Supplementary information has been published by the Tax Authority regarding the deductibility of the input VAT related to the rental of cars which are used for both business and private purposes. In many cases the previous practice might be affected by this supplementary information.

As of 1 January 2019, based on Point b) of Section 124. § (4) of the VAT Act, 50% of the input VAT related to car rental may be recoverable if the car has been involved in the business activity of the taxable person in question.

In accordance with this latest statement, the requirement that the rented car shall be involved in the business activity of the taxable person (i. e. that the rental shall even partially serve for taxable business activity) shall be fulfilled related to each transaction, i. e. the requirement shall be fulfilled related to each specific supply. In practice this means that if the lessor invoices the rental fee monthly, the usage of the car for business purposes (even if it is minimal) should be verified monthly as well.

In order to prove that the car has also been used for business purposes, any document (even if it is an email) may be sufficient that has been issued in the ordinary course of business and which verifies that the usage for business purposes has occurred on the basis of its content.

Based on the wording of the update, the interpretation above is applicable from the date the new rule regarding the deductibility came into force, i. e. from the beginning of the year 2019.

We remain at our clients’ disposal regarding any questions that may arise.