Car for a company s.r.o. in the Czech Republic: key nuances of purchase and accounting

Buying a car for a legal entity s.r.o. - is not just transportation, but a business tool. Owners of Czech companies s.r.o. (společnost s ručením omezeným) more and more often register their cars with the company. This allows to take into account expenses, optimize taxes and use the vehicle for work on legal grounds. However, such a transaction requires an accurate understanding of the legal and accounting nuances.

Why buy a company car?

The registration of a car on s.r.o. gives the entrepreneur a number of advantages:

• You can use the car officially for business purposes (delivery, meetings, logistics, etc.).

• All vehicle-related costs - fuel, insurance, maintenance - are included in the firm's expenses

• Possibility to refund VAT on car purchase (if the company is a DPH payer)

• Transportation becomes an asset of the firm and is depreciated in the accounts

In addition, a company car is a transparent tool for managing funds and building a tax-efficient cost structure.

How to register a car with a s.r.o. company?

To properly register a car to a company, you need to:

1. Purchase an automobile in the name of the companyIn other words, to specify the firm as the purchaser in a sale or lease agreement.

2. Issue a technical passport indicating the legal entity as the owner.

3. Take out insurance (compulsory and, optionally, hull insurance) on the company.

4. Register your car at the DMV.

It is also important to keep all documents: invoices, contract, payment orders - for accounting and tax accounting.

Is it possible to refund VAT on the purchase of a car to a s.r.o. company?

If your firm is registered as a VAT payer (DPH), you are entitled to deduct input VAT on the purchase of a car. But only if the conditions are met:

• The vehicle must be used exclusively in business purposes.

• Personal use excludes the right to a full VAT refund.

• It is necessary to have a properly executed tax document (daňový doklad) with the amount of VAT allocated.

If the car is used partly for personal purposes, the right to a deduction may be reduced or eliminated. In such a case, you will need to keep travel book.

What is depreciation and how does it work?

A car registered to a company is subject to amortization - is essentially a straight-line write-down of the cost of an asset over its estimated useful life.

• Passenger cars in the Czech Republic are depreciated in the 1 amortization groupwhich corresponds to the deadline 5 years.

• Amortization begins from the month following commissioning.

• The annual depreciation amount can be straight-line or accelerated (depending on the accounting method).

For example, if a car costs 500,000 kronor, a firm can include part of this amount in expenses each year, which reduces the tax base.

What costs can be taken into account?

All costs associated with the operation of a company vehicle may be expensed:

• Fuel - with supporting receipts or on a mileage basis

• Insurance - compulsory and voluntary

• Maintenance - repair, tire service, maintenance

• Parking lots, toll roads, car washes.

• Amortization or lease payments

• Loan payments (if the car is purchased in installments)

Important: all expenses must be documented and logically justified within the firm's operations.

Car and personal use: what are the risks?

If a company car is used for personal purposes (e.g., the director drives it home), it is considered as a In-kind income of an employee or director.

What it means:

• The personal part of the use must be recognized in payroll as supplemental income.

• This amount is subject to the following charges taxes and insurance premiums.

• Maintaining travel books allows for a clear separation between work and personal kilometers.

If there is no accounting, the tax office may refuse to recognize expenses on the car and assess additional charges and penalties.

Leasing: an alternative to buying

Instead of a full purchase, many companies utilize leasing:

• Finance lease - closer to purchase, the car becomes an asset, depreciating.

• Operating lease - rent, the payments just go to expenses, the car doesn't depreciate.

Benefits:

• No large lump sum investment is required.

• More flexible terms for fleet renewal.

• Simplicity of accounting for payments as direct costs.

What are the most common mistakes that are made?

1. There's no travel bookand the car is used for personal needs.

2. Incorrect paperwork to buy or insure.

3. Attempting to recover VAT on mixed usewithout due consideration.

4. Improper amortization - the wrong term or method.

5. Use of a motor vehicle without registration as an assetwhich eliminates the expense from the accounting.

A professional accountant or tax consultant can help you avoid all these mistakes, especially if your company is active in transportation.

Conclusion

Buying a car for a company s.r.o. - is not just a transaction, but part of a tax and accounting strategy. With proper registration and compliance with all requirements, you get:

• Tax savings

• Simplification of accounting

• Legal use of transportation

• VAT refundability (if conditions are met)

But on the other hand, you need clarity: correct documents, real use in business, accounting for all mileage and costs. Otherwise there may be claims from the tax authorities.

Need in-depth advice or help with running your company? — Get in touchwe look forward to working with you!