As a result of public finance consolidation in Slovakia, legislative changes have been adopted that fundamentally adjust the conditions for Value Added Tax (VAT) deduction for passenger cars from January 1, 2026. These measures bring new obligations and limitations for taxable entities, requiring timely preparation and reassessment of investment plans.
The most significant novelty is the introduction of an automatic limit on tax deduction for vehicles where exclusive business use is not proven. Companies will thus face a strategic decision whether to accept a half claim for VAT refund or undergo a strict administrative burden associated with detailed proof of journeys.
Limitation of the Right to Deduct VAT to 50%
The new legislation introduces a rule from 2026 that limits the right to deduct VAT upon the acquisition of a motor vehicle to the level of 50%. This provision applies if a taxable entity acquires a vehicle (by purchase or lease) and uses the vehicle in question for purposes other than business purposes as well.
The changes affect specific vehicle categories:
- Category M1 (passenger motor vehicles),
- Categories L1E and L3E (including electric scooters and motorcycles).
The mentioned limitation does not apply to freight motor vehicles, which is essential information for the logistics and construction sectors.
Legislation extends the scope of the 50% limit not only to the actual acquisition of the vehicle but also to related goods and services. If the vehicle is used in a mixed regime, the half claim for tax refund also applies to expenses for service, maintenance, purchase of accessories, or operating fluids.
Conditions for Claiming 100% VAT Deduction
The VAT Act retains the possibility of claiming a full tax deduction solely in cases where the payer uses the motor vehicle exclusively for business. The legislation defines business in this context primarily as:
- short-term vehicle rental,
- transport of persons and luggage (taxi services),
- operation of a driving school (training vehicles),
- use of vehicles as demonstration, test, or replacement vehicles in a service center.
An alternative is a declaration by the taxable entity that the vehicle will serve exclusively for business purposes. However, this option is conditioned on meeting strict administrative requirements, specifically keeping a detailed electronic mileage log, the aim of which is to prevent unauthorized claiming of the full deduction right.
Administrative Burden: Electronic Records
Taxable entities that decide to apply a 100% VAT deduction are required to keep demonstrable mileage records. These records are kept separately for each motor vehicle and must contain identification data (VIN number, vehicle registration number) and odometer reading (at the start of record-keeping, at the end of each tax period, and upon termination of record-keeping).
The record of each individual journey must contain six mandatory attributes:
- Sequential number of the journey,
- Date and time of the start and end of the journey,
- Place of the start and end of the journey,
- Name and surname of the driver,
- Purpose of the journey,
- Number of kilometers driven.
From the perspective of formal correctness, the technical security of these records remains an open question. The Accounting Act requires an element of unalterability for accounting records. Common spreadsheet editors (e.g., Excel) that allow retrospective editing of data will likely not meet legislative requirements for the credibility of the record. The issuance of a guideline from the Financial Directorate is expected, which will clarify whether the form of scanned documents will be acceptable or if specialized software will be required.
The record-keeping obligation also applies to all purchased goods and services. The entrepreneur must be able to assign a specific tax document to a specific vehicle in the records. Archiving of these records is set for a period of 10 years for tax audit purposes.
Notification Duty and Transitional Provisions
A taxable entity applying a 100% deduction is required to notify the tax administrator of this fact. During the transition to the new legislation, the following rules apply:
- Vehicles acquired by December 31, 2025: The obligation to notify exclusive use for business does not apply to vehicles acquired in the current year. These vehicles are governed by current rules.
- Long-term lease: For existing lease agreements, an obligation arises to notify the registration number of the vehicle used exclusively for business by the deadline for filing the first VAT return in 2026.
- Vehicles acquired in 2026: For new acquisitions, a notification obligation arises via a specific form.
From an economic and administrative point of view, the acquisition of a vehicle by the end of 2025 appears to be a more advantageous alternative. It allows proceeding according to current VAT deduction rules and eliminates the notification obligation associated with the new regime.
Model Example: Impact on Accounting and Income Tax
To illustrate the impacts, let us consider the acquisition of a vehicle in 2026 valued at €20,000 + €4,600 VAT (total price €24,600).
In case the vehicle is not used exclusively for business, the taxable entity is required to reduce the VAT deduction by 50%:
- €2,300 represents the claimable VAT deduction.
- €2,300 represents VAT without a right to deduction.
A key aspect is the impact on income tax. According to the amendment to the Income Tax Act, the part of the VAT for which no right to deduction arose (in this case €2,300) is not recognized as a tax expense. A disparity thus arises between the accounting acquisition price and the tax acquisition price, which has a direct influence on the calculation of tax depreciation and the increase of the tax base.
The year 2026 will bring a change in the approach to company vehicle management for the business sector. Entities will face a choice between increased administrative burden (associated with keeping detailed records for 100% deduction) and increased costs (associated with 50% VAT reduction and tax non-deductibility of the non-deducted tax).
The issue requires a comprehensive assessment, as not only the provisions of the VAT Act enter the process, but also related regulations in the area of income tax, accounting, and travel allowances.
If you need help setting up financial processes so that you maximize both the VAT refund and tax expenses, do not hesitate to contact us.
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