Electric cars in the business activity of a Latvian company (SIA)

A car is an integral part of business activity in many companies. It is used for visiting clients, delivering goods, business trips, and other business needs. However, from an accounting and tax perspective, it is important to understand how to correctly account for such a vehicle - especially when it comes to a fixed asset, as well as how to include the related costs in expenses.

In addition, in recent years the most relevant issue is specifically the use of electric cars in business activity, writing off electricity costs, and what taxes must be paid.

In this article, we will look at the main principles.

When a car becomes a fixed asset

1. Long-term use - the electric car is intended to be used in the company’s business activity for longer than 1 year.
2. The value exceeds the threshold set by the company - the acquisition value of the car exceeds the value threshold for a fixed asset set in the company’s accounting policy (often in Latvia it is around 500-1000 € or more, but each company may set its own).
3. Used in business activity - the electric car is used for delivering goods, transporting employees for work needs, providing services, and other company functions.
4. The company controls the asset - the car is owned by the company or acquired through finance leasing (then it is also recorded as a fixed asset).
5. It generates economic benefit in the future - the car helps the company earn income or reduce costs.

The acquisition costs of a car cannot be fully written off as expenses immediately. Instead, depreciation is calculated, which gradually reduces the value of the fixed asset over several years.

In practice, this means:

• the car is registered in fixed asset records;
• its useful life is determined (usually 5 years);
• depreciation is calculated in accounting every year.

Example:

If a company purchases an electric car for 35 000 € for employees’ trips to clients and plans to use it for 5 years, it is recorded as a fixed asset and depreciated in accounting. Here is the calculation table using the Straight-Line method - the value of the fixed asset is evenly distributed over the entire useful life [35000÷5=7000 € per year]

What car expenses are attributable to business activity

If a vehicle is used in business activity, various related costs can be included in expenses, for example:

• fuel or electricity
• repairs and maintenance
• insurance (OCTA, KASKO)
• tires
• parking
• leasing payments
• technical inspection

Therefore, electricity costs for charging an electric car can be included in the company’s expenses if they are related to business activity.

However, several conditions must be observed.

1. Supporting documents are required
   Electricity costs can be included in accounting only if there are appropriate documents (for example, an invoice from the electricity supplier).
2. Consumption must be justified
   Similarly to fuel, electricity consumption can also be justified by kilometers driven, the vehicle’s consumption rate, and charging data.
3. Trip records may be required
   If the car is also used privately, it must be possible to determine what portion of the electricity consumed relates to business activity.

What taxes a company must pay when operating an electric car

One of the reasons for the popularity of these vehicles is lower operating costs and tax advantages.

In Latvia, the purchase of electric cars is also promoted by state support - for example, in several cases subsidies of up to several thousand euros are available.

From a tax perspective, electric vehicles have several advantages:

• often a lower company passenger vehicle tax
• lower operating costs
• the possibility to write off electricity costs

1. Vehicle operation tax (TEN) and company passenger vehicle tax (UVTN)

Vehicle operation tax (TEN) and company passenger vehicle tax (UVTN) are applied for the use of a vehicle in road traffic. The taxes are paid by the owner or holder of the vehicle.

• TEN (vehicle operation tax) - applies to all vehicles regardless of their owner or type of use. The amount of the tax is usually determined depending on the type of vehicle, engine capacity, and emission class.
• UVTN (company passenger vehicle tax) - applies to company passenger cars that are used in business activity. The amount of the tax may depend on the type of vehicle, engine capacity, and fuel type.

In the case of electric cars, the tax is significantly lower than for petrol or diesel cars. For example, UVTN for an electric car is approximately 15 € per month (≈180 € per year).

2. Corporate income tax (UIN)

In Latvia, UIN is paid only when profit is distributed (for example, as dividends).

Car maintenance expenses (fuel, repairs, insurance, etc.) may be considered business expenses, but this depends on the application of the company passenger vehicle tax (UVTN).

If UVTN is paid:

• it is not mandatory to keep route sheets or trip records;
• all car expenses can usually be attributed to business activity.

If UVTN is not paid:

• the car may be used only in business activity;
• trip records must be kept (route sheets or GPS records);

If these conditions are not observed, the expenses may be considered unrelated to business activity, and they become an object taxable with UIN.

3. Value added tax (PVN)

In Latvia, PVN on a passenger car may be deducted only partially if the car is also used privately - the standard deduction rate is 50%.

Example: Car price 35 000 € + PVN (21%)

PVN may be deducted at 100% if the car is used only for company needs and GPS control or trip records are ensured, proving that there are no private trips.

Impact of UVTN:

If UVTN is paid, it is assumed that the car may also be used privately, therefore PVN may usually be deducted only at 50%, even if trip records are kept.

If UVTN is not paid, full PVN deduction (100%) is possible if GPS control or route sheets are ensured, proving that the car is used only for company needs.

Important to remember - if an employee charges an electric car owned by the employer at home, the company may compensate the electricity costs, and in certain cases this compensation is not subject to personal income tax. The compensation calculation is based on:

• the actual number of kilometers driven;
• the electricity consumption rate specified by the manufacturer.

This significantly facilitates the use of electric cars in companies, especially for employees who charge the car at their place of residence.

Restrictions

All expenses related to the acquisition of a representative automobile (for example, worth 75 000 EUR + PVN), rental payments, and operation - including repairs, fuel, insurance, tires, etc. - are considered expenses that are not directly related to the taxpayer’s business activity. Such expenses are included in the taxable base of the corporate income tax (UIN), applying UIN in accordance with the procedure in force. In addition, the UIN regulation regarding restrictions on business activity expenses for representative automobiles is closely linked to the input tax deduction restriction set out in the value added tax (PVN) law, namely, input tax on such expenses is not deductible.

However, these restrictions do not apply to companies whose core business is car rental or sales, because in such cases the automobiles are used directly for carrying out business activity.

Conclusions

• a car is usually recorded as a fixed asset;
• its value is written off gradually through depreciation;
• expenses related to the vehicle may be attributed to business activity if they are justified;
• in the case of an electric car, electricity costs may also be included in expenses;
• the latest regulations allow companies to compensate employees for charging an electric car at home without additional tax burden.

Electric mobility in companies continues to develop, and if accounting is organized correctly, it can be both a more environmentally friendly and a more financially beneficial choice.