With the General Law of the State for 2015, some changes were introduced to the taxation of companies related to vehicles expenses, as well as to the taxation of employees for the private use of company’s vehicles.

For both entities, the company and the employee, the existence of a written agreement setting the private use of the company’s vehicle by the employee is essential to define who will be subject to taxation.

I. Fiscal effects for the company

Depending on the existence, or not, of a written agreement signed between the company and the employee allowing the private and permanent use of the company’s vehicle, such taxation can be change from 0% (total exemption) up to 45% of the total expenses supported by the company with that vehicle.

In fact, in accordance with article 88 of the Portuguese Corporate Income Tax Code (CIT), depreciation costs, rentals, insurance, maintenance and repair, fuel and other taxes related to light passengers and goods vehicles, excluding those powered by electric energy, supported by companies and acquired from January 1st 2015, are subject to autonomous taxation, in accordance with the following rates:

►► 10% in the case of vehicles with acquisition cost lower than €25.000
►► 27,5% in the case of vehicles with acquisition cost equal or higher than €25.000 and lower than €35.000
►► 35% in the case of vehicles with acquisition cost equal or higher than €35,000.

The indicated rates are increased in more than 10% if the company presents tax loss in the exercise related to the vehicle expenses. That means, whenever the company has a negative tax result, expenses supported with light passenger and goods vehicles, acquired from January 1st 2015, are subject to autonomous taxation in accordance with the following rates:

►► 20% in the case of vehicles with acquisition cost lower than €25.000
►► 37,5% in the case of vehicles with acquisition cost equal or higher than €25.000 and lower than €35.000
►► 45% in the case of vehicles with acquisition cost equal or higher than €35.000.

However, as mentioned above, these costs are excluded from autonomous taxation in the scope of the company, provided that there is a written agreement between the company and the employee establishing the permanent assignment of a specific vehicle from the company for the private use of the employee and, consequently, the acceptance of that by the employee.

In this sense, the benefit derived from the private use of company’s vehicles consubstantiates an accessory remuneration of the employee, therefore the company will not be subject to autonomous taxation regarding the supported expenses with these vehicles.

II. Fiscal effects for the employee

In accordance with article 2 of the Portuguese Personal Income Tax Code (PIT), the private use of vehicles that generates costs for the company, whenever there is a written agreement signed between the company and the employee establishing the permanent allocation of a specific vehicle to the employee, is considered as employment income, therefore the taxation will occur within the scope of the employee.

Without this written agreement, the private use of the company’s vehicle is not considered as employment income for tax purposes, therefore it will be not subject to taxation in the scope of the employee.

When a written agreement establishing the private use of the company’s vehicle by the employee exists, this benefit is considered as employment income performed in kind, thus this implies its quantification for tax purposes.

According to the PIT Code, the quantification of this employment income in kind corresponds to 0,75% of the vehicle’s market value, reported to January 1st of each year, times the number of months of the vehicle use.

Despite of being subject to PIT taxation, as this benefit has the nature of remuneration in kind, it is not subject to withholding tax.

For Social Security purposes, in accordance with the Portuguese Contributory Code, the base of incidence corresponds to 0,75% of the acquisition cost times the number of months of the vehicle utilization.

However, according to general rule, this benefit does not constitute basis of incidence for Social Security contributions in the months in which the employee has rendered supplementary services in their mandatory weekly rest days.

III. Conclusión

Due to this new tax regulation, a trend change is expected in the taxation of light vehicles from companies used by workers: while previously taxed at the Corporate Income Tax, is now likely to be taxed in the Income Tax for Individuals as part of wages in kind to the employees themselves.

This will happen given that:

(i) The vehicle’s expenses are exempt from taxation in companies where there is a written agreement with the employee to whom was attributed the vehicle.
(ii) The flat taxation that affects the vehicle’s expenses becomes increasingly high to companies.