In income tax, there is already a favourable treatment for company bicycles, but as far as VAT is concerned, there is still room for improvement. No specific regulations exist yet, and the general rules on VAT deduction are not really attractive for company bicycles. This applies when you, as an employer, make a company bicycle available to your employees either free of charge or against payment of a personal contribution.
Company bicycle available free of charge
If, as an employer, you buy or lease a company bicycle and make it available to your employees free of charge, the professional use of the company bicycle must be taken into account for VAT purposes.
Mainly private travel
For VAT purposes, commuting between home and work, both by company car and company bicycle, is considered as private travel. Only professional travel is considered as travel for professional purposes. Take, for example, driving to customers or suppliers, and commuting between different company sites or offices.
In practice, however, most company bicycles are used privately and for commuting. Therefore, there is (almost) no professional use and consequently no VAT deduction for the purchase or lease costs of the bicycles and their accessories. Providing a company bicycle free of charge therefore does not lead to favourable VAT treatment.
No flat-rate deduction
The methods for determining the VAT deduction for company cars and fiscal light trucks do not apply to bicycles. In the case of company cars, the VAT authorities allow a flat-rate deduction of 35% insofar as one company car is made available per user and that percentage is applied to all company cars. This flat-rate deduction is even granted for company cars that are made available as part of the wage policy, the so-called salary cars, without having to prove that they are actually used for professional purposes. However, such a flat-rate VAT deduction does not yet apply to company bicycles.
In recent years, however, granting a company bicycle has also become part of employers' wage policy. It therefore no longer seems justifiable that a similar arrangement does not yet expressly exist for company bicycles.
Company bicycle available subject to a personal contribution
If, as an employer, you make a company bicycle available subject to a personal contribution, you are providing a VAT-taxed rental service to your employee from a VAT perspective. This is also the case if the personal contribution consists of a net deduction from the salary, a so-called salary sacrifice.
Since the purchased or leased company bicycle is in fact rented out, you may, as an employer, deduct 100% of the VAT on the purchase, maintenance and repair costs.
What is the normal value?
If, as an employer, you provide such a rental service to your employee in return for payment, you must at least pay VAT on the normal value of the service, i.e. what would have to be paid to an independent counterparty, irrespective of the amount of the personal contribution. This avoids you being entitled to a 100% deduction for the purchase of the bicycle, while the employee's personal contribution is ridiculously low and disproportionate to what you would charge if you rented the bicycle to an unrelated third party.
For the provision of movable items other than passenger cars, such as company bicycles, the VAT authorities have included some formula in one of their circulars to calculate this normal value.
- You bought a company bicycle for more than 1,000 euros excl. VAT
The company bicycle is considered to be a VAT-taxable business asset subject to the 5-year review period. The determination of the normal value for the annual rental is based on the following formula:
(Purchase price/5 + costs) x (100% - % professional use)
- You bought a company bicycle for less than 1,000 euros excluding VAT
The company bicycle is not regarded as a VAT-taxable business asset. The normal value is calculated as follows:(Purchase price + costs) x (100% - % professional use)
- You rent a company bicycle
If you rent the bike as an employer, the normal value will be calculated as follows:
(Rental price + costs) x (100% - % professional use)
Here, too, the percentage of professional use of the company bicycle plays a role. And precisely because this is very limited for a company bicycle, it will usually lead to a higher normal value.
In practice, from a pragmatic point of view, one could consider taking the employer's lease price as the normal value for VAT purposes when an employer leases bicycles. In this way, the VAT deduction on the lease cost is equal to the VAT paid.
It should be noted that in practice rulings have already been issued in which it is stated that the normal value is higher than the lease price paid by the employer (see e.g. Advance ruling 2018.0562 dd. 10.07.2018).
We may conclude from the above that the VAT regime of making a company bicycle available in return for payment is not yet firmly in place and that an administrative position on this matter could already bring a great deal of relief.
Need for updated rules
The VAT treatment of the company bicycle is not yet 100% complete. The general principles are inadequate. A flat-rate deduction such as for company cars could make the VAT treatment less unfavourable. Questions also arise concerning the calculation of the normal value. Additional legislation and clarification by the tax authorities is certainly welcome.
Do you still have questions about this matter or would you like advice? You can always contact our VAT experts.