You’ve just signed a car financing agreement with your broker and you’re wondering about the taxes associated with your vehicle. The purchase and use of a vehicle are taxed in various ways. But the tax administration also grants you some tax deductions. Here’s an overview.
Taxes
- VAT: Are you buying a new vehicle? You pay 21% VAT on the final price. Are you buying a used car? It all depends on who is selling it to you:
- An individual: VAT does not apply
- A VAT-registered seller: 21% VAT on the profit margin or 21% VAT on the total price.
- Registration tax: The registration tax is levied when the vehicle is first registered in your name, whether new or used. Its amount depends on the engine size (fiscal horsepower) and/or power (KW) as well as the age of the vehicle.
- Annual road tax: This tax is levied based on your engine power, engine size (fiscal horsepower), or the maximum authorized mass (MAM) of the vehicle. If you change vehicles, your new tax will be deducted from the surplus already paid for your old vehicle.
Tax deductions
- Deductibility of interest: If you take out a loan for your car, your monthly payment includes the repayment of the principal and the payment of interest. If you opt for the deduction of actual professional expenses, you can then fully deduct the interest related to the professional use of your car.
Example: On February 1, 2011, you take out a loan of 7,500 euros over 36 months at an annual effective rate of 5.75%. For 2011, the total interest to be considered amounts to 309.38 euros. This is the total interest for the first 11 months according to the amortization schedule linked to your contract. Let’s assume that 70% of your car expenses are professional. For the income year 2011, you can therefore deduct 216.57 euros (70% of 309.38 euros).
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Note that for motorcycles, all expenses are 100% deductible.
