Ministry of Finance plans to decrease the right for input VAT deduction on motor vehicles to half

The Slovak Republic applied for a permission to derogate from the VAT Directive in order to limit the right for input VAT deduction on motor vehicles and motorcycles also used for private purposes, as well as on related services or fuel, to half. The application of the 50 % share was justified as follows:

• the application of the current system is complicated – it is difficult to identify the split between private and business use and the keeping and checking of records is an additional burden for businesses and administration – according to a questionnaire prepared by the Ministry of Finance, 71% of respondents preferred the use of a flat-rate percentage for the input VAT deduction on vehicles of mixed use, while 78% considered the current approach as administratively burdensome,
• based on the analysis of the data from the tax audits, the Tax Authorities concluded that:
  • taxpayers applied the flat-rate ratio stipulated by the Income Tax Act also to VAT paid on the acquisition of passenger cars and motorcycles and related expenses, instead of determining the real use for private and business purposes,
  • use for business purposes was slightly over 50% of the total use of these vehicles.

Following the Council's decision, the Slovak Republic will be allowed to limit input VAT deduction to 50 % and subsequently not to tax private use upon:

• the purchase, leasing, intra-Community acquisition and importation of M1 motor vehicles, L1e motorcycles and L3e motorcycles not wholly used for business purposes, as well as
• the provision of related services, spare parts, accessories and fuel for such vehicles.

Selected types of motor vehicles and motorcycles used for certain types of activities, where the use for non-business purposes is considered negligible, are excluded from the scope of the exemption, namely vehicles and motorcycles used or purchased for:

• resale, rental or leasing,
• the carriage of passengers for consideration, including taxi services,
• provision of driving lessons,
• testing purposes,
• as replacement of vehicles undergoing works.

Similar derogations have been granted to Estonia, Italy, Latvia, Hungary, Poland, Romania and Croatia. The authorisation should be valid until 30 June 2028 and may be extended on application.

What does it mean to you?

From 1 July 2025, businesses will only be entitled to 50 % input VAT deduction on purchase of passenger vehicles, fuel, repair and maintenance services. This will increase the cost of acquisition and operation of passenger cars by more than 10 %.