More often, companies decide in favor of buying electric cars, thus becoming more environmentally friendly. Although this practice is becoming more popular, the regulations still do not specify the conditions that apply directly to electric cars. Therefore, the application of corporate income tax (CIT) to various expenses related to electric cars is similar to other cars provided for in the Corporate Income Tax Law (CIT Law); electric cars are subject to the same requirements of tax and accounting regulations as ordinary cars.
Excuse documents
In accordance with Part 8 of Cabinet of Ministers (MK) Regulation No. 877 "Regulations for Bookkeeping", the company itself determines the procedures for documenting and accounting for the expenses of using the company's vehicles, including expenses for the use of vehicles related to the economic activity of the company, as well as expenses for the company's, as an employer, use of light vehicles for purposes that are not related to the company's economic activity, taking into account the requirements of regulatory acts regulating taxes.
Purchase value of an electric car
Representative electric car
On an electric car that complies with Article 1, Clause 17 of the CIT Law (passenger car, the number of seats, excluding the driver's seat, does not exceed eight seats, and the value without VAT exceeds 50,000 euros (from June 1, 2023, 75,000 euros), Article 8 of the CIT Law is also applicable, which states that a representative car:
- Purchase expenses, rent, and operating expenses are non-economic expenses that form the taxable base with CIT. Therefore, all expenses incurred in the case of a representative use of an electric car will be unrelated to economic activity.
The only permissible exception is for companies engaged in the provision of light passenger car transport rental services, and only if the revenue from this commercial activity makes up no less than 90% of the turnover.
Not representative
Purchase expenses incurred when the company purchases an electric car for the performance of economic activity do not form the taxable base of the CIT, as they do not meet the criteria specified in Article 8 of the CIT Law for expenses not related to economic activity.
Expenses related to electric car charging
Based on Article 8, Part 5, Clause 5 of the CIT Law, based on the actual number of kilometers traveled each month in accordance with the electricity consumption norm per 100 kilometers determined for the vehicle, which does not exceed the urban cycle electricity consumption norm specified by the manufacturer by more than 20%, electric car charging-related expenses are economic expenses that do not form the taxable base with CIT if:
- The company's light vehicle tax (UVTN) is paid;
- the electric car is used exclusively for the purposes of its economic activity;
- the tax payer is an eligible agricultural services cooperative society, an appropriate forestry services cooperative society, or a fisherman's farm.
It should be taken into account that the amount of electricity expenses per month that exceeds the city cycle electricity consumption norm specified by the manufacturing plant by more than 20% will form the taxable base of the CIT. So, in order to be able to control the level of compliance of electricity consumption with the established norm, the company must record the electricity consumption according to the procedure established in the company, for example, by preparing route sheets containing information on, for example, odometer readings and the amount of electricity consumed.
Application of the fuel consumption norm
The problem of applying the fuel consumption norm specified in the manufacturer's certificate of conformity to the actual fuel consumption, comparing how many more kilometers can be driven with an electric car in city mode than when driving in standard mode, has been brought up several times in society. The information published on the website of the State Revenue Service shows that for the application of Article 8, Part 5, Clause 5 of the CIT Law, electric cars may take into account:
- the highest of the electricity consumption indicators determined by the manufacturer;
- one of the publicly available average consumption indicators;
- one of the publicly conducted test indicators. If UVTN is not paid,
In cases where the merchant does not pay UVTN for the electric car, in order to justify the use of the vehicle for the purposes of economic activity, it is necessary to record the consumption of electricity and the route according to the procedures specified in the documents of the accounting organization. For example, the recording of journeys using a route control system or a device that receives the signals sent by the global positioning system (GPS) satellites and determines the coordinates of the car in real time provides another requirement mentioned in Clause 2 of MK Regulation No. 672 "Requirements for Route Control Systems" execution.
The law on vehicle operating tax and company light vehicle tax provides for a reduced UVTN rate for electric cars: 10 euros per month (from July 1, 2023: 15 euros per month).
Electric car charging at home or on company premises
Information on the procedure for accounting for the energy consumed during electric car charging, if charging is not carried out at specially installed electric car charging network stations, is very limited. However, in November 2021, in the series of free webinars "How to Prepare a Company for Electromobility" organized by "Elektrum Latvija", the chief tax inspector of the Accounting Methodology Department of SRS Taxes and Charges briefly explained that if an employee has a car owned by the company and the electric car is charged by the employee at the place of residence, the duties of the employee are:
- Register the economic activity with the SRS (since the employee will regularly receive compensation for the energy consumed during charging, the signs of economic activity can be seen in relation to the natural person (employee), which are specified in Section 20, Part 1 of the Law "On Personal Income Tax");
- provide separate electricity and a commercial metering device so that it is possible to create a correct justification document for the electricity consumed during charging;
- and draw up a justification document in accordance with the procedures specified in the company's accounting organization documents. To be able to control and list the exact electricity consumed during charging for the specific electric car.
Other related expenses
If the electric car is used only for performing economic activities, other expenses related to the use of this car (for example, parking, maintenance, repair, and technical inspection expenses) do not form part of the CIT tax base because they do not meet the criteria specified in Article 8 of the CIT Law regarding expenses that are not related to the economic activity of the company.
If the electric car is used both for economic activity and for private purposes, the apportionment of each expense to economic activity must be assessed individually, taking into account the proportionality of the expenses and their applicability to the period in which the car was used only for economic activity. In order to be able to evaluate such expenses, it is necessary to record the route in such a way as to get a true and clear picture of the progress of each trip, for example, by recording the aforementioned trips using the route control system.
Source: iFinanses