VAT on electric cars: what to look out for

Tax reliefs available, but no mercy on VAT in Hungary

electric cars

Purchasing and upkeeping electric cars – besides it having a lower negative impact on the environment in terms of pollutant emissions compared to vehicles with internal combustion engines – can be financially beneficial both for private individuals and business entities in Hungary. Despite being generally more expensive, the total cost over their useful life can be lower than that of a non-electric car. Thanks to their green licence plate, you can park free of charge in certain parking zones, and the cost of fuel and servicing are typically lower than that of petrol or diesel cars.

Tax reliefs

From a taxation point of view there are a number of tax allowances and other reliefs concerning electric cars that have an incentive effect, it suffices to think about the exemption from registration tax, vehicle tax and property transfer duty. In addition to this, business entities can claim relief with regard to electric cars in the form of company car tax exemption, while in certain cases a corporate tax allowance for investments serving energy-efficiency purposes may also be claimed when purchasing electric cars.

Electric cars in the VAT Act

On examining the VAT Act, however, it seems that the Hungarian VAT system is not progressive enough and does not really prioritise electromobility over conventional vehicle drive systems. In certain countries, VAT exemption is applicable to the purchase of electric cars as a form of government grant, or like in Slovenia, deduction of input VAT on the purchase of an emission-free vehicle up to a certain amount or on the purchase of fuels, lubricants, spare parts and services for these motor vehicles may be deductible, but this is not the case in Hungary. Based on the VAT Act, when purchasing a car the input VAT may not be deducted (only in certain special cases, e.g. for hearses, or if the purchased car is rented out). VAT may not be deducted even if the purchased car serves the economic interests of the company, such as a regional representative’s company car that is clearly used mostly for visiting clients. In addition, only half of the VAT charged for the maintenance and operation of the car can be deducted (and only since 2019).

In the spirit of the other tax laws, it might be time to modernise the Hungarian VAT law as well. If full VAT exemption cannot be applied for electric cars with reference to the significant loss of tax, electric cars could at least be exempted from the above-mentioned deduction ban and limitations.

VAT on charging electric cars

In our view, however, the greatest difficulty and administrative burden is caused by the VAT on charging electric cars. This is because, in line with the VAT Act, the fuel used in passenger cars is also subject to a VAT deduction ban, and electricity is no exception here. Charging the car in this context is not a problem, if, for instance, you buy the electricity from a company specialising in charging electric cars (the number of companies operating charging stations for electric cars is rapidly growing in Hungary). The complication arises if an employee parks their electric company car in the company car park and plugs the car in to charge it from the mains. Since there is no separate meter it is very difficult to say how many kW of power was used to charge the electric cars (where the VAT cannot be deducted), and so the Hungarian tax authority would probably question the deductibility of part of the VAT of the electricity bill. Naturally, this problem also emerges when employees are allowed to charge their own electric vehicles at the company when there is no separate meter installed to measure how much electricity is used for that purpose. This means that employees charging their electric cars at the company generates a tax risk for the company, despite best intentions.

With the spread of electric cars in Hungary, companies may be faced with introducing a number of modern solutions where the tax implications and risks should be assessed beforehand. If your company is one of them, we recommend you contact our tax experts who have extensive experience in the field of assessing tax risks.

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