The Taichung Branch of the National Taxation Bureau of the Central Area stated that a company was recently found to have leased two 7-seater passenger vehicles for exclusive use by senior executives for client visits and commuting. Although the company paid business tax on the lease, the case did not meet the criteria for input tax deduction and was therefore subject to a tax reassessment and penalty.

According to the Ministry of Finance Directive No. 11004648950 issued on January 7, 2022, if a business leases a passenger vehicle with fewer than nine seats and it is not used for the sale of goods or provision of services, the input tax paid on such leasing expenses is not deductible if any of the following five conditions apply, as the lease is deemed to have the nature of an installment sale:

1. Ownership of the vehicle is transferred to the lessee at the end of the lease term;
2. The lessee has the option to purchase the vehicle during the lease period;
3. The lease term covers at least three-quarters of the vehicle's economic life;
4. The present value of minimum lease payments at lease inception is 90% or more of the vehicle’s fair value;
5. Other evidence demonstrates that the risks and rewards incidental to ownership have substantially transferred to the lessee.

On the other hand, if a leased vehicle does not meet the above criteria, is not limited to specific managerial levels, and is centrally or uniformly managed by the company for business or related operations, then the input tax on the lease payments may be deductible against output tax.

The Tax Bureau reminds all business entities to carefully manage and document the actual usage of leased vehicles, retain all relevant supporting documents, and file taxes accurately based on actual use. Failure to comply may result in reassessment, penalties, or other tax disputes.

If you have any questions, please call our toll-free service number 0800-000321 for consultation, and we will do our best to serve you.

Contact person: Sales Tax Section, Ms. Liao
Tel: (04)22588181 ext.338.