A luxury car is associated with prosperity, freedom, lifestyle, but rarely tax advantages. In this article, we demonstrate how to rent a luxury car and thus generate tax advantages. On the one hand, our design saves the sales tax incurred when buying a new car. On the other hand, we avoid the unpleasant private removal, which we would have to tax if we rented our privately purchased luxury car to our own GmbH. And in the end, the sale of the luxury car is even completely tax-free!

1. Luxury car tax-optimized rental – Introduction

When aesthetics meet strength, it has always fascinated people. Just think of certain horse breeds, such as Arabs. Other animals also embody both impressively, for example hunting birds or cats. Later, human inventions were added that also combined aesthetics and strength. Jets like the legendary Concord are exemplary for this. But hardly any object stands in this context as exemplary for this magical combination as a luxury car.

Early in the history of the automobile, there was a tendency to combine both strength and beauty in one vehicle. Over time, more and more beautiful and equally powerful cars were created, of which Ettore Bugatti was certainly one of the first pioneers in this field; His Type 41 Royale alone speaks for itself. The Rolls Royce Phantom II, which is available at about the same time, also impresses with its exquisite design. Later, legendary beauties such as the pagoda of Mercedes, the Aston Martin DB5 or the Volvo P1800 came on the roads, became eye-catchers and remained so to this day. We have not yet said a single word about Scuderia Ferrari with its defining design history, for which the legendary Testarossa is exemplary.

Not surprisingly, this always had its price, which often only the upper class could afford. And the more technical development progressed, the more sophisticated cars became in the aesthetic field. This applies equally to luxury sedans equipped with maximum comfort and to sports cars equipped in Spartan style, at least in the past. Who would have thought then that you can even save taxes with such treasures?

2. Can you rent a luxury car?

With our provocative statement that luxury cars can save you taxes if you rent them, we certainly arouse some surprise. The fact that you should rent luxury cars for this is already in need of explanation. Because many will probably now wonder whether you can rent cars just like that. Sure, there are commercial car rental companies, but it should be clear that we are discussing private car rental here. And yes, such a rental would be quite unusual.

However, we wonder why this is so. After all, you can also rent apartments or houses from private. Even the rental of motorhomes is quite widespread, because it creates income, while you yourself have no need to use it. But here too the comparison may be lagging, because the rental of motorhomes or, for example, yachts and private jets is always only intended for a limited time, for example for a holiday. However, in this article we want to associate the permanent rental of luxury cars with tax benefits.

By the way, when we talk about luxury cars here, we mean primarily those that are also suitable for everyday use. This means that all those special cars, which were only made in a few copies and are basically addressed directly to collectors, remain irrelevant for our considerations. In addition, we think in particular of cars from ongoing production, so no youngtimers or classic cars, although our design model would also be suitable here. In other words, we are interested in luxury cars that we want to buy and rent as new cars.

3. Tax bases for renting a luxury car

Before we present our design model in detail, we want to illuminate the tax aspects. Because only when you know these, you understand why a actually taxable process in our case without tax consequences remains.

3.1. Sales tax

First of all, the question is whether you can buy an object as a private person and then have the input tax refunded. Because when used privately, you as a consumer are the person who actually has to pay this excise duty. Indeed, traders who had previously bought the goods from each other in the intermediary trade can be refunded the VAT they also had to pay as input tax. This is why German VAT law belongs to the group of so-called all-phase sales taxes.

Now we too are demanding input tax, because we act less as consumers than as entrepreneurs in the sense of VAT law. Because renting a luxury car is in this sense an entrepreneurial activity. However, we may only recover the input tax if the tenant is also an entrepreneur who provides services subject to VAT. We must therefore also pay attention to this.

3.2. Income tax

However, the most important question that should give us the biggest tax advantage is why we expect the later sale of the car to be tax-free. This is quite an interesting consideration, because it is actually true that objects in private assets are subject to a one-year speculative period. This is stated in § 23 (1) sentence 1 number 2 sentence 1 EStG. If this object is also used to earn income, the speculative period is even extended to ten years. This is clear from § 23 (1) sentence 1 no. 2 sentence 4 EStG. Since this is exactly what we are trying to do, it would mean that we would have to wait for the speculative period before we could sell our luxury car tax-free. But we want to do that earlier.

And in fact, we can even sell everyday items, including a luxury car, tax-free at any time. This guarantees us § 23 (1) sentence 1 number 2 sentence 2 EStG. And since the next sentence in the law only records those sales with a ten-year speculative period, which are meant in the first sentence, objects of daily use are excluded from both speculative periods, one-year and ten-year.

4. Luxury car rental according to our design

4.1. Sales Tax Benefits of Acquiring and Renting a Luxury Car

So we take action: we buy a luxury car and rent it out. Because we want to have the sales tax refunded by pre-tax, we have to rent the car to another entrepreneur who also provides services subject to sales tax. This is ideally our own GmbH. If we as a private person and owner of the luxury car now also make the rental subject to VAT, which is possible according to § 9 paragraph 1 UStG on request, we are entitled to the refund of the sales tax. We only have to note that we are bound by this voluntary VAT obligation for five years. The sales tax incurred during the rental can be offset for both parties via the input tax, thus leaving no financial significance.

4.2. Tax benefits during rental

Since we rent the car to earn income, we can also write off the acquisition costs. Cars generally have a useful life of six years if they are new cars or five years for used vehicles. In our case, we can write off a sixth of the acquisition cost annually. However, since we can expect an externally customary annual rent of a few percent in relation to the acquisition costs, this results in a certain loss. We can use it to minimize other positive incomes, which leads to a lower income tax. In any case, there is no income tax on the rental income.

Now we still have to consider the use of the car at the GmbH level. Of course, we are also their managers. Since the GmbH provides us with the rented luxury car as a company car, we would actually have to tax the private use of the car as a private removal – either with the 1% method or via the real costs documented with a travel logbook. Actually, this is a very nice word. Because we can also avoid this taxation. This is by renting the privately purchased luxury car only partially to our GmbH. We reserve the right to use it privately as owner. The use as an official vehicle is thus limited to purely operational purposes.

In order to achieve this, we have to determine at the beginning over a representative period the proportion of operational and purely private use of the car. During this time, about three months, one should therefore document all trips in order to prove the division to the tax office.

Tax advantages when selling the luxury car

After six years, we want to sell the car. In the meantime, it is completely written off, but a luxury car retains a considerable residual value. Under certain circumstances, the value could even rise rather than fall. From a tax point of view, however, there is in any case a profit that, as described above, would actually be taxable. The good word “actually.” In our case, we keep the profit without having to pay taxes on it.

By the way, after this period we can refrain from our request to provide services subject to VAT and sell the car, like any other private person, VAT-free. This is particularly advantageous for other private buyers, who thereby save the sales tax. If they bought the car from a commercial dealer, they would also have to pay the sales tax on the purchase price.

5. Luxury car rental – Conclusion

So we bought a luxury car tax-free. We rented it out and thus generated rental income that remains tax-free because there is actually a tax loss, although this is mainly due to the high depreciation. In addition, we saved income tax by avoiding private removal, because the use of the company car took place for purely operational purposes. Then the rental of the luxury car by our GmbH ensured that the rent as operating expense reduces the profit of our company, which is also a tax advantage. The whole thing, of course, remained neutral from a sales tax point of view. Finally, we managed to ensure that the sale of the luxury car is also tax-free. And for the buyer also remains an advantage, namely that he does not have to pay sales tax.

Even without calculating the example with realistic figures, it should have become clear that we have raised considerable tax saving potential here by renting a luxury car. Of course, our design model can also be implemented with other cars, but the tax advantage for luxury cars is significantly higher. And if you also want to realize a value increase, maybe even invest in high-quality classic cars.