Is VAT on company vehicles deductible in France?

VAT on a passenger vehicle is not deductible

The rule is simple and provides that VAT on passenger vehicles is not deductible. Passenger vehicle means “any vehicle intended to transport people” (car, motorcycle, etc.).

In practice, this means that if you are a business owner and you wish to acquire a BMW X5 for the purposes of your business, the VAT borne on the purchase price of the vehicle will not be deductible and will constitute a charge for your Company.

Are there vehicles for which VAT is deductible?

VAT is deductible on vehicles that are classified under the heading of “very special vehicles” by the Highway Code.

The outlines of this category of vehicle have been the subject of numerous clarifications in order to determine the criteria that make it possible to make VAT deductible on these vehicles.

It is specified that VAT is deductible on commercial vehicles such as vans or vans designed for the transport of goods, including when equipped with a deep cabin including, where applicable, a bench (BOI-TVA-DED-30-30-20-20170201 §20).

In other words, a craftsman who would like to buy a Peugeot Boxer equipped with a deep cabin for the needs of his business will be able to deduct the VAT borne on this vehicle.

In addition, VAT is also deductible on so-called “VP derivatives” vehicles that have only two seats, also marketed under the names “company”, “business” or “enterprise”.

The company vehicle category includes models such as Renault Clio or Peugeot 208 for which the manufacturer has condemned the rear seats.

For its part, the case law ruled on the pick-up truck case in a judgment of 30 March 2007 (EC, 30 March 2007, no. 287600, GFA Domaine de Font Mars). The Council of State specifies that VAT deductibility must be assessed objectively according to the intrinsic characteristics of vehicles and not to the use made of them.

In this respect, the Council of State has come to specify that VAT is deductible on:

• Pick-ups equipped with a single cabin, that is to say with only two seats or one bench;
• Pick-ups comprising a simple deep cabin in which, in addition to the seats or the front seat, are placed folding seats intended for occasional use.

Indeed, the Council of State considers that these vehicles are of a commercial nature insofar as their load volume is significant.

On the other hand, VAT is not deductible on other pick-ups that have four to five seats excluding the folding seat.

Based on these comments, car manufacturers have developed double-cab pickups with 5 seats on which VAT is not deductible or single-cabin or deep-cabin pickups with folding seats on which VAT is deductible.

Thus, VAT will not be recoverable on a Mercedes X-Class equipped with a double cabin and 5 seats, while VAT will be deductible on a Toyota Hilux single cabin.

Can the use of the vehicle affect the VAT deduction?

There are exceptions to the principle of non-deduction of VAT for passenger vehicles. In other words, VAT will be deductible when the vehicle in question meets the criteria for a passenger vehicle.

These are passenger vehicles intended for taxis, ambulance drivers, driving schools, rental companies or dealerships. For example, a taxi that buys a Mercedes S-Class may deduct all of the VAT it has incurred on the cost of acquiring the vehicle as long as this vehicle is purchased for carrying out the taxi business.

Similarly, if you want to create a Company specializing in the rental of passenger vehicles, the VAT borne on the vehicles making up your fleet will be deductible.

Apart from these rare exceptions, VAT on passenger vehicles is not deductible regardless of their use.

What about the VAT paid on the rental of passenger vehicles?

The fact that a Company acquires a passenger vehicle in the form of leasing or long-term rental will not allow you to deduct the VAT charged on rents.

To summarize, when buying a vehicle, you should take a close look at its technical characteristics in order to determine whether VAT is deductible. By securing the VAT regime for the purchase of your vehicle, this will allow you to avoid the risk of recovery in the event of a tax inspection.