In this area, we will strive to clarify the main questions relating to tax matters under the scope of Long-Term Rental.

What is meant by an Advance?
The advance allows the rental charges to be reduced in exchange for an early down payment on part of the principal; a percentage that ranges between 10% and 40% is thus paid, of the car list price value, with a monthly charge then calculated proportionally to consider the remaining financial portion and services included. The amount paid by the customer will be invoiced, applying value added tax and constitutes a financial portion of the charges.

What is meant by deposit?
This is a non interest bearing deposit established according to the individual order. The lessor has the right to determine the amount of said deposit, with no specific limits applied except for those construed from the general principles of proportionality with respect to the interest to be pursued or guarantee of fulfilment of the obligations to make payment of the rental charges and accessory expenses. The amount paid by the customer will be invoiced Outside VAT application pursuant to Article 2, paragraph 3, letter a) of Italian Presidential Decree no. 633/42 and returned upon expiry of the contract.

Who has the right to total deductibility of the costs of the LTR?

  • Vehicles for public use;
  • Vehicles used exclusively as instrumental assets to the company’s business.

What is meant by instrumental vehicles?
Vehicles are only instrumental to a company’s business to the extent to which they are essential to its pursuit, meaning that the business could not be carried out without them (Tax Authority Circular no. 48/E - III - 17104 of 10 February 1998).

How does deductibility change in the case of non-instrumental use of the vehicle?
These are all cases in which the vehicle cannot be considered as instrumental (i.e. essential) to the company’s business but is available to it (Article 164, paragraph 1, Italian Presidential Decree no. 917/1986 - Italian Income Tax Code).

Who has the right to partial deductibility of the costs of the LTR and what does it consist of?
Vehicles granted to Business agents and representatives, namely those who permanently, in exchange for remuneration, agree to promote contracts in a given area (Article 1742 of the Italian Civil Code), using their own organisation and at their own risk. The agent is classed as a business representative when, in addition to promoting the conclusion of contracts, it also has the power to conclude them for and on behalf of the subject in whose favour he works.

 Vehicles granted to Professionals or those exercising arts and professions individually defines those who, using a specific educational qualification, carry out intellectual works without having employers and using a minimum number of people, means and capital (Article 2222 et seq. of the Italian Civil Code). The entrepreneur professionally goes about an organised economic activity for the production or exchange of goods or services (Article 2082 et seq. of the Italian Civil Code)

Simple company or association is a partnership that can only go about non-commercial business and is registered in a special section of Companies House (Articles 2251 and 2290 of the Italian Civil Code). An association, on the other hand, is a non-profit entity constituted by a set of natural persons or legal entities linked by the pursuit of a common aim (Article 14 et seq.).

When do we have mixed use?
Mixed use takes place when the means of transport is used both for work and personal reasons. (Resolution by the Ministry of Economics and Finance no. 6/DPF of 20 February 2008). We talk about mixed use when the employer assigns a specific employee the vehicle in order to go about the working duties but has also granted him personal use of it.

If the vehicle is granted for mixed use to an employee for a period of less than most of the tax period (< 180 days + 1), deductibility of the cost is as follows:

What are fringe benefits?
In all cases of mixed use (and therefore of use of the vehicle for both business and personal purposes), the employee benefits from remuneration in kind (a “fringe benefit”), which goes towards forming income and increasing the tax basis.

What is the tax treatment in the case of vehicles assigned to Directors?
Vehicles can be assigned to directors connected to the business by means of a collaboration contract.
The tax treatment varies according to the type of use:

    Mixed use takes place when the means of transport is used both for work and personal reasons (Tax Authority Circular no. 1/E of 19 January 2007).


    In this case, the assignment constitutes remuneration in kind to be valued at normal value (average rental charges) and, therefore, all deductible expenses within the limits to which they go towards forming said remuneration (Article 95 of the Italian Income Tax Code).

What is the definition of a lorry?
These are vehicles intended to carry objects and people, fit for the use or transport of said objects (Article 54, paragraph 1, letter d) of the Highway Code).

Can the costs incurred in the case of a vehicle registered as a lorry always be deducted in full?
No, there are some elements that affect the full or partial deductibility, regardless of how the vehicle has been registered.

What criteria should be applied to equate a vehicle registered as a lorry to a car?
(Tax Authority Provision no. 181492 of 06/12/2006)
The elements for the verification can be seen from the reading of the lorry log book. The lorry cannot benefit from full deduction if the log book states all the following indications:

  • Registration as N1;
  • F0 (f zero) bodywork code;
  • Four or more seats permitted for driver and passengers.
  • If all three the above characteristics are fulfilled, the calculation must be performed by using the formula given in the provision, namely:


If the ratio is < 180, the vehicle can be considered as a physical lorry, hence the costs incurred are 100% deductible (and VAT can be 100% deducted).
If the ratio is >= 180, the lorry must be considered for tax purposes as a car and the deduction will depend on how it is used.

For VAT purposes, in what cases is full deductibility permitted?
Vehicles used for the mixed transport of people and platform bodied or boxed with deep cabin or van with or without windows with an engine of more than 2,000 cubic centimetres or diesel engine in excess of 2,500 cubic centimetres (referred to as “luxury goods listed in table B) of Italian Presidential Decree no. 633/42), which are the object of the company’s business; the burden of proof lies with the company. (Article 1, paragraph 261, letter e) of Italian Law no. 244/2007 (the 2008 Financial Law).

  • Vehicles used as instrumental assets
  • Vehicles for public use
  • Business agents and representatives

For VAT purposes, in what cases is partial deductibility permitted?

  • Vehicles used by professionals.
  • Vehicles for mixed use.
  • Vehicles not assigned.
  • In all these cases, VAT is 40% deductible.
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