Everything you need to know about buying and operating a company car

Choosing a car for a business is different from choosing one for a family. While with a family car you’ll mainly be concerned with comfort, fuel economy, or safety, with a company car the main considerations are how it affects your taxes, VAT deductions, and operating costs. After all, the car doesn’t belong to you, but to the company. We’ll walk you through the options for acquiring a company car, how to account for it, and we’ll also look at the combination of using a car for both personal and business purposes.

Who benefits from having a company car?

It is particularly worthwhile for business owners to purchase a car if:

• they use the car primarily for business purposes;
• the tax and operating savings exceed the costs of purchasing and operating the car.

For VAT payers who claim actual costs, purchasing a car for the business begins to pay off when the VAT deduction (for the purchase of the car and fuel) exceeds the road tax and other operating expenses.

Conversely, for sole proprietors who are not VAT payers and use a flat-rate expense allowance, purchasing a company car is generally not worthwhile—they cannot claim a VAT deduction or actual operating costs.

Ways to acquire a company car

There are several ways to acquire a company car (i.e., under a business ID number)—ranging from a cash purchase to a loan and financial leasing, all the way to operating leasing or flexible rental.

Each method has its pros and cons, which need to be considered. The choice depends not only on your budget, but also on whether car ownership is a priority for you and what your company’s needs are.

Buying a car with cash

Buying with your own funds is the simplest option if your company has sufficient financial resources. The car immediately becomes a long-term asset of the company, allowing you to claim tax depreciation, which spreads the purchase cost over several years.

The downside is the high one-time investment —buying a car reduces the amount of cash you have available, which can limit your ability to finance other important expenses. This method of acquisition is therefore best suited for companies with sufficient financial reserves. Also, keep in mind that, by law, cash payments may not exceed the daily limit of CZK 270,000.

Car loan

While purchasing a company car “on credit” involves higher costs, it allows you to preserve financial reserves for other essential expenses or investments.

A loan is also a suitable solution if you do not have sufficient funds for an immediate purchase or if you wish to take advantage of tax benefits, as interest on the loan is a tax-deductible expense. Furthermore, a loan allows you to purchase a higher-quality or more expensive car that you could not afford with your own savings.

The downside is that a loan increases the total cost of purchase, and unlike the following options, all expenses related to the car’s operation and maintenance are entirely your responsibility.

Financial leasing

While with a loan you borrow money, with financial leasing you lease a car and pay it off at the same time. Financial leasing allows you to acquire ownership of a car without having to pay a large sum of money all at once.

At the beginning, you pay a down payment, which is usually 10–30% of the car’s purchase price, and you pay off the rest in monthly installments over an agreed-upon period. At the end of the financial lease, you pay the residual value, and the car becomes your property. Additionally, you can deduct the payments from your expenses, which reduces your taxable income.

Operating lease

Operating leases are ideal for companies that do not need to own a car. With this option, you lease the vehicle for a fixed term and return it to the leasing company at the end of the contract.

What are the benefits of operating leases?

• You only pay for the use of the car. Other costs, such as insurance or maintenance, are already included in the monthly payments.
• If the car breaks down, you’ll receive a replacement vehicle.
• You don’t have to worry about residual value or tax depreciation—the payments are simply treated as an expense.
• At the end of the contract, you can easily trade in the old car for a newer model.

Compared to a traditional loan, the monthly payments for an operating lease are generally lower because you pay only for the use of the car. For a mid-size passenger car, payments range from 5,000 to 10,000 CZK excluding VAT, while for larger or more luxurious vehicles, they start around 9,000 CZK.

Prices also vary depending on the leasing company you choose and the specific terms of the lease—for example, payments are often more favorable with a longer contract or a lower mileage limit.

Flexible rental

This option is one of the most expensive. You pay only a monthly payment for a car that you can return or exchange at any time. However, you cannot claim depreciation or a VAT deduction on the purchase price of the car.

Flexible leasing is suitable for entrepreneurs who do not want to be tied down and know they will only use the car for a short period, such as for seasonal work. For those who want to own a car, other options are more suitable.

Using a personal car for business

You can also use your own car for business purposes. However, you must keep a logbook, which will serve as documentation for claiming expenses. The logbook must clearly show how many kilometers were driven for business purposes and how many for personal use.

Most often, a logbook is used in printed form, but it is simpler and more practical to maintain it electronically using an app or software.

If you want to simplify the administration associated with operating a company car that you also use for personal trips as much as possible, the ideal choice is the so-called reduced transportation allowance. This amounts to 4,000 CZK per month, and it is automatically assumed that 20% of the costs are for personal use.

Thanks to this scheme, you do not need to keep a detailed logbook or archive receipts for fuel and parking, as the flat-rate amount fully replaces these expenses for tax purposes. However, it is important to remember that when using a vehicle for both business and personal purposes, you must also reduce other related costs—such as depreciation, repairs, or maintenance— by 80%, though you may still claim these expenses at their actual amounts. Furthermore, this option applies to a maximum of three vehicles for which you are registered as the operator.

How do you add a personal car to your business?

If you use the car primarily for business purposes, it is usually more cost-effective to include it in the company’s assets. Otherwise, it may be better to claim mileage reimbursements for business use.

A private car becomes a company car once it is recorded in the accounting or tax records. However, you must provide proof of its value, such as a purchase contract, invoice, or expert appraisal. It is then treated the same as other company vehicles.

How do you claim expenses related to car operation?

You can calculate the costs associated with operating a company car in two ways—while you’ll appreciate the simplicity of a flat rate, you’ll appreciate the savings with actual costs.

How to record a car in accounting?

VAT deduction for a car

While non-VAT payers pay the full price of a car , including tax, VAT payers can deduct the VAT included in the car’s price, which significantly reduces their actual acquisition costs.

For taxpayers, the VAT deduction is governed by the following rules:

• For vehicles priced at up to CZK 2 million excluding VAT, you can claim the full VAT amount. For example, for a car priced at CZK 650,000 including VAT, you can deduct 21% VAT, i.e., CZK 112,810. The purchase price of the car will thus be CZK 537,190.
• For passenger cars priced over 2 million CZK excluding VAT, the deduction is limited to 420,000 CZK. The limit applies to vehicles in category M1, which includes passenger cars intended primarily for the transport of people with a maximum of eight seats in addition to the driver. This group includes standard passenger cars as well as more luxurious models, for which you will pay the VAT on the amount exceeding CZK 2 million out of your own funds.

Before purchasing a more expensive car, carefully calculate whether such an investment is worthwhile for you. The deduction limit is set based on legislation designed to prevent excessive tax breaks for luxury vehicles.

How to save on taxes through depreciation?

When you acquire a new or used car for your business (whether purchased with cash, on credit, or as a gift or partner’s contribution), its cost is “amortized” into expenses through depreciation, which reduces the amount used to calculate your tax liability.

Passenger cars fall into depreciation group 2 and, under the Income Tax Act, can be depreciated over a 5-year period either on a straight-line basis or using the accelerated method.

With financial leasing, depreciation occurs over the term of the lease agreement because the vehicle is recorded as a company asset. With operating leases, however, depreciation is not applied because the leasing company remains the owner of the vehicle.

For zero-emission vehicles purchased between January 1, 2024, and December 31, 2028, you have the option to claim so-called extraordinary depreciation, which allows you to depreciate the asset over 24 months (60% in the first year and 40% in the second year). By quickly reducing your tax base, you can save on taxes and improve your financial stability.

Using a company car for personal purposes

Using a company car for personal purposes is quite common. It is a nice perk for both the business owner and employees, but it is subject to taxation.

For each month the car is used after working hours, an amount equal to 1% of the car’s purchase price (including VAT) must appear on the pay stub—this is referred to as non-monetary income. For a car costing 800,000 CZK, this means the employee’s gross salary will increase by 8,000 CZK. If the car is a low-emission vehicle, the rate is reduced to 0.5%.

You will then pay income tax as well as social security and health insurance on this amount. As a result , your take-home pay will be slightly lower than if you were using the car solely for work.

You also need to consider cost allocation —maintenance, fuel, and depreciation must be adjusted based on how many kilometers you drove for the company and how many for personal use.

Who pays the road tax and how?

Starting in 2022, owners of passenger cars, buses, and trucks weighing up to 12 tons will no longer pay road tax. Operators of electric or hybrid vehicles are also exempt. Mandatory quarterly tax prepayments have also been abolished. So what remains?

• Road tax must be paid by owners of trucks weighing over 12 tons. The amount of the tax depends on the vehicle’s weight and number of axles.
• The tax is paid in a single installment for the entire calendar year, always by January 31 of the following year.
• Failure to meet the deadline may result in penalties.

Leave your tax and depreciation worries to us

Are you worried about tax issues related to your company car? We’ll take care of them for you—from classifying the vehicle as a company asset to correctly calculating VAT or the residual value when it’s sold.

We offer accounting services, whether you’re a self-employed individual or a business. While you focus fully on your business, we’ll make sure your paperwork and finances are in order. Let us know how we can help—just fill out the form below.