Valeue added tax

Term 'own use of a passenger car' is retired

Author: Tõnis Elling

1 December saw an amendment to the Value-Added Tax Act enter force that does away with the term “sõiduauto omatarve” (own use of a passenger car). With a restriction placed on input VAT deductions, there is no longer a need to impose value-added tax on private consumption. Thus the general rule is that VAT will no longer be imposed on use of a company car for a non-business-related use; instead, the right to deduct input VAT will be curtailed.

However, 100 percept deductions of input VAT is still permitted in the case of taxi cabs and vehicles for driving lessons (clauses 30 (4) 3) and 4) of the VAT Act if the car is primarily used for taxi service or driving lessons. Thus the use of such cars for personal and non-business purposes is not ruled out and this remains taxable as own consumption. This brings up the question of what the basis of taxation of this own use is if the term no longer appears in legislation. The Ministry of Finance and the tax authority explain that in this case, the own use of the passenger car is to be taxed like any other own consumption of a good or service. It will be up to the taxpayer to decide. Theoretically, the taxable value of the own use should consist of all expenses incurred on provision of the service (granting the car for private travel). How the taxpayer will calculate the costs and how the tax authority will check it afterwards will likely remain the subject of debate in future.