A common question that we receive here at Elevate is about buying a car through their Portuguese LDA versus buying a car using their personal funds (outside of the business). For this example we’re assuming readers are looking for a “normal” 5 passenger car, not a specialized commercial vehicle, and will use the car for business purposes.
Additionally, there are different benefits that come with buying a car versus leasing a car. Overall, the benefit of purchasing or leasing a car through the business may include tax incentives, reclaiming VAT (up to 23% of the purchase price), and expensing the cost of the vehicle and maintenance through the business, which reduces your taxable income. The ability to use these benefits depend on the how the vehicle is used and classified.
For small business owners in Portugal, acquiring a vehicle for business purposes is an important decision with significant financial and tax implications. The choice between buying or leasing a vehicle, as well as whether the vehicle is electric or gas-powered, can affect your company’s bottom line.
This guide walks you through the key differences between buying and leasing an electric vehicle (EV) and a gas-powered car, clearly illustrating the financial impact over 5 years. It also highlights one of the most important benefits of acquiring a car through your business: the tax savings from reducing your taxable income.
Also read our previous blog- “How to add your email and phone to the tax-portal so you don’t get locked out”
When you buy an electric car for your business, you could benefit from 100% VAT deductibility as long as the List Price of the vehicle is less than €62,500. If your car costs more than €62,500 than there is zero VAT recovery, so the list price of the car makes a big difference. There are also certain tax exemptions specific to EVs we’ll discuss. However, buying involves a large upfront investment, and ongoing taxes, such as the autonomous tax, must be considered.
Leasing an electric car allows you to avoid the large upfront investment of buying. Instead, you pay a fixed monthly fee, which is fully deductible, while also benefiting from 100% VAT deductibility on lease payments.
Gas-powered cars are subject to higher taxes in Portugal, including IUC (Imposto Único de Circulação) and higher autonomous taxes. Additionally, VAT is not deductible for passenger gas-powered vehicles, making them more expensive to own compared to EVs.
Leasing a gas-powered car avoids the upfront costs of buying but still lacks VAT deductibility. Autonomous taxes also apply but are lower than for buying.
For this comparison we made a lot of assumptions, including the cost of leasing a car compared to buying a car, the resale value of the car at the end of 5 years, and more. The goal here is to illustrate what all these moving parts might look like, but you’ll need to calculate the numbers specific to your situation.
Option | Electric: Buying (€) | Electric: Leasing (€) | Gas: Buying (€) | Gas: Leasing (€) |
|---|---|---|---|---|
Total Costs (5 Years) | €85,600 | €84,240 | €183,600 | €86,400 |
VAT Savings | €13,800 | €13,800 | None | None |
Depreciation Deduction | €60,000 | N/A | €60,000 | N/A |
Autonomous Tax | €30,000 | €6,000 | €105,000 | €21,000 |
IUC Tax | Exempt | Exempt | €2,000 | €2,000 |
Resale Proceeds (After Tax) | €23,700 | N/A | €23,700 | N/A |
Operating Costs | €10,000 | €10,000 | €15,000 | €15,000 |
Tax Savings from Expenses | €25,200 | €14,700 | €29,400 | €14,700 |
For this comparison we made a lot of assumptions, including the cost of leasing a car compared to buying a car, the resale value of the car at the end of 5 years, and more. The goal here is to illustrate what all these moving parts might look like, but you’ll need to calculate the numbers specific to your situation. Using our example and it’s assumptions, here are the takeaways:
In our example, electric vehicles had the best financial incentives for small business owners in Portugal due to tax incentives, VAT deductibility, and lower autonomous tax and operating costs.
Between buying and leasing:
For gas-powered cars, leasing was more affordable, but switching to an electric vehicle is the most cost-effective choice overall.
Please note that this article is for informational purposes only. It’s written to the best of our understanding as of the time of the writing and is not meant to be specific financial advice. Please discuss with your own legal and accounting advisors to determine the impact of buying or leasing a vehicle as it relates to your situation.