How do you avoid sales tax on a car?

Car transfer tax

The purchase of second-hand vehicles is not exempt from paying taxes. If you are about to buy a second-hand car, you should know if VAT is applied, how it is applied and how much you have to pay. But don’t worry, not all vehicle transactions are subject to this tax.

The purchase of used vehicles is not exempt from paying taxes. If you are about to buy a second-hand car, you should know if VAT is applied, how it is applied and how much you must pay. But don’t worry, not all vehicle transactions are subject to this tax.

The used car market is a very important sector for the automotive industry, and a way to save some money when buying a new car. This sector is also regulated by the payment of taxes, including VAT, so you should know how this tax is applied to used cars.

In these lines you will find out in which cases you are exempt from paying VAT and which ones you will have to pay a tax that, in general and except in very specific cases, is 21%, which can mean a significant outlay when buying or selling a second-hand vehicle.

Accounting for the purchase and sale of vehicles

In this commentary we are going to deal with the problem of indirect taxation in the transfer of both new and second-hand motor vehicles, either by individuals or by businessmen to use them as investment goods or as merchandise in the economic activity of the company.

Read more  Can you walk away from a police officer UK?

Let’s start with the easiest, if the vehicle is new, it will be subject to VAT, regardless of the condition of the acquirer or the transferor. Vehicles will be considered to be new when the transfer is made within six months from the date of their first registration or when they have not traveled more than 6,000 kilometers.

On the other hand, if the seller of the used vehicle is a company, a businessman or a professional who is not engaged in the sale of vehicles, the taxation of the sale of the vehicle will depend on the percentage of use of the vehicle for the economic activity, which, except in exceptional cases, will coincide with the input VAT that the businessman has been able to deduct in the purchase of the vehicle:

How to declare the sale of a vehicle

If you buy a vehicle from a private seller, you do not have to pay VAT in the seller’s country. You will only have to pay VAT in the country where you register the vehicle. VAT must be paid on the total price of the vehicle, including any associated options or costs, such as delivery costs.

The private seller will be able to recover part of the VAT from the country where the vehicle was initially purchased. Typically, the tax administration will calculate the amount of VAT refundable, which will be proportional to the length of time the seller has used the vehicle in the EU country.  For more information on the rules regarding the seller’s obligations and how to obtain the VAT refund, the seller should contact the national tax administrationfrdeen .

Read more  Who owns Dorset House?

Mario lives in Italy and decides to buy a new car in Germany. As the car is new, Mario must pay VAT in Italy, where he wants to register it. However, the seller, being liable to pay VAT to the German tax authorities, must prove that the car is purchased for transportation and registration in another EU country. Thus, as a deposit, he requires Mario to pay the German VAT.

Sale of vehicles exempt from VAT

This limitation is not applicable when the referred goods have for the acquirer the character of exchange goods or constitute the main purpose of the taxed activity (rental, cabs, remises, commercial travelers and similar).

The company produced an entertainment program, broadcasted on television, in which automobiles were given as prizes, for which reason it had computed in full the tax credit generated by the purchase of such goods, under the understanding that they were inputs for the production of the program.

On the other hand, the Tax Authorities considered that the taxpayer’s activity was not the purchase and sale of automobiles and challenged the tax credit considered in the tax assessments for the periods between May 1999 and May 2001.

In this order it was understood that, if such automobiles are not part of the assets of the company, it must be concluded, undoubtedly, that it constitutes an expense (negative result) related to the activity that is covered by the tax in question. And in this sense, the tax credit should be computed since it is applicable whenever it is related to the taxed activity in any of its application stages, which does not only involve an economic process of transformation, but any activity of administration, financing, commercialization, including promotion, marketing, diffusion, etc., which also includes the granting of prizes in any type of competition or sweepstakes.

Read more  What will registration plates be in 2020?