Advantages of Renting a Car for Employees

Renting a car for employees is not actually a new practice; yet, it became popular recently due to the advantages it brings.

The Differences Between Purchasing And Renting

There are many advantages to renting a car rather than purchasing one for the company and registering it. Let’s explain the subject and start with the purchasing activity.

1- Purchasing a Car for the Company

a) For the cars purchased within a certain year, it is not possible to amortize them for the year they were purchased, in other words, for 12 months. For the period between the month the car was purchased and the end of the year, it is possible to calculate the monthly amortization and record it as an expense (Article 320 of Tax Procedure Law).

b) The value added tax paid during the purchase cannot be subject to reduction. It can qualify either as an expense or a cost. (Law on Value Added Taxes Article 270/2)

c) The motor vehicle tax on the car cannot qualify for expense. (Law on Motor Vehicle Taxes Article 14) However, Special Consumption Tax can qualify either for an expense or a cost.

d) When selling the car, one shall pay tax for the income generated from the sale. Additionally, it is subject to the Value Added Tax even in small amounts.

2) Renting a car for employees

s) A certain amount of rent is paid to the employee, of whose total amount can be recorded as an expense in company accounts. 20% of the amount paid to the employee is subject to tax cut (withholding deduction). 18% of it is paid for Value Added Tax by the liable; however, the same value added tax can be subject to reduction (See also Value Added Tax Communique Serial No. 117).

b) Expenses made for the car (including fuel and maintenance and repair expenses) can be recorded as an expense in company accounts.

c) The employee who is given the car cannot declare the rental income unless the renting cost do not exceed TL 26,000 in 2013. In case it exceeds the said amount, he/she shall declare the total amount; however, unless the annual amount does not exceed TL 114,000 and the employee does not have another income subject to declaration, he/she shall not pay any income tax but receive tax refund.

d) When the car is sold, the income received by the natural person who is the owner is not subject to declaration. Additionally, it is not subject to Value Added Tax.

Renting A Car From Rent-A-Car Company

This, too, comes with special advantages. The taxpayer who pays for the rent:

a) Can make the Value Added Tax paid with the rent subject to reduction

b) Can record the total amount of the rental cost as an expense

c) Is not subject to withholding deduction when receiving the rental income

The rent-a-car company also benefits from certain advantages. For instance:

a) The Value Added Tax it paid when purchasing the car can be subject to reduction.

b) It can record the Motor Vehicle Tax as an expense. (Law on Motor Vehicle Taxes Article 14)

As understood from the explanations above, renting a car from the employees or a rent-a-car-company comes with numerous advantages when compared to purchasing a car for the company.