From 1 December the value added tax order for passenger cars used by a company will change. According to the new order, when buying and using a passenger car on the basis of a contract for use, also when buying goods and services for the car, there is a right to deduct input VAT only to the extent of 50% instead of the previous 100%.
Giving the passenger car for private use
On giving a passenger car used in business for private use to the employee, staff member or member of the managing or controlling body of the taxable person even for a payment, it is not possible to deduct the input VAT provided for the car to the full extent.
Taxation of self-consumption
Before the deduction of input VAT for a passenger car used for business was not restricted and private use was taxed as self-consumption. From 01.12.2014 the private use of the car for a purpose not related to business is not taxed. Instead the right of deduction of input VAT is restricted.
On the value added tax return the tax administrator has to be notified of cars, for which 50% of input VAT is deducted as well as of cars, for which 100% of input VAT is deducted.
A passenger car for the purposes of the Value Added Tax Act is an M1 category vehicle, the laden mass of which is not more than 3500 kilograms and which does not have more than 8 seats in addition to the driver’s seat.

To get more information contact the accountants of 1Office Estonia tel +372 6 311 118.