http://consulatio.eu/business-financial-news-advice/ en iva@wmd.hr Copyright 2014 2014-06-19T10:38:00+00:00 http://consulatio.eu/business-financial-news-advice/croatia/operating-lease-with-calculation-of-payment-in-kind http://consulatio.eu/business-financial-news-advice/croatia/operating-lease-with-calculation-of-payment-in-kind#When:10:38:00Z 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: Let us assume your value of lease payments amounts to HRK 112 500.00. 20% of this value presents a payment in kind: 112 500.00 * 20% = HRK 22 500.00 As the calculation relates to a one-year period, the payment in kind amounting to HRK 22 500.00 should logically be divided by 12 months, meaning that monthly payment in kind would amount to HRK 1 875.00. Now it is clear to everyone that this payroll is also tax deductible. In this case the tax and contributions would be added to regular payroll calculation. Therefore, let us assume your employee’s net payroll amounts to HRK 5 000.00. The employee uses the above-mentioned personal car having a monthly net payment in kind amounting to HRK 1 875.00. His HRK 5 000.00 payroll taxes would amount to HRK 3 197.82, i.e. the total payroll cost would amount to HRK 8 197.82. If the payment in kind amounting to HRK 1 875.00 is added to this net payroll, total monthly taxes would amount to HRK 5 152.61. Therefore, if you calculate payment in kind, your monthly expenses will be HRK 1 954.79 higher and your annual expenses will be HRK 23 457.48 higher. These contributions will increase your expenses and your profit and loss account will look like in this simple example: Total income: HRK 200 000.00 Total expenditure: HRK 112 500.00 + HRK 23 457.48 = Profit: HRK 64 042.52 Income tax: HRK 12 808.50 This means that if you choose the option “Operating lease without calculation of payment in kind”, you will pay income tax amounting to HRK 24 250.00, and if you choose the option “Operating lease with calculation of payment in kind”, you will pay income tax amounting to HRK 12 808.50 as well as taxes and contributions amounting to HRK 23 457.48 for calculation of payment in kind. We can conclude that the option “Operating lease with calculation of payment in kind” is more expensive, not only for the companies operating without loss, but for all companies, because they have to pay taxes and contributions for payment in kind. 2014-06-19T10:38:00+00:00 http://consulatio.eu/business-financial-news-advice/croatia/operating-lease-without-calculation-of-payment-in-kind http://consulatio.eu/business-financial-news-advice/croatia/operating-lease-without-calculation-of-payment-in-kind#When:10:36:00Z 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: Let us assume your income amounts to HRK 200 000.00, your expenses relating only to the car. Total income: HRK 200 000.00 Total expenditure: HRK 112 500.00 Profit: HRK 87 500.00 Income tax: HRK 17 500.00 Profit increase for 30% of tax non-deductible car expense: HRK 33 750.00 Income tax for 30% of tax non-deductible expense: HRK 6 750.00 Here you can see how, if you purchase a car under your company’s name, you will lose HRK 6 750.00 only on lease expenses. In our example we did not take into consideration leasing company fees nor other costs of running a car. This means that you should simply add 30% of all costs related to car repairs, tires, car washing and maintenance, fuel costs and toll to the above calculation and your income tax will increase. The conclusion would be NOT to buy a personal car in this way unless your company has a syndrome of Croatian entrepreneurship and does not run a business with profit but makes a loss big enough to “eat up” the mentioned profit increase. 2014-06-19T10:36:00+00:00 http://consulatio.eu/business-financial-news-advice/croatia/official-company-car-yes-or-no http://consulatio.eu/business-financial-news-advice/croatia/official-company-car-yes-or-no#When:10:31:00Z 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… 1. LEASING (here we will discuss operating lease only because financial lease is equal to purchasing) Car worth: HRK 150 000.00, VAT included Number of months of the lease: 36 Residual value: 25% Value to be financed through leasing: HRK 112 500.00 Monthly rate: HRK 3 125.00 Purchasing value after lease: HRK 37 500.00 Here is the total calculation which shows whether all this is worth doing for you in practice. There is no VAT any more, which means that this is the same situation as if you were to rent a car under your name as a physical entity (I use the term “rent” because operating lease is nothing but renting, i.e. a type of rent-a-car service in which you pay for the car registration, insurance, repairs etc.). a) OPERATING LEASE WITHOUT CALCULATION OF PAYMENT IN KIND b) OPERATING LEASE WITH CALCULATION OF PAYMENT IN KIND 2014-06-19T10:31:00+00:00