Taxation of company cars in Portugal

Fleet management is increasingly subject to the attention of those with management responsibilities in the company. The control of car taxation expenditure in Portugal has become more demanding. A study from 2014 entitled “State Budget for 2014 and Commercial Vehicle Taxes” shows that company car taxes in Portugal represent the largest share of costs for companies, even more than fuel taxes.

Although these data are several years old, they illustrate the burden of taxes on a company‘s car fleet in Portugal. It is therefore very important that companies invest in good car management and have the necessary resources to help them save and effectively reduce the costs of Portuguese car taxation.

Autonomous taxation, an additional tax that applies to all those subject to corporation tax, is an example of what companies should pay more attention to in order not to increase their tax burden. Taking these costs into account, the Cartrack Portugal website shows what can be done to minimise expenses and optimise the taxation of company cars in Portugal.

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Taking advantage of Green Taxation for businesses

Companies in Portugal benefit from tax advantages for the acquisition of electric and hybrid vehicles: included in the “Green Policies” in force since the beginning of 2015. These company car taxation measures aim to promote environmental sustainability and increase resource efficiency, as well as to reduce expenditure on fossil fuel imports.

The focus on more sustainable options is not only evident in the tax benefits for those who opt for greener solutions, but also in the increased taxes on the use of fossil fuels. In terms of corporate income tax, companies that invest in green energy vehicles benefit from the following tax incentives:

• IRC deductions
• Exemption from autonomous taxation

In addition to the tax benefits of the IRC, Portuguese companies that own environmentally friendly vehicles, such as electric, plug-in hybrid or LPG vehicles, can deduct VAT on expenses related to these vehicles and be exempted from paying vehicle tax (ISV).

Tax incentives for businesses purchasing environmentally friendly cars may therefore justify a greener approach to vehicle composition and management.

Rules for autonomous company taxation in Portugal

The tax burden on the car sector in Portugal has gradually increased over the years, with a greater emphasis on company fleets, i.e. the autonomous tax regime. Portuguese company cars are taxed at a rate of up to 45%, depending on the type of vehicle and the companies making profits or losses.

What is autonomous taxation

Autonomous taxation is an additional tax that applies to all IRC taxpayers and is levied on certain business expenses that are not directly related to own production, regardless of whether there is a profit or loss in the business activity.

The categories of autonomous taxation, which appeared during the 2001 tax reform in order to combat tax evasion and fraud, may concern entertainment expenses, unjustified expenses, vehicle expenses or even bonuses for officers or directors.

Thus, autonomous taxation is calculated independently of corporation tax and the municipal surcharge (municipal tax), since it is not directly linked to the business profit obtained.

Autonomous taxation of vehicles: tax rates

Autonomous tax rates for the purchase of vehicles for company fleets in Portugal may be higher or lower, depending on the cost of acquisition and the energy source used by the cars. These variations can be assessed by means of an on-line simulator.

In accordance with the green taxation imposed by the State, electric energy vehicles do not pay any additional tax, regardless of the cost of the vehicle. On the contrary, diesel or petrol vehicles have the highest tax rates. In the latter case, the rates vary between 10% and 35%, depending on the purchase cost of the vehicles.

Finally, in between are plug-in hybrid vehicles and LPG or CNG vehicles, which are cheaper than diesel or petrol vehicles because they are more environmentally friendly. Here, the rates vary:

• Between 5% and 17.5% for company vehicles Plug-in Hybrids
• Between 7.5% and 27.5% for LPG or CNG vehicles

However, it is very important that the managers of company car fleets in Portugal are aware that these car tax figures may get worse. The increase in autonomous tax rates depends on the presentation of tax profits or losses. In the case where a company presents losses, the autonomous tax rates increase by 10 percentage points.

Company vehicles not subject to autonomous taxation

Autonomous taxation in terms of corporation tax does not cover all vehicles. There is a whole range of vehicles that are not covered and are therefore not subject to this tax. This taxation essentially covers light passenger or mixed-use vehicles and goods vehicles which are similar to light passenger vehicles.

Thus, in view of certain characteristics, goods vehicles may or may not be subject to autonomous taxation. Before acquiring goods transport vehicles for the business vehicle fleet in Portugal, it is important to clarify whether or not they are exempt from this tax. If it is exempt, it can represent a significant saving in your company’s budget.

According to the interpretation of the law, vehicles that are taxed (ISV) at the reduced or intermediate rate will not be subject to autonomous taxation. This measure extends to three- or four-seater vehicles with “open body” or “closed body”, even if they are taxed at the standard rate.

The following vehicles are not subject to autonomous taxation :

• Light goods up to three seats
• Light goods with more than three seats, with or without a crate (Example: Pick-Ups)
• Light goods with a gross weight of 3500 kg, a driving axle (4×2) with an open body or without a body or, if the body is closed, the driver’s cab and passengers are not integrated into the bodywork.

Changing a company vehicle into a personal vehicle

One of the most practical solutions for the reduction and exemption of Portuguese companies in the autonomous tax table is to transfer the ownership of the vehicle to the personal sphere of the employee. This solution may be globally more advantageous and less costly for the company, since the charges are now totally excluded from the autonomous taxation.

In order for this solution to become a reality, there must be a written agreement between the company and the employee that involves the taxation of cars under IRS on the personal use of the vehicle. This value will be subject to IRS and Social Security, based on a certain ratio applicable to the acquisition value of the car.

Example for a car costing 50,000 euros: the cost of autonomous taxation for the company would be 6,709.50 euros. If there is an agreement with the employee, the cost would be 1,971.45 euros. In this case, the tax saving for the company would be 4,738.05 euros.

However, although the example presented demonstrates the advantages of transferring these company vehicles to the personal sphere of the employee, this solution still involves risks and mistrust between companies.

Taxation of company vehicles in Portugal for hire or lease

If a company’s solution for the acquisition of vehicles for the company fleet is a leasing operation, two hypotheses quickly emerge: financial leasing and operational leasing. In these cases, car taxation has its own rules.

In the first option, leasing is a type of financing that allows to have a monthly rate adapted to the needs of each company. It is a long-term contract, with a fixed rent, and at the end of the contract the customer can choose to buy the car for a residual value normally already provided for in a contract. In tax terms, the car is considered a company asset and the tax charge is made up of depreciation. However, depreciation of light passenger vehicles with an acquisition value of more than €25,000 is not allowed for tax purposes.

In the second option, the type of lease is a long-term lease of up to five years. The monthly fee paid in this case concerns the use of the vehicle and all related maintenance services. In tax terms, this expense is deductible as rent and the Portuguese company’s commitment in this lease is not recognised as a liability.

However, even if the vehicle has not been acquired directly, it still has a reference price for sale to the public. Therefore, the ‘acquisition cost’ to be taken into consideration for the application of the autonomous tax rates should be the price that the lessor has taken into account for the calculation of the monthly rent. To this value should be added VAT, which is not deductible and is a component of the cost of the vehicle.

It is concluded that the legislation is intended to create a neutral regime for the taxation of cars, irrespective of the way in which the vehicle is acquired by businesses in Portugal.

It is also important to choose the right car insurance in Portugal for both personal and company vehicles. To be accompanied by an insurance professional in Portugal is essential to get the best prices and reduce business expenses.

Article available in original language on the Cartrack website