Business Advisor Antti Alasaari hears this question often, and the answer is not straightforward. Instead, it depends on the company form and how the vehicle is used.

“It depends on whether the entrepreneur drives more for work or personal reasons. If they mostly drive for business, the car’s use should be recorded in the company’s accounts, and the kilometres driven can be charged to the customer. Then buying a vehicle for the company may make sense. In that case, the vehicle’s running costs will also reduce the company’s profit, and private journeys will be deducted from the costs through tax,” Alasaari explains.

The effect of the company form

“If we are talking about a limited liability company and the entrepreneur uses their own car for work purposes, they can charge their company for the amount of compensation permitted by law for the use of their own car. A private trader, on the other hand, cannot pay themselves a non-taxable kilometre allowance. Instead, their travel expenses are deducted from their taxes," Alasaari says and continues:

“You should always keep a driver’s log, because these things vary case-by-case. It depends on your line of business and whether you use the car for private journeys. I would say that the best thing to do is to ask your local tax office for advice.”

If you are a private trader, you can charge your customer for the kilometres driven, but note that this counts as taxable income. You must therefore remember to add VAT to the travel invoice too (for example, €0.55 per km plus 25.5% VAT).

“Sometimes the cheapest and simplest option is to lease a car for your company. Then you can record all the car’s costs, including lease payments, directly as expenses in the accounts. Private travel, as shown in the driver’s log, is treated as taxable income. Leasing a car is tax-efficient if the vast majority of journeys are for business.”

Journeys in a general or limited partnership using a personal or company car

If a partner in a general or limited partnership uses their own car for partnership business, they can submit a claim for the kilometres driven just as any employee would. If the partnership has not reimbursed the partner for using their own car on partnership business, the partner can claim the resulting costs as expenses incurred in earning income on their personal tax return.

“If the partnership owns a car, the cost of using it for private journeys cannot be deducted from its business income. In this case too, it is important to keep a driver’s log. For example, journeys between home and work are generally classed as private journeys. The partner can claim the cost of these as a deduction from earned income on their tax return,” Alasaari explains.

Further details on travel expenses for partners in general or limited partnerships are available on the Finnish Tax Administration’s website. 

Vans have different rules

Vans are treated differently than cars. VAT on a van’s purchase price and running costs is generally deductible in proportion to its use for business activities that are subject to VAT. The business must be able to demonstrate what the van is used for, for example by keeping a driver’s log.

VAT on a car can only be deducted if it is used exclusively for purposes that qualify for the deduction, such as by a driving school or car hire firm. Otherwise, the VAT remains part of the purchase cost and cannot be reclaimed. If a car is a business asset, any VAT you cannot reclaim remains part of its purchase cost. That cost is then depreciated in the usual way for income tax purposes. Please note that this is not a VAT deduction, but depreciation for income tax purposes.

Alasaari points out that if an entrepreneur or their family members use the company car or van for private journeys, the benefit is treated as a taxable company car benefit. The value of the company car benefit is determined by the year the vehicle was first registered for use, as shown on its registration document.

Calculate the value of your company car benefit using the Finnish Tax Administration’s calculator

A driver’s log is mandatory

A driver’s log must be kept for journeys made in a company vehicle, showing the number of kilometres driven each day during the tax year.

For business journeys, the following details must be entered in the driver’s log each day:

• the start and end times of the journey,
• the starting point and destination, and when necessary, the route taken,
• the odometer readings at the start and end of the journey,
• the distance travelled,
• the purpose of the journey and
• the person who used the vehicle.

A driver’s log is needed to verify how the vehicle is used. An employee, or in certain circumstances a partner in a general or limited partnership, can be reimbursed for travel expenses at the rates set by the Finnish Tax Administration. A private trader cannot pay themselves a tax-free kilometre allowance; instead, they claim a deduction on their tax return.

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