Car tax objects and payers

According to the Vehicle Operation Tax and Corporate Light Vehicle Tax Act (Car Tax Act) car tax is paid by  merchants, branches of foreign merchants or farms for a light (passenger) vehicle[1] registered in a taxpayer’s ownership or holding, or used on the basis of employment contract or lending agreement.

According to the Commercial Code[2] merchant is a natural person (individual entrepreneur) or a corporation (a partnership and a corporation) registered in the commercial register. For example, the permanent establishments which are not registered in the commercial register, or self-employed person are not treated as tax payers according to the Car Tax Act.

Car tax is not applicable to the vehicles which do not meet criteria set under the Article 10 of the Car Tax Act. Information about vehicle types can be found in the vehicle registration certificate.

The Car Tax Act does not provide for the possibility of paying car tax voluntarily. If according to the Car Tax Act a person is not considered as taxpayer or vehicle is not considered as a tax object, but despite the fact the car tax is actually paid, expenses for maintenance of vehicle, including fuel costs are attributable to expenses related to business activities only based on prepared records of business trips. Whereas, wrongly paid car tax will be considered as non-business expenses which is increased by coefficient of 1.5.

Car trips records and expense deduction

Under the Article 14 of the Car Tax Act there are listed cases where an exemption of car tax applies, like car tax is not charged if the light vehicle is used solely for business purposes. In such case, there shall be prepared records of performed business trips by using a route control system set in a vehicle – i.e. equipment that is equipped with a global positioning system (GPS). Besides the vehicle should be declared at Road Traffic Safety Office (special registration), indicating the route control system provider's name and registration number.

If car tax is paid, vehicle maintenance costs are attributable to business related expenses in full, regardless of carried out business related trips and trips for personal use.

In that case, for cars should be prepared trip records in simple arrangements, indicating:
1) vehicle identification data (model, state number);
2) number of kilometers traveled and fuel consumed based on odometer readings at the beginning and end of the month and fuel consumption standards.

Regarding to fuel expenses, when car tax is paid or exemption is applicable, they are deductible on the basis of the kilometers driven and the vehicle's fuel consumption norm per 100 kilometers which, in turn, cannot exceed the manufacturer's designated urban cycle fuel consumption norm by more than 20%. Manufacturer's specified urban cycle fuel consumption norm for particular car can be found on the specific vehicle's technical handbook, or asked to specific car brand dealers. Excess of consumption norm is considered as expenses not related to business activities, which shall be increased by the multiplier of 1.5.

In addition to the above-described, there are also problems with car tax application, such as holder registration in situations where:

  • company rents from individuals a light vehicle and which, in turn, acquired on lease arrangements and ownership has not been transferred yet (starting from year 2016, this problem will be partly solved);
  • company rents from another company which does not have car tax exemption, a light vehicle and which in turn has been bought on lease arrangements and ownership has not been transferred yet.

[1] Article 10 and 11 of the Car Tax Act
[2] Part 1 of the Article 1 of the Commercial Code

Contacts of Advisory unit

If you have any questions or need more detailed information, please contact: Ina Spridzāne (ina.spridzane@leinonen.lv, tel. 67358635) or Kristine Erele (kristine.erele@leinonen.lv, tel. 67358600).

If you are interested in the news of tax, employment and other business-related legislation in Estonia and Lithuania, please visit http://leinonen.ee/news and http://leinonen.lt/news/news-2015.