# A car, a vessel or an apartment in the company: which costs corporate income tax recognises

> The 50 per cent rule for passenger cars, the EUR 54,000 depreciation limit, and the income conditions of 7 per cent for vessels and 5 per cent for apartments — what the tax authority recognises and what increases the corporate income tax base.

Source: https://lazeta.hr/en/news/company-cars-vessels-apartments  
Category: CORPORATE INCOME TAX  
Author: Ivan Lažeta, certified tax adviser

A car in the company, a yacht in the company, an apartment in the company — the three most common forms of assets where private and business use become intertwined, and three areas for which the Corporate Income Tax Act has special, strict rules. Those who do not know them return duly booked expenses to the tax base — often only in an audit, with interest. Here is how those rules work.

## Passenger cars: the 50 per cent rule

The tax base is increased by 50 per cent of the costs, with the corresponding VAT, of owned or leased passenger cars, vessels, aircraft and similar means used for transporting management and other employees — where no salary is determined on the basis of the use of those means. Insurance and interest costs are excluded, as are road motor vehicle and vessel tax and mandatory fees and charges on registration: these are recognised in full.

Exactly what falls within that 50 per cent depends on how the vehicle is used:

- a vehicle owned by the company — fuel and oils, maintenance and repairs, registration, depreciation

- rent-a-car — the fee and fuel costs

- a vehicle under an operating lease — the fee, fuel, maintenance and all other costs

- a vehicle under a finance lease — everything as for an owned vehicle

An alternative exists: if a benefit in kind is determined for the user of the vehicle on the basis of private use and income tax is accounted for on it, the tax base is not increased for those costs — the vehicle costs are then recognised in full. Which approach is more favourable is a matter of specific calculation: it depends on the value of the vehicle, the extent of the costs and the user's salary.

## Depreciation: rates and the EUR 54,000 limit

For passenger cars, the tax-allowable depreciation rate is 20 per cent per year, with a useful life of five years — and the prescribed rates may also be doubled. Depreciation is calculated individually, using the straight-line method, and runs as a tax expense from the first day of the month following the month of being brought into use.

But for means of personal transport a value limit also applies: depreciation is recognised up to EUR 54,000 of acquisition cost per asset. For the portion of acquisition cost above that amount, depreciation is recognised only if the asset serves exclusively a registered activity of hire or transport. A more expensive car is therefore not prohibited — but the portion of depreciation above the limit remains permanently at the company's expense. The general rule is also worth remembering: depreciation of assets not used to carry on the activity is not tax-recognised, even though accounting rules still require depreciation to be calculated.

## Vessels, aircraft, apartments and holiday homes: the 7 and 5 per cent rule

For this category of assets the rules are the strictest. Depreciation and the associated costs of vessels, aircraft, apartments and holiday homes are tax-recognised only subject to two cumulative conditions: the company must be registered for the activity of hiring out and transport by vessel and aircraft, or of hiring out apartments and holiday homes, and it must generate income from those assets of at least 7 per cent of the acquisition value of vessels and aircraft, or 5 per cent of the acquisition value of apartments and holiday homes — per year.

In practical terms: a yacht with an acquisition value of EUR 500,000 must bring the company at least EUR 35,000 of income per year for its costs and depreciation to be recognised. If the assets are used through a lease, an additional rule applies — the lease cost is recognised only if income has been generated at least in the amount of that cost. A yacht or an apartment in a company without genuine commercial exploitation is therefore the most expensive possible arrangement in tax terms: costs unrecognised, while the question of private use also opens up the topic of withdrawals and hidden profit distributions, which in an audit are increased by VAT, income tax and contributions.

## From the same family: entertainment and shortages

Alongside vehicles and vessels, other increases of the tax base concerning the boundary between business and private follow the same logic. Entertainment is recognised at 50 per cent, with the corresponding VAT — and the exception for individual value up to EUR 22 excluding VAT relates to promotional items bearing the name of the company or product and products from the company's own range marked not for sale, which is regarded as promotion rather than entertainment. Shortages of assets are recognised up to the level established by a decision of the chamber of commerce or the chamber of trades and crafts, and above that they increase the base. And a general rule that applies to most of these items: the base is not increased if income tax has been accounted for on the expense — the cost then changes its nature and becomes a receipt of a natural person.

## Conclusion

Assets serving both business and private purposes are the most sensitive point of a corporate income tax return: the 50 per cent rule for cars, the EUR 54,000 depreciation limit and the income thresholds of 7 and 5 per cent for vessels and apartments are precisely defined and easily verified in an audit. Before acquiring more valuable assets through a company it pays to calculate both scenarios — an increase of the base or a benefit in kind — and to check whether the income condition can realistically be met. Feel free to get in touch to have a specific situation analysed.

*This article is informational in nature and does not constitute tax advice for any individual case.*

**Contact:** ivan@lazeta.hr · +385 92 350 8437 · Štefanovečka cesta 10, 10000 Zagreb, Croatia