Encouraged by tax changes of 1st March 2012 and some misconceptions that are circulating these days, in relation to personal vehicle in the business, hereinafter we give the basic notes: First about misconception Misconception: "The cars for personal use can not be bought anymore on the company." This of course is not true. Why? Because personal vehicle has a function in the business and basically represents the company's assets (crafts) as well as all other assets. What is not allowed is to purchase a personal vehicle on behalf of the business, with the intention of using exclusively in private purposes, while there is no economic benefit for society (further providing vehicles for rental-leasing). This also applies to other types of assets and expenses. It should be noted that the tax regulations generally do not define what is allowed to buy or not, but how to calculate taxes in a particular situation. Why the vehicles for personal use have a special tax treatment? Because they are the subject for the most often abuse of tax legislation. How it is in a human nature to take advantage of opportunities, and some of them go really too far, the reaction of the legislator is usually the abolition of misused benefits, and got hurt those who played correctly. Thus, in the unpopular category with cars are included motorcycles, boats, planes and other assets for personal use. VAT The news regarding the amendments to the Law on Value Added Tax (Art.20, para. 11a) is that entrepreneurs from 01st March, 2012 can not recognize tax prepayment (VAT on income invoice) for purchase and rent of boats intended for leisure, airplanes, cars and other means for personal use, including the supply of all kinds of goods and services in relation to these goods. Exceptionally (Art. 20 para.12 of the Law on VAT), entrepreneurs who purchase boats and aircraft which perform the activity of transportation of passengers and goods and renting or purchase for resale, or in the case of personal vehicle and other means of transportation for driver training, vehicle testing, customer service, transport of passengers and goods, transport of deceased, renting or purchasing for resale, tax prepayment can still be used entierly. For personal vehicles purchased till 31st December,2009, where the tax prepayment is used during purchasing in the full amount (100%) and still is valid calculation of VAT of 30% of the accrued depreciation. When an entrepreneur sells the vehicle for which it was not possible to recognize tax prepayment, so that was purchased after 01st March, 2012, VAT is not charged. Then the customer pays a special tax of motor vehicles at the rate of 5%. For vehicles purchased before that date, while further sales the VAT will be charged. If the entrepreneur bought / purchased a vehicle from a person who is not obliged to pay VAT (during purchasing he pays sales tax on motor vehicles), then during the further sales the VAT will be charged. Profit tax From the point of recognition of costs related to the vehicles for personal use there were no changes. These costs continue to be tax recognized in the amount of 70% of the total cost, while 30% are not tax deductible. As before, the cost of purchasing over 400.000,00 HRK represents the tax deductible cost, and the cost of vehicle insurance and interest related to loans of purchasing of the same are fully deductible expense. When on the bases on the use of means for personal use determines the salary (benefit in kind), all expenses in connection with the personal vehicle are fully tax deductible. We continue to recognize fully the costs for personal vehicles that are used directly in the performance of certain activities, such as driving schools, taxi services, hire activities for transportation, roadside assistance and on water, performing activities and / or maintenance of gas, water and other installations, emergency services and other similar activities if funds for personal vehicles are used exclusively for such activity. Technically, the accountants, in cases when you can not recognize the tax prepayment, the total amount of the invoice (including VAT) becomes a cost of purchasing, and the distribution of costs of 70:30 applies to the overall cost of purchasing. Conclusion for the end In terms of the recognition of expenses related to the purchasing, rental and use of the vehicle for personal use, there is no change in the calculation of profit tax. The only change is the abolition of VAT in these cases.   Tibor Jankač