Buying a Company Car: Is it Worth It?

Buying a company car is one of the decisions that can bring significant financial and tax benefits to entrepreneurs and legal entities. However, it is important to understand all the advantages, obligations, and potential costs in order to make the decision that is optimal for the business.

In this blog, we will explain in detail the benefits of buying a vehicle for a company, how the tax system works, and which factors should be considered before making a decision.

KEY BENEFITS OF BUYING A CAR FOR A COMPANY

1. TAX RELIEFS AND VAT DEDUCTIONS

One of the main reasons why entrepreneurs choose to buy a vehicle for their company is the possibility of VAT deduction. According to Montenegrin tax regulations, VAT can be deducted only if the vehicle is used exclusively for business purposes and provided that the vehicle is registered as a commercial vehicle. This means that if the car is used for private purposes as well, there are limitations on the right to deduct VAT.

• Passenger cars – For most passenger cars, there is no right to VAT deduction unless the vehicle is for rent-a-car, taxi services, or driving schools.
• Cargo and specialized vehicles – VAT on the purchase of these vehicles can be fully deducted if they are used exclusively for business purposes.

2. DEPRECIATION AND REDUCTION OF TAX BASE

When a company purchases a car, it is recorded as an asset and is subject to depreciation. This means that the cost of acquiring the car is spread over several years, reducing the company’s taxable income.

The depreciation rate for passenger vehicles in Montenegro is usually 10% per year using the proportional method, while the depreciation rate for cargo vehicles is 15%. Maintenance and fuel costs can also be recorded as business expenses, further reducing the tax base.

3. REDUCTION OF OPERATIONAL COSTS

By purchasing a vehicle for the company, costs such as registration, insurance, fuel, repairs, and technical inspections can be recorded as business expenses. These costs are deducted when calculating the corporate income tax, reducing the overall tax the company must pay.

4. FLEXIBLE FINANCING OPTIONS: LEASING

Buying a car through leasing offers flexibility in financing:

• Operating Lease – The vehicle is not owned by the company; rather, the company rents it and pays monthly installments. After the contract ends, the vehicle can either be returned or bought for the remaining amount.
• Financial Lease – The car is considered an asset of the company and at the end of the contract becomes the company’s property after all installments are paid.

In both cases, leasing can provide flexibility and reduce the initial acquisition costs.

5. IMPROVEMENT OF PROFESSIONAL IMAGE

For companies that frequently interact with clients, a business car can improve the company’s image and leave a more serious impression. Using corporate vehicles for business meetings, employee transport, or fieldwork can enhance the company's perception.

Buying a car for the company can be a very profitable strategy if properly planned and used in accordance with legal regulations. The key benefits include the possibility of cost deduction, tax relief, flexible financing options, and improvement of the professional image. However, it is important to take into account tax rules, long-term financial obligations, and administrative requirements.

If you are considering buying a vehicle for your company and need professional advice on the optimal strategy for your business, Perfectum can assist you in all aspects – from tax consulting to administrative support.

Contact us and make the best decision for your business!