to subsequent technical improvement or additional increases of the purchase price. If the vehicle had been put in use before 1 January 2024 and technical improvement was performed subsequently, the limitation would not apply.

We would like to point out that the purchase price of the vehicle also includes value added tax ("VAT"), which could not be claimed due to limitation of the input VAT deduction up to a maximum of CZK 420,000 (21% of CZK 2,000,000) with full right to deduct input VAT for the aforementioned vehicles (cars used solely for business purposes). This leads to cumulation of tax disadvantages, as the non-deductible VAT further increases the tax non-deductible part of the purchase price of the vehicle i.e., the tax non-deductible part of the tax depreciation charges. 

For purposes other than determining tax depreciation, the tax residual value of limited vehicles is calculated as if the vehicle had been depreciated without interruption for the minimum depreciation period in the manner chosen by the taxpayer i.e., the total tax depreciation without limitation is used to calculate the tax residual value. This so-called 'fictional tax residual value' is primarily aimed to prevent the utilization of higher tax-deductible expenses in connection with the disposal of the asset.

If tax depreciation is not claimed at all, even though it could have been, the tax residual value is calculated as if the taxpayer had chosen straight-line depreciation without an increase in depreciation in the first year. In practice, this means that in case of interruption of tax depreciation due to the “fictional tax residual value”, the taxpayer permanently loses the tax deductible part of the depreciation that could generally have been claimed.

Finally, we would like to point out that in the event of the sale or disposal of a vehicle, only the "fictional tax residual value" can be claimed as a tax-deductible expense. The ITA specifically prohibits the application of Section 23/4/e in this context - i.e., the rule that income related to a tax non-deductible expense is not subject to taxation. This means that the taxable revenue from the sale of a vehicle cannot be reduced by the amount of the tax non-deductible part of the tax depreciation claimed or the completely unclaimed tax depreciation as of the date of its sale.

The above brief commentary is not a substitute for a detailed tax assessment of a particular tax situation. We will be happy to help you with these and other tax aspects.

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

Authors:

Stanislav Pokorný

Jana Kovářová

[1] Regulation (EU) 2018/858 of the European Parliament and of the Council of 30 May 2018 on the approval and market surveillance of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles, amending Regulations (EC) No 715/2007 and No 595/2009 and repealing Directive 2007/46/EC, as amended.