Businesses often wonder whether it would be advantageous to sell a company car that is no longer in use for a symbolic amount, such as 1,000 HUF, to an employee, a company owner, or an independent third party. While this may seem like a simple solution, it can have significant tax implications for both the company and the buyer. The identity of the buyer greatly influences tax obligations and how the tax authorities assess the transaction.
The Selling Price Is Not Always the VAT Base
Many overlook the fact that the selling price is not always the VAT base. The VAT law may require the market value to be considered, especially if the sale occurs at a discount between related parties.
If a company car is sold to an employee or a company owner for a fraction of its market value, the VAT base may not be the selling price but rather the vehicle’s actual market value. Given the varying interpretations of VAT assessment depending on the circumstances of the transaction, consulting an accountant or tax advisor is highly recommended.
Market Value vs. Symbolic Price
Determining the market value is crucial, as tax authorities may review this in case of an audit. One of the most reliable sources for market value assessment is the Eurotax system, which considers the following factors:
- The brand and model of the vehicle
- Year of manufacture and mileage
- Equipment and overall condition
- Market trends and current depreciation
Since tax authorities often rely on Eurotax values, a significantly low selling price might prompt them to consider the Eurotax or other market sources when establishing the tax base. More information about the Eurotax system is available on their official website: Eurotax.
Who Buys the Car?
The identity of the buyer significantly affects taxation and contribution liabilities:
- Employee: Selling at a reduced price may be considered employment income. This means that the employer must pay social contribution tax (SZOCHO) if under the corporate tax (TAO) regime, or the amount may increase the KIVA base if under the small business tax (KIVA) regime. The employee is also liable for personal income tax (PIT) and additional contributions (e.g., pension and health insurance contributions).
- Company Owner: The transaction may be classified as other benefits, which could be taxed as dividends or in-kind benefits. In such cases, the discount may also increase the company’s tax base, and the owner may be subject to PIT and either SZOCHO (if under TAO) or KIVA.
- Independent Third Party: If the vehicle is sold at market value to an unrelated third party, the transaction is treated as a regular sale. VAT and other tax obligations apply based on standard commercial sales rules, typically without additional contribution liabilities.
The Company’s Tax Obligations: KIVA vs. TAO
The company’s tax regime also plays a role in determining the financial impact of the sale:
- Under KIVA, the discount granted in the sale may increase the tax base, subject to a 10% KIVA tax.
- Under TAO, selling below market value may be considered a tax base-increasing item, leading to corporate tax liability.
Plan Ahead to Avoid Unexpected Taxes
Although selling a company car at a reduced price may seem straightforward, it can lead to significant tax burdens. Before proceeding with such a transaction, businesses should seek expert advice to ensure compliance with tax regulations and avoid unexpected tax liabilities.
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