In practice, we regularly face questions about what is a representative car, whether there are opportunities to buy it at a discount and whether there are any opportunities to circumvent the procedure when purchasing it!? How it should be done!?
In accordance with the Law of the Republic of Latvia “On Corporate Income Tax”, the value of a representative car is determined by its acquisition value or book value during the entire period of use of the car, taking into account the higher of the values. Thus, the purchased car never loses its status as a representative car. In addition, if it did not initially have the status of a representative car, it can be obtained later. The carrying amount includes the purchase price (net of discounts received), non-deductible taxes and fees associated with the purchase, as well as expenses directly related to the delivery of the car to the place of use and its preparation for the intended purpose and incurred until the car is prepared for that purpose. The book value does not take into account the expenses related to the mandatory annual maintenance of the car.
The law also stipulates that the purchase value of a representative car is determined taking into account the costs of improvements made in the 12-month period after its purchase. Thus, there is practically no possibility to circumvent certain procedures, in order to reduce the value of the car and the value of the car for VAT and CIT purposes can no longer be divided or reduced by invoicing over time for installed navigation and cruise control devices, music systems, displays or similar items, mounted on the car later, when in fact it is not.
In the case of a rented car, the value of the representative car is considered to be the basis for determining the value of the representative car, or if it is not specified, it is based on the value of the car specified in the insurance policy.
The value of a representative car is not reduced by the fact that the excess value without VAT would be covered by a company employee or a member of the board, as well as the most common mistake is is in a situation where the first installment is given to the car seller by giving the old car and making a set – off.
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