Tax Deductibility of Input Tax on Leases for Small Passenger Vehicles
Operating Lease – Input Tax Deductible
1. Usage Scope: the vehicle is not limited used by high-ranking management only.
2. Central –Management: The vehicle is managed by the company itself instead of by individual employees.
3. Not Employee Rewards: The vehicle is not provided as a reward or benefit to individual employees.
4. Limited to Business Use: The vehicle is used for the company’s principal and ancillary business operations.
Financial Lease – Input Tax Non-Deductible
1. Transfer of Ownership: If, at the end of the lease period, the ownership of the vehicle transfers to the lessee.
2. Purchase Option: If the lessee has the option to purchase the vehicle during the lease term at a price significantly lower than its fair market value at the time of purchase.
3. Lease Duration: If the lease period covers 75% or more of the vehicle’s economic life.
4. Present Value of Lease Payments: If, on the lease commencement date, the present value of the total minimum lease payments is 90% or more of the vehicle’s fair market value.
5. Transfer of Risks and Rewards: If sufficient evidence shows that the risks and rewards associated with ownership of the vehicle have been transferred to the lessee.
