Operating Lease With Calculation of Payment in Kind

We should first define payment in kind. The simplest definition would say that payment in kind includes all assets an employee receives from her/his employer and uses for private purposes. Payment in kind implies a net value, while the employer incurs all taxes and contributions.

When payment in kind is calculated for using a personal car, 20% of total lease rate and fuel would be considered an additional net payroll. Basic net payroll, defined by Employment contract, should not be mixed up with net payment in kind. Why payment in kind? Because in this case all car-related expenses are tax deductible, i.e. you do not have the 30% of lease which raises the income tax base.

It might be easier to show this using numbers:


Operating Lease Without Calculation of Payment in Kind

Let us assume your value amounts to HRK 112 500.00, 70% of which relates to tax deductible expenses and 30% to tax non-deductible expenses. Let us first define the terms “tax deductible” and “tax non-deductible expenses”. Tax deductible expenses increase a company’s expenses, while tax non-deductible expenses do increase a company’s expenses but at the same time they increase the income tax base for the same amount at the end of the year.

112 500.00 * 30% = 33 750.00 (tax non-deductible)
112 500.00 * 70% = 78 750.00 (tax deductible)

This is how the above-mentioned would look in your wallet at the end of the year:


Official Company Car – Yes or No?

Well, anyone familiar with the laws and following the reason would say: it depends on a million of factors.

But let us start from the beginning… Our whole story is about a car worth HRK 400 000.00 and your choosing between 2 options from the start: leasing or purchasing


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