Leasing a Commercial Vehicle or Equipment: How It Is Taxed

Finance or Operating Lease: What Is the Difference

Under a finance lease (financial leasing), the business usually acquires the right to purchase the vehicle or equipment at the end of the contract, with a customary minimum term of three years, and tax depreciation is charged by the lessee (the business using the fixed asset), not the leasing company. Under an operating lease, ownership remains with the leasing company throughout the term, often with maintenance and insurance included, and the monthly rental is treated more simply as an operating expense.

The Decisive Factor: Commercial or Passenger Vehicle

The most important point in the tax treatment of leasing is the distinction between commercial vehicles (private-use goods vehicles, such as small trucks and vans) and passenger vehicles (private-use passenger cars):

• For commercial vehicles, VAT on lease rentals is deductible up to 100%, offset against the VAT payable by the business
• For passenger vehicles, VAT on lease rentals is not deductible; both the net amount and the VAT are recorded as an expense and deducted from gross revenue to determine taxable profit

This difference can significantly change the overall financial picture of a leasing choice, so it must be taken into account before signing the contract.

For the complete list of VAT that is and is not deductible on business purchases, see our guide to input VAT.

An Additional Incentive for Electric Company Vehicles

For zero-emission (fully electric) company vehicles, an enhanced deduction of 50% of the leasing expense from the business’s gross revenue is available, up to a specified maximum threshold of the vehicle’s Retail Price Before Taxes. A corresponding enhanced deduction of 50% is also available for the purchase, installation and operation of publicly accessible charging points, making electric vehicle leasing an even more attractive option for tax purposes.

Leasing or Buying: What Changes in the Accounts

Choosing leasing instead of buying with own funds or borrowing has additional practical benefits beyond taxation: no immediate outlay of substantial capital or bank borrowing is required, monthly costs are predictable and stable, and the business’s balance sheet often looks better than it would with a significant loan obligation. In contrast, with a purchase, the business immediately acquires full ownership and can charge depreciation itself at the prescribed rates, without committing to a long-term contract.

An Example: Leasing a Commercial Van

Suppose a trading business needs a small commercial van (a private-use goods vehicle) for deliveries and chooses leasing with a monthly rental of €230. Over one year, the total expense is €2,760, an amount recorded entirely as an operating expense that reduces the business’s taxable result. Because it is a commercial vehicle, VAT on the lease rentals is fully deductible, offset against the business’s VAT payable — so it does not constitute an additional, non-recoverable cost.

If the same business instead chose a passenger car for an executive, the monthly rental would also be recorded as an expense together with VAT, but with no possibility of deducting VAT — a significant difference many businesses do not know about before signing the contract.

What to Check Before Signing a Leasing Contract

1. Confirm whether the vehicle or equipment is classified as commercial or passenger, as this determines whether VAT is deductible
2. Clarify whether it is a finance or operating lease, as this changes who charges depreciation
3. Check whether maintenance and insurance are included in the rental or constitute a separate charge
4. If you are considering an electric vehicle, confirm that the conditions for the enhanced 50% deduction are met
5. Compare the total leasing cost over the entire contract term with the purchase cost, including maintenance, insurance and road tax