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How to deal with lump sum transport expenses?

The somewhat non-standard Section 24/2/zt of the Czech Income Tax Act allows a lump-sum application of expenses for the use of a vehicle as an expense for achieving, securing and maintaining income (i.e. tax deductible), regardless of the actual amount of expenditure on the purchase of fuel and parking. However, some conditions vary depending on whether it is used by a legal entity or a self-employed person who does not apply lump sum expenses in their Tax Return and has income from business or rent.

According to the text of this paragraph, it can be deduced that a legal entity is entitled to a full lump sum expense for transport in the amount of CZK 5,000 per month, because the car must be in its possession (or is rented) and the company may not let the car to employees (or executives) for private trips, otherwise the company may not use this paragraph, even if the private trip would be one day in a month. For legal entities, we account for the actual costs related to fuel expenses and only as part of the preparation of the yearly tax return is the tax base adjusted. Another option for claiming these expenses in connection with the use of the car outside the company's business property for work purposes are, for example, travel orders when using the employee's (or even the executive's) private car, the employee is entitled to compensation for the use of his private car and consumed fuel. If the company is a VAT payer, it applies VAT on the basis of actual documents for the purchase of fuel and keeps a logbook.

In the case of self-employed persons, the law is broader in content, counting on the fact that the car can also be used for private purposes of the entrepreneur, in this case the amount of the lump sum expense is reduced to CZK 4,000 per month, regardless of the ratio of corporate and private trips. The car does not have to be in the business property of the entrepreneur. If other private cars are used then it is presumed these were used only for corporate purposes and the taxpayer applies CZK 5,000 lump sum for the rest of them. However, the flat rate can be applied to a maximum of three own road cars, this limitation of the lump sum applies also to legal entities.

The main advantage of flat-rate transport costs for non-accounting natural persons doing business is that it is not necessary to prove the actual use of the vehicle for income tax purposes. Thus, a taxpayer applying a lump sum expense for transport does not have to register fuel receipts or records of business trips. However, this does not apply to VAT payers who also apply VAT on purchased fuel. The most conclusive way will be the travel book. If the taxpayer uses his car also for private purposes, the deduction from the received documents on the purchase of fuel must be applied in a proportional amount corresponding to the scope of use for business purposes as far as VAT is concerned.

Other expenses (depreciation, maintenance, repairs, rent, insurance premiums, fees) can be claimed as tax expense in the normal way, if using a reduced lump sum, 20% of other expenses cannot be claimed as tax expenses, with the exception of road tax and depreciation. When a reduced lump sum has been applied, the depreciation of the car shall be applied on a pro rata basis, i.e. 80 %. The law lists a number of other conditions that must be met for legal entities and natural persons to apply the lump sum: If the vehicle was purchased or discarded during the month, the flat-rate transport expense must be shortened. It has already been mentioned that it can be used on a maximum of three own road motor vehicles, for the fourth and next cars it is based on the actual cost. It is not possible to change the way the transport expenditure is applied during the year (for example, actual expenditure cannot be applied in January and then switch to flat-rate expenditure from February). The flat rate cannot be applied to a vehicle used under a loan agreement. Long-term rental of a parking space does not fall under the flat rate for transport and these costs can also be separately applied.

The Income Tax Act allows entities a variety of tax optimizations of costs. We will be happy to advise you and if you want to focus primarily on the business itself, contact us about bookkeeping and the related tax area.

2 opinions on "How to deal with lump sum transport expenses?"

  1. This is probably the best summary of the issue I've seen on the net, very clearly explained!

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