Long-term rental with VAT number: deductibility and VAT

If you have a VAT number and are considering long-term rental, the question is almost always the same: is the monthly fee deductible? And can VAT be recovered? The short answer is yes, but with precise rules that depend on the type of vehicle, how you use it and your business. In this guide you will find a clear explanation, without unnecessary jargon, to understand how deductibility of long-term rental with a VAT number works and what to consider before signing a contract.

What monthly fee deductibility means in long-term rental

When we talk about deductibility of the long-term rental monthly fee for a VAT number, we mean the possibility of deducting part of the cost of the monthly fee you pay from business or self-employment income. Not the whole monthly fee is always 100% deductible: the percentage depends on how the vehicle is classified for tax purposes and how you use it.

Generally speaking, under current legislation:

• Vehicles essential to the business: if the car or van is used exclusively for the business (i.e. vehicles without which the business could not be carried out, such as those of driving schools or rental companies), the monthly fee is fully deductible. Commercial vehicles, such as vans and trucks, follow their own rules, generally more favourable than those for cars. Please note: company lettering or livery on the bodywork does not in itself make a car essential to the business.
• Vehicles not essential to the business: if the vehicle is used for mixed purposes, i.e. also for personal needs, deductibility is partial and follows the percentages set by law.
• Cars assigned to employees: there are specific rules that may change the deductible percentage.

It is important to stress that the exact percentages and amount limits change according to the tax legislation in force and the type of contract. For this reason, before deciding, you should always check your specific situation with your accountant.

How VAT recovery works on long-term rental

The VAT recovery on long-term rental with a VAT number follows similar logic to monthly fee deductibility. Here too, the percentage of VAT you can recover depends on how the vehicle is used:

• If the vehicle is essential to the business, the VAT on the monthly fee is generally fully recoverable.
• If the vehicle is not essential to the business, VAT recovery is partial, according to the percentages set by current legislation.
• For vehicles assigned to employees, specific rules apply that may reduce or increase the recoverable amount.

One often overlooked aspect: VAT on any ancillary services or on arrangements that include a final buyout follows its own rules, different from those on the monthly fee. Here too, advice from your accountant is essential to avoid mistakes.

Long-term rental vs buying: what changes for a VAT number

Many professionals wonder whether long-term rental is better than buying. From a tax point of view, the main difference is that with rental you do not have an asset to depreciate, but a periodic monthly fee that may be deductible according to the rules set out above. This offers some practical advantages:

• No capital tied up: you do not have to pay the full cost of the vehicle upfront.
• Predictable costs: the monthly fee is fixed and often includes maintenance, insurance and assistance.
• Simpler tax management: you do not have to calculate depreciation or handle reselling the vehicle.
• Flexibility: you can change vehicle at the end of the contract without worrying about depreciation.

If you want to understand which solution best suits your business, you can compare the long-term rental offers available and take your time to decide.

Who can take out long-term rental with a VAT number

Long-term rental with a VAT number is designed for:

• Self-employed professionals (lawyers, doctors, consultants, architects, etc.)
• Sole traders
• Limited companies and partnerships
• VAT numbers under the flat-rate scheme

Even those on the flat-rate scheme can take out long-term rental, but be careful: under this scheme costs are not deducted from income in the same way. For this reason it is essential to check with your accountant how to treat the monthly fee based on your tax regime.

If you have a VAT number and want to understand the dedicated terms, you can visit the page long-term rental for VAT numbers.

Documents and requirements for rental with a VAT number

To set up a long-term rental contract with a VAT number, you are generally asked for:

• Company registration report or active VAT number
• Identity document of the owner or legal representative
• Latest income tax return or filed financial statements
• Bank statements recent
• Any additional documentation depending on the type of business

The documentation is used to assess the affordability of the monthly fee and does not constitute a guarantee of approval. Each application is assessed individually.

How to choose the right vehicle for your business

The choice of vehicle affects not only costs, but also the tax treatment. Here are some useful criteria:

• Type of use: if you use the vehicle only for work, consider a dedicated vehicle; if you also use it for the family, be aware that deductibility will be partial.
• Annual mileage: long-term rental is particularly worthwhile for those who cover many miles.
• Car or commercial vehicle: vans and trucks have a different tax treatment from cars; discuss with your accountant which is more suitable for your business.

To help you choose between the available models, you can use the configurator and see which solutions suit your needs.

Common mistakes to avoid with a VAT number

When it comes to deductibility and VAT in long-term rental with a VAT number, many people make mistakes that can prove costly at tax return time. Here are the most frequent:

• Treating 100% of the monthly fee as deductible without checking whether the vehicle is a dedicated vehicle or not.
• Forgetting to separate personal use from business use.
• Not keeping the invoices for the monthly fee and ancillary services.
• Confusing the VAT deduction on the monthly fee with that on any ancillary services or agreements with a final buyout.
• Not keeping up to date with regulatory changes, which can change the deductibility percentages.

To avoid these mistakes, the advice is always the same: talk to an accountant and ask for personalised advice. If you also want support with choosing the contract, you can turn to the RentalZone consultants.

Advantages of long-term rental for professionals and businesses

As well as the tax aspects, long-term rental offers concrete advantages:

• A single monthly fee which as a rule includes routine and non-routine maintenance, third-party liability insurance and roadside assistance; a replacement vehicle can be added to the contract.
• No risk of depreciation: at the end of the contract you hand back the vehicle and choose another one.
• Simplified administration: a single monthly or quarterly invoice.
• The option to include extra services such as tyres, telepass or a replacement car.
• Contractual flexibility: you can choose the term and mileage to suit your needs.

If you are a member of a professional body or association, check the dedicated RentalZone schemes .

Frequently asked questions

Is the monthly fee for long-term rental always 100% deductible?

No. Deductibility depends on the type of vehicle and its use. Dedicated vehicles can be fully deductible, while non-dedicated ones are only partially deductible under current legislation. Always check with your accountant.

Can I deduct VAT on long-term rental with a VAT number?

Yes, but the deduction percentage depends on how the vehicle is used. For dedicated vehicles the deduction is generally full, for non-dedicated ones it is partial. The exact rules should be checked with your accountant.

Can someone on the flat-rate scheme take out a long-term rental?

Yes, even someone on the flat-rate scheme can take out a long-term rental. However, under this scheme costs are not deducted from income as they are under the ordinary scheme. It is important to understand how to treat the monthly fee for tax purposes.

What happens if I also use the rented car for personal reasons?

If you also use the vehicle for personal reasons, the deductibility of the monthly fee and the VAT deduction will be partial. The percentage depends on current legislation and the type of vehicle. In these cases, advice from an accountant is even more important.

Conclusion

Long-term rental with a VAT number can be an advantageous choice both from a tax and an administrative point of view, but it requires attention to the rules on deductibility and VAT deduction. The percentages and limits change depending on the vehicle, its use and current legislation: that is why it is essential to rely on an accountant for your specific situation.

If you want to understand how much a long-term rental could cost for your business, request a personalised quote from RentalZone: the team will help you find the solution best suited to your needs, with no obligation.