Reduction of VAT deduction for passenger cars from 2026 a reality

Halving the VAT deduction and its exemptions

As we informed you in a previous article, the right to deduct VAT on motor vehicles by half when buying or using M1, L1e and L3e passenger cars (i.e. ordinary passenger cars and some motorcycles) is reduced to 50%. This limitation will apply to all vehicles acquired or used from January 1, 2026 to June 30, 2028, covering not only the purchase itself but also the rental (except short-term) and the purchase of goods and services related to the operation of these vehicles.

The exceptions to this rule are quite narrow. Full VAT deduction will only be maintained for those vehicles which are used exclusively for business in specific areas, e.g:

• short-term rentals,
• in leasing companies,
• taxi services,
• driving schools (if a training vehicle), or
• if it is a demonstration, test or replacement vehicle provided to a customer during a repair.

Another option to retain the full deduction is to show that the vehicle is used exclusively for business and keep detailed electronic records of this.

Obligations and record-keeping for businesses

If a VAT payer wants to claim a full deduction for a private motor vehicle, he must keep electronic records for each vehicle separately. These records must contain detailed information:

• VIN number, registration number (number plate), type of vehicle,
• the number of kilometres at the beginning and end of the tax period,
• an accurate record of each journey (date, time, purpose, driver's name, kilometres driven, places where the journey started and ended); and
• a summary of all goods and services related to the operation of the vehicle.

The entrepreneur must make the records electronically available to the tax authorities on request. In countries where such records are already compulsory, discrepancies often occur between the logbook and fueling, toll gates, parking fees and business travel expenses. Where there are discrepancies, the tax authorities may declare the records unreliable and require a full refund of the VAT claimed (purchase, servicing, fuel) and impose a penalty.

The use of a vehicle solely for business purposes must be reported to the tax office on the prescribed form within the time limit for filing the tax return for the period in which the deduction was claimed.

The introduction of these rules means a significant reduction in the ability of most businesses to deduct VAT on the purchase and operation of cars. It also increases the administrative burden for those wishing to claim the full deduction - without detailed electronic records and timely notification to the tax office, this will not be possible.

The ministry's proposal was approved by the Parliament as a part of the consolidation package, and is subject to the president's signature.