Leasing and taxation

Are you using leasing services for your business? Financial leasing makes you the (economic) owner, whereas with operational leasing you are the lessee (renter) . The type of leasing contract you sign determines what implications this will have for your income tax and value-added tax (VAT).

Leasing is a type of financing used for any kind of vehicle and equipment. What are the tax implications of leasing a vehicle or machine? 

Financial lease

If you sign a financial lease contract, you are the (economic) owner of the business asset you are leasing. For example, a vehicle or a machine. You can add the purchase price to the balance sheet.

Income tax and financial lease

The instalments you pay during the lease period are non-deductible. The following expenses are deductible: 

• Interest paid during lease terms
• Maintenance costs
• Repair costs
• Other expenses related to leasing business assets 

The write-off costs will reduce your profit. You may be able to use the small projects investment allowance (KIA); this is an additional allowance. This will further reduce your taxable profit, which means you will pay lower taxes. 

VAT and financial leasing 

If you enter into a financial leasing contract, you will be charged VAT on delivery of the leased business asset. The VAT you paid is deductible as a preliminary tax. This does require that your business provides services eligible for VAT. No VAT is charged on your lease payment instalments.

Operational lease

Operational lease means that you rent the asset. You periodically pay a lease amount to the lease company.

Income tax and operational lease

With an operational lease, you are not the owner of the asset. That is why you cannot write off the value of the asset. Nor can you use the small projects investments allowance. These costs you can deduct:

• leasing fees (monthly instalments)
• other usage costs (such as car washing and toll booths)

VAT and operational lease 

With operational lease, VAT is charged for each instalment. Like VAT on other expenses, this VAT is deductible as preliminary tax. This does require that your business provides services eligible for VAT.

Personal use of a business lease car

When you lease a company vehicle which you also use for personal purposes, you may need to deal with an additional tax liability  (in Dutch) on your income and a correction of the VAT rate. This applies to both financial leasing and operational leasing.

Private lease

Instead of leasing a vehicle for business purposes, you can also lease one privately. This is known as private lease. You pay all expenses related to the vehicle privately. You will not have to deal with the addition to the income tax. You will receive a mileage allowance for professional use of the vehicle.