Company Car through a Spanish S.L. – Benefit in Kind and Operating Expenses

Purchasing a vehicle through a Spanish Sociedad Limitada (S.L.) is a common consideration for business owners, particularly shareholder-directors. In Spain, this may offer certain tax advantages, but it also entails specific obligations. The appropriate approach depends largely on how the vehicle is used and whether it is a new purchase or a vehicle that is already privately owned by the shareholder.

1. Purchase of a Used Vehicle from the Shareholder’s Private Assets

If the vehicle is already owned by the shareholder, there are generally two ways of transferring the existing car to the company: a contribution in kind or a sale to the S.L.

In practice, a sale is almost always chosen, as contributing the vehicle to the company’s assets requires a capital increase, which must be notarised and registered with the Commercial Registry. This results in additional notarial costs and increases the administrative burden.

If the S.L. purchases the vehicle from a private individual (e.g. the shareholder), no VAT is charged. However, it should be noted that the purchase is subject to ITP (Impuesto sobre Transmisiones Patrimoniales – Transfer Tax). This tax is payable by the company and amounts to between 6% and 7% in most regions. The ITP is not deductible as such but forms part of the acquisition cost and is therefore allocated over the depreciation period.

If, on the other hand, the vehicle is purchased from a business or dealer, VAT (IVA) at 21% applies. In this case, 50% of the VAT is immediately deductible. The remaining 50% is added to the acquisition cost and is also depreciated over six years. If the vehicle is not primarily intended for passenger transport, 100% of the tax may be claimed directly.

2. Allocation to Business Assets and Tax Treatment of Vehicle Use

If the vehicle is used exclusively for business purposes, it is allocated entirely to the company’s assets. The acquisition costs do not constitute an immediately deductible expense but, as explained above, are depreciated on a straight-line basis over the statutory useful life of six years.

By allocating the vehicle to the company’s fixed business assets, all ongoing expenses, such as fuel, maintenance, insurance, vehicle tax and repairs, can be treated as tax-deductible business expenses (“gastos deducibles”).

However, the Spanish Tax Agency (“Agencia Tributaria”) will only accept 100% business use if this can be duly demonstrated or credibly substantiated. In practice, a passenger car can only be treated as 100% business-related for tax purposes by the company if the company operates in the passenger transport sector and private use by the shareholders can be excluded. If sufficient evidence is not available, the tax authorities assume mixed business and private use. In such cases, the tax authorities typically presume a business-use percentage of 50%. Since this is a presumption, it may also work in the shareholder’s favour where no business use can otherwise be demonstrated.

3. Private Use and Benefit in Kind

Private use of the vehicle by the shareholder gives rise to a benefit in kind, which is taxable as part of the shareholder’s remuneration. This benefit in kind is included in the payroll and is subject to Spanish personal income tax (IRPF).

The benefit in kind is calculated on the basis of 20% of the acquisition cost, applied to the 50% private-use portion. In addition, 50% of the vehicle’s ongoing running costs are treated as a further benefit in kind.

Example

The S.L. purchases the shareholder’s used car for €24,000. The annual running costs amount to €5,000.

Tax Impact at S.L. Level

The acquisition cost of €24,000 is depreciated over six years, resulting in annual depreciation of €4,000. Together with the running costs, this results in total annual expenses of €9,000.

As these expenses reduce the S.L.’s taxable profit, the following tax savings arise depending on the applicable corporate income tax rate:

- At a corporate income tax rate of 15% (during the first two years):
€9,000 × 15% = €1,350 tax saving

- At a corporate income tax rate of 22% (for turnover < €1,000,000):
€9,000 × 22% = €1,980 tax saving

Note on ITP and VAT

Depending on the type of purchase, either ITP of approximately €1,680 (approx. 7% for a purchase from a private individual) or VAT of €5,040 (21% for a purchase from a dealer) will additionally apply. The ITP of €1,680 increases the acquisition cost and is depreciated over six years (annual expense of €280). As a general rule, 50% of the VAT is immediately deductible (€2,520), while the remaining VAT forms part of the acquisition cost and is depreciated over six years (annual expense of €420). In our example, we assume that the taxes are already included in the acquisition cost.

Tax Impact at Shareholder Level

€24,000 x 50% x 20% = €2,400

€5,000 x 50% = €2,500

Total Benefit in Kind: €2,500 + €2,400 = €4,900

If the shareholder has a personal tax rate of at least 28%, the resulting tax burden of €1,372 (€4,900 x 28%) is higher than the tax saving at S.L. level where the company is subject to a corporate income tax rate of 15%. If the S.L.’s corporate income tax rate is 22%, the shareholder pays more tax than the S.L. saves once the shareholder’s personal tax rate exceeds 41%.

4. Economic Assessment and Recommendation

In conclusion, it should be emphasised that the tax outcome always depends on the specific figures involved, including the actual acquisition cost, ongoing expenses and the applicable individual tax rates. It is therefore not possible to make a general statement as to whether this structure is advantageous, and each case should be assessed individually.

As a general rule, the purchase of an existing used vehicle from the shareholder by the S.L. is often less advantageous, as the tax benefits are usually relatively limited and private use frequently results in an additional tax burden at shareholder level.

By contrast, the purchase of a new vehicle directly by the S.L. can be considerably more attractive, as the company itself makes the investment and the expenditure remains entirely within the business sphere. This avoids the need for the shareholder first to receive a salary payment from the company in order to finance the vehicle purchase privately. A salary payment is subject to full taxation, which, depending on the amount, may reach the highest marginal tax rate. In addition, the shareholder’s Social Security contributions must be taken into account, meaning that the S.L.’s total cost of paying the corresponding salary frequently exceeds 50%.

This means that, with an existing base salary of €65,000, in order to purchase a vehicle worth €50,000 privately, the company would have to pay the shareholder approximately €100,000 gross. If, however, the vehicle is purchased directly by the S.L., the investment is made out of pre-tax company profits.

Our firm will be pleased to assist you in analysing your specific situation, carrying out any necessary administrative procedures and preparing and filing the relevant tax returns. If you are interested in our services or have specific questions regarding this topic, please do not hesitate to contact us by email or telephone.

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