New rules for VAT deduction on cars and motorcycles

New rules for VAT deduction on cars and motorcycles: Less paperwork but additional costs!

The European Commission has approved an exception allowing Slovakia to restrict VAT deduction on cars and motorcycles that are also used for non-business purposes, effective no earlier than 1 July 2025. To implement the change, an amendment to the VAT Act will likely be required and is therefore expected later this year.

What exactly is changing?

For vehicles in the category M1 (passenger motor vehicles) and motorcycles in the category L1e and L3e:

• VAT deduction will be limited: when purchasing, leasing, acquiring from the EU or importing passenger motor vehicles and some motorcycles, the entrepreneur may deduct only 50% of the VAT (regardless of the actual proportion of business use).
• The limit will also apply to accessories and operational costs such as the purchase of spare parts and fuel associated with these vehicles as well as maintenance services.
• The administrative process will be simplified: It will not be necessary to keep detailed milage books or to document every private use of the vehicle.
• There will be exceptions: If your vehicles are used for special purposes – such as taxi services, car rentals, driving schools or professional passenger transport – these will not be covered by the new rules, and you will still be able to claim the full deduction.

Why is this measure being introduced?

In practice, it challenging to accurately determine the extent to which company vehicles are used for business versus private purposes.

• Maintaining detailed usage records places a significant administrative burden on businesses.
• Tax audits focused VAT deductions have posed risks for companies and are a frequent source of litigation,
• Data from tax audits and surveys indicate that vehicles are, on average, used for business purposes only about 50% of the time. As a result, a fixed percentage is being introduced.

The measure aims to simplify life for entrepreneurs and reduce the likelihood of tax evasion and administrative errors.

When will the new rules apply?

• During the period from 1 July 2025 to 30 June 2028.
• Before the expiration of the validity period, Slovakia will submit a report on the functioning of the measure to the European Commission.
• Based on the results, the validity may be extended or amended.

What should you pay attention to right now?

• Analyse your fleet: Do you have passenger cars or motorcycles in your assets? Do you use them for both business and private purposes? Set up the appropriate internal processes.
• Assess the impact on cash flow: the restriction of VAT deductions may represent an additional cost that will affect your overall expenses and purchase planning.
• Analyse non-standard cases carefully: it will be necessary to evaluate the method of VAT deductions during the transitional period (e.g., for vehicles acquired before the effective date of the new rules and VAT deductions applied after the new rules come into effect).
• If vehicles are used exclusively for business purposes, it is necessary to implement a suitable system to provide proof of the actual usage.
• Note special vehicles: If you operate a taxi service, car rental, or driving school, verify whether the new rules apply to you.

If you have any questions or wish to prepare in advance for these changes, we are here to assist you.

Proactive planning can help you avoid unnecessary effort and reduce costs.

Anna Fábryová & Martin Jakubec