Faced with the choice of financing a company car, not wanting to buy with cash, you have various options available to you. Credit is becoming less and less popular, while leasing and long-term rental are gaining ground. Which solution is better? Each of them has its pros and cons. The choice depends on your needs and expectations.
Faced with the choice of financing a company car, not wanting to buy with cash, you have various options available to you. Credit is becoming less and less popular, while leasing and long-term rental are gaining ground. Which solution is better? Each of them has its pros and cons. The choice depends on your needs and expectations.
What is leasing?
Leasing is a very convenient way to finance a car, due to its simple procedures (faster than a loan), wide availability and relatively low cost. As an entrepreneur, you can deduct the cost of leasing from your taxes, and you don't freeze equity or need collateral. You can lease new and used cars, with passenger cars being the most common, but it is also possible to lease vans of the bus type up to 3.5 tons. Under the agreement, the lessor gives the lessee the car for use, in exchange for payment of lease installments. This is a good solution for those who run a one-person business and are looking for a relatively cheap means of transportation.
What are the costs of leasing?
Lease costs consist of:
- own contribution,
- equal, contractually agreed installments,
- The possibility for the lessee to buy back the vehicle at the end of the contract.
The amount of the above costs depends on the type of car, its age, technical condition, equipment, depreciation period. On the side of the lessee is the insurance of the car, that is, payment of OC and AC premiums, as well as the cost of operating the vehicle.
Benefits for the lessee
By choosing leasing, you will include it as a deductible expense and thus reduce the value of income tax and VAT due. The lessor may also offer an additional package of benefits such as assistance, additional insurance, fuel cards, flexible repayment schedule, reference of the original value of the car to a foreign currency, which allows you to protect yourself against exchange rate risk. You can also include the operating costs of the car (tire changes, fluids, inspections, etc.) as a deductible expense.
Finance lease vs. operating lease
Wondering which type of leasing will be most optimal for your business? With an operating lease, the car remains the property of the lessor, and the lessee pays the installments agreed in the contract. In this case, you can expense both the installment and VAT. With an operating lease, you do not have to depreciate the asset. At the end of the contract, you can buy the car outright.
Finance lease (known as capital or investment lease), is based on the fact that the object of lease is recorded, as a fixed asset of the lessee, that is, you can make depreciation deductions. The installment in this case is divided into a principal and interest part. The principal installment is the repayment of the initial value of the car, while you can recognize the interest installment as a deductible expense. Since a finance lease is considered a supply of goods, in this case you must pay VAT upfront when you sign the lease contract. At the end of the contract, with the payment of the last installment, the car becomes the property of the lessee.
For how long can you enter into a lease agreement?
You can enter into an operating lease agreement for a minimum of 40 percent of the asset's depreciation period, which averages two years for a passenger car. With a finance lease, you enter into a contract for a fixed term and set it individually with the leasing company.
When can you use leasing and what documents do you need?
If your business has been operating for at least a year without financial problems, and you have a good credit history, you should smoothly pass the leasing procedure. Some companies shorten the required business period for industries such as law or medicine.
In the case of a car or van, the procedure for applying for a lease is simplified. You need the following data:
- NIP, REGON,
- ID card of the owner, co-owners, proof of spouse may be required (when running a sole proprietorship, partnership, general partnership),
- The lease application and the information contained therein about the entrepreneur's assets and liabilities.
For the standard procedure, in addition to the above-mentioned data, you need:
- balance sheet and income statement
- PIT-36 returns,
- CIT-8 returns,
- Statements of income and revenue (the period depends on the lessor's requirements),
- certificates on the absence of tax arrears in Social Security and the US,
- The opinion of the bank where you maintain a business account,
- asset declarations.
What about insurance when leasing?
As a lessee, you are obliged to insure the car under the terms of the lessor. This applies to operating leases as well as finance leases. The leasing company usually requires the following conditions:
- fixed sum insured, which means that the sum insured as of the date of the policy is the same for the entire policy year,
- Non-reducible sum insured, which means that the sum insured cannot be reduced by previously paid claims during the insurance year,
- A one-time payment of the premium, with no option for installments,
- Removal of depreciation (without deducting the value of wear and tear on parts),
- No deductibles, excesses and integral deductibles, that is, in the event of a loss, the insurer will pay the entire compensation,
- Liquidation of the damage only in the ASO service.
You will usually get an insurance offer from the leasing company. However, it is worth comparing it with offers available on the market, as you may find a more favorable one. Leasing companies sometimes have a list of companies they accept and may also charge a fee of several hundred zlotys for other external insurance. Also be aware of the period in which you must take out another policy - sometimes and 30 days before the end of the term of the insurance, the provision can be found in the contract. If you do not do this, the lessor will insure the car on its terms, which you will have to accept.
Is it worth it to have GAP insurance?
It is worth using GAP insurance, which is insurance in case of total loss or theft of the car. In this case, you receive an amount to compensate you for the financial loss associated with the loss of the vehicle over time. This means that when the car loses value, autocasco covers the market value of the vehicle, while GAP will pay the difference between the invoice value and the market value of the vehicle at the time of the incident. The cost of GAP insurance is usually included in the lease payments.
What does long-term rental consist of?
If you drive very little, don't have time to service your car, care about its performance and availability all the time, and don't want to buy it back when the contract expires, then long-term rental is for you. Long-term car rental is more advantageous if you own several cars, as you can get additional options such as maintenance as part of the contract. It differs from leasing in that you don't pay an initial fee. There is, admittedly, a so-called initial rent, but in this case the monthly installments are lower. As a lessee, you also don't pay liability and AC insurance. In the package you can get a tire change and storage, as well as a replacement car for the time of repair. You sign a lease agreement for 12 to 60 months, and at the end of it you can buy the car or rent another one. For tax purposes, long-term rental is treated like an operating lease.
What do you need to do to rent a car?
1. you choose a car and a package on which the subscription price depends.
2 You sign the contract and pay the initial rent, if required.
3. You drive away in a rental car.
4. You pay a subscription in advance every month.
5. When the contract expires, you return the car and rent another one.
Worth remembering
1 You are responsible for the damage to the car - it is covered by the AC policy or you pay for the repair out of your own pocket.
(2) When going abroad, you need to get approval from the rental company and pay for its issuance.
(3) A fee will be charged for each additional kilometer beyond the contractual limit.
Tax costs of leasing a car
Leasing and long term rental are subject to a quota limit!
Operating lease or rental of a passenger car with a value of less than PLN 150,000 (internal combustion and hybrid) or PLN 225,000 (electric) - you can include the entire lease or rental payments in your expenses.
Lease or rental of more expensive than the above amounts, vehicle - here the tax deductible expense will be that part of the initial rent and each installment, which in proportion to the price of the car does not exceed 150 thousand zlotys (225 thousand if it is an electric car).
Rental long-term - ranking as of 01.10.2021
https://enerad.pl/wynajem-dlugoterminowy/wynajem-dlugoterminowy-ranking-firm/
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