Company cars under new VAT rules: Savings mean more paperwork and stress

50% convenience or 100% stress? These are the very questions fleet managers across companies have been facing since the beginning of the year. The new flat‑rate VAT deduction for company vehicles brings apparent simplification, as companies no longer have to document the precise split between business and private use. On the other hand, the cost is significant: a reduced VAT deduction of only 50%.

“Although the amendment introduces simplification, it also brings new risks and decisions that entrepreneurs must carefully consider,” said Ivana Bošková, Senior Tax Manager at Forvis Mazars, speaking at business breakfast meeting organised by Business Lease Slovakia and Forvis Mazars. As discussions with representatives of dozens of companies confirmed, the number of procedural steps and uncertainties in documenting vehicle use is increasing, as are the risks resulting from inconsistencies between VAT and income tax calculations. It is increasingly evident that companies wishing to optimise their tax burden must invest both time and money into robust evidence systems.

50% convenience or 100% stress

Until the end of tge year 2025, companies were allowed to deduct VAT on the acquisition of vehicles proportionally to their business and private use. However, as part of the government’s consolidation measures, new obligations and changes have been introduced which significantly affect income tax and corporate practice as well.

“The most significant change is the introduction of a flat‑rate VAT deduction of 50% for passenger vehicles used for mixed purposes – both business and private. This regime applies not only to vehicles purchased into company assets, including financial leasing, but also to operating leasing and all related costs. These include fuel to parking fees, servicing, tyre services or motorway toll stickers,” explains Ivana Bošková.

The new rules apply to vehicles in categories M1, L1 and L3 (passenger cars and motorcycles) used for mixed purposes that were either acquired after 1 January 2026, or, in the case of operating leasing, regardless of the contract start date. The changes do not apply to trucks or vehicles in other categories. The obligation also does not apply to companies accounting for vehicles as inventory (such as dealers), taxis, short‑term rentals up to 30 days, driving schools and similar businesses.

“Full VAT deduction remains available only if strict conditions are met. A company must prove that the vehicle is used exclusively for business purposes. In practice, this means notifying the tax authority and keeping detailed trip records in a digitally processable format,” Bošková adds. Without such records, a 100% VAT deduction is virtually indefensible, as the burden of proof always lies with the company.

Commuting to work, even in the case of home office, does not qualify as a business trip. If a company car is assigned to an employee and may be used for private purposes, the company must automatically apply the 50% VAT deduction. Even for business‑related expenses (such as parking), only 50% applies if the vehicle is classified as mixed‑use. “However, if the parking is linked to company property, e.g. a corporate parking lot, a 100% deduction is possible,” Bošková notes.

Many companies therefore face a decision: opt for the simpler 50% regime, or invest in evidence systems to optimise their tax burden. Failure to meet obligations or submit required notifications can result in substantial penalties.

According to Bošková, companies face numerous practical challenges. “The technical setup and compliance with the rules are problematic, as the amendment was prepared more from a methodological perspective, without fully considering the additional technical and professional requirements it places on businesses. At the same time, neither the legislation nor the guidance addresses all scenarios, leaving taxpayers uncertain in some cases about how to proceed.”

GPS systems can help simplify vehicle records

The Financial Administration requires companies to keep detailed trip records in a digitally processable format (e.g. Excel). PDF outputs are insufficient. While recording kilometres daily in Excel is possible, it becomes extremely time‑consuming for large fleets.

This is where GPS systems come into play, enabling automatic trip recording. “They capture routes, kilometres, fuel consumption and driving time, with the driver only selecting the purpose of the trip from predefined options. The main benefit is significant time savings and error reduction. Moreover, the systems comply with GDPR requirements. For private trips, the route is hidden and only the number of kilometres is recorded and marked as ‘private trip’,” explains Peter Hlásny, Commercial Director at TSS Group.

The company cooperates with Business Lease Slovakia so that every operating lease vehicle offers GPS‑based trip logging. In fleets with multiple drivers, identification tools such as cards or keys automatically assign trips to individual drivers. The Financial Administration does not have direct access to GPS systems.

Operating leasing can still offer multiple benefits

Operating leasing remains attractive for companies primarily due to outsourced vehicle acquisition and fleet management. Although legislative changes affect operating leasing as well, total costs remain more favourable compared to purchasing vehicles outright.

This attractiveness lies in the deduction base. With operating leasing, VAT is reduced from a smaller amount than with vehicle purchase, and currently only for the period from 1 January 2026 to 30 June 2028, during which the new rules apply. “At the same time, as it is not an asset purchase, companies do not need to adjust fixed‑asset records or manage different accounting and tax acquisition prices,” Bošková adds.

Mismatch between VAT and income tax

The new VAT deduction rules have introduced further complications, notably inconsistencies with income tax. Companies will calculate different accounting and tax depreciation and must pay close attention to methodologies, fuel costs and employee taxation.

Having different acquisition values for accounting and tax depreciation purposes makes correct calculations and asset record‑keeping particularly complex. “While non‑deductible VAT forms part of the acquisition cost for accounting purposes, the Income Tax Act excludes it from the tax base. The result is a permanent difference between accounting and tax depreciation,” warns Kvetoslava Čavajdová, Tax Partner at Forvis Mazars.

The situation is further complicated by combining the 50% VAT deduction with a VAT coefficient. Although the final VAT amount may be the same, demonstrative calculations show that impacts on the tax base can differ significantly depending on the calculation sequence.

In the area of fuel costs, no major changes have occurred, but accounting challenges remain. Companies may still choose between trip logs (or GPS records) and the 80/20 flat‑rate method. However, even if trip logs are not required under income tax rules when a vehicle is also used privately by an employee, VAT regulations still require evidence. A written agreement with the employee on private use is also necessary.

“When a vehicle is provided to an employee for private use, taxation at 1% or 0.5% of the vehicle’s value per month remains in force, for a maximum of eight years. After this period, the benefit expires and the possibility to fully deduct costs such as parking or motorway fees is also limited,” Čavajdová adds.

Transfer pricing: emphasis on arm’s‑length conditions

The new rules also impact transfer pricing, particularly transactions between related parties – whether through ownership, personnel connections or close relationships. Typical examples include the purchase, sale or rental of vehicles between related entities.

“If the transaction value for vehicles exceeds EUR 10,000, it must comply with the arm’s‑length principle, i.e. at a price that independent parties would agree on. In practice, this means benchmarking against market prices, such as acquisition prices for new vehicles or second‑hand market comparisons for used cars, with expert valuations also being helpful,” notes Ulrika Gajdošová, Tax Manager at Forvis Mazars.

At the same time, the scope of data reported in tax returns is expanding, giving tax authorities greater transparency and increasing both audit probability and the need for price substantiation.

High‑quality data and properly set processes are key

As the discussion demonstrated, the new changes point to a clear trend: less flexibility, more standardisation and higher documentation requirements. Companies must choose between a simple but less advantageous 50% deduction and an optimised 100% deduction at the cost of increased administration and evidentiary burden.

In both cases, however, the emphasis on high‑quality data, detailed records and properly set processes – particularly for tax defence – will be crucial.

If you are interested in more detailed information on the tax aspects of company vehicle use or would like to explore how we can assist you, please contact the Forvis Mazars tax team below.