For accounting purposes, the lessee may book an intangible asset for the value of the purchase price of the vehicle. This intangible asset is amortised on the basis of the economic lifetime of the vehicle, and as such would be deductible for tax purposes, provided that the expense booked does not exceed the officially approved depreciation tables (maximum 16% per annum for vehicles). The financial costs accrued and paid annually are regarded as a financial accounting expense during the term of the agreement and are also deductible.

However, finance leases under Article 128 of the CTA have specific tax treatment for both lessee and lessor.

The lessee is allowed to take as deductible expenses (i) the financial charge paid to the lessor and (ii) the element of the leasing instalments which corresponds to recovery of the cost of the vehicle, with a limit of twice the straight-line depreciation coefficient (maximum 16%). This second point may be a real tax benefit, in the way of an accelerated depreciation.

The lessor will have to depreciate leased vehicles for tax purposes, excluding their purchase option value, within the term of the agreement.

Lease agreements with purchase option agreements other than those under Article 128 of the CTA.
Regardless of their accounting treatment, ie booking an intangible asset to be amortised as mere operating expenses, when there is no reasonable doubt that the purchase option will be exercised, the lessee will take as a deductible expense for the tax period (i) the financial cost accrued and accounted for as such for the period and (ii) the depreciation of the leased asset calculated in accordance with the procedures allowed by the CTA (usually, linear depreciation up to 16% per annum).

There is no reasonable doubt that the option will be exercised when the option price is less than the difference between the acquisition price of the vehicle and the total of the maximum depreciation instalments over the term of the lease.

The lessor will have to depreciate the leased vehicle for tax purposes excluding its purchase option value, within the term of the agreement.

Other lease agreements (operating lease and others) not included in the two above types
These lease agreements will be treated as operating lease or 'pure' lease agreements in which the lessee will treat the payments made to the lessor as deductible operating expenses for the total amount paid, provided they are duly accounted for and supported.

There is no relevant tax burden as regards Corporation Tax for the acquirer or lessee of company cars, even for cars that have some private use. The main tax burden in such case is shifted to the Personal Income Tax of the employee driving the car.

Indirect taxes
VAT
VAT at 16% is due on the import, supply or acquisition of almost all cars. Diplomatic and international organisations are exempt from Spanish VAT on the acquisition of their cars but prior acknowledgement is required from the Spanish Tax Administration.

In general, any VAT paid on the import or acquisition of a car would be deductible by companies or professionals if the cars are bought exclusively for business use. If the car is used partially for professional activities and partially for private purposes there is a presumption that the use of the car by the company or professional is 50%, giving the right to deduct 50% of the VAT paid on the import, lease, and repair, including the purchase of spare parts, and petrol.

Leasing
In Spain a lease agreement will be treated as a supply of goods if the customer has to exercise the purchase option. If not, the lease agreement will be considered as a supply of service up to the time the purchase option is exercised and then the residual portion would be considered a supply of goods.

Tax on registration of the car
'Impuesto Especial sobre Determinados Medios de Transporte' is an excise duty and payable once at a rate of 12% (applicable to new and second-hand cars) when a car is registered for the first time within Spain for use by individuals or entities resident in Spain.

The taxpayer responsible for the payment of this excise duty is the individual or entity that registers the car in its own name, although a legal exemption allows the taxpayer to be the person or entity that uses the car.

Certain vehicles are exempt from this excise duty (taxis, hire cars, cars related to movement of residence, diplomatic posts and international organisations) but prior authorisation from the Spanish Tax Administration is required. The taxable base for new cars is the same as the taxable base applied for VAT purposes. For second-hand cars, it is their market value at the time of registration.

Remarketing companies can recover the registration excise duty when they deliver cars outside Spain.

Annual circulation tax
An annual circulation tax (Impuesto de circulacion) is levied on all motor vehicles. This tax is payable to the town hall where the car is registered although the Ministry of Finance establishes the basic tariffs in the National Budget (except for the Basque country that establishes its own tariffs). Once the National Administration has published these basic tariffs, different town halls have the power to add a multiplying coefficient (between one and two according to the number of citizens in the municipality).

The rate of taxation is based on engine power for cars expressed in fiscal hp and calculated on the basis of the cubic capacity of the engine, for 2000 the amounts are shown in the tables above.

Drivers personal tax
FOR company cars used for private purposes by a company's staff, the first point to determine is the element of private use.

There are no official rules that can be applied in all cases, and the tax authority's position is that the apportionment must be made on a case by case basis. It also considers that the use of a car for commuting to work is private use, as well as weekend or holiday use.

The most common systems used by companies are either based on time or mileage, although they must be able to prove that their system reasonably represents the actual private use of the vehicles in the case of a tax audit.

The valuation of the taxable fringe benefit in the case of the use or supply of vehicles will be based on the following rules:

Accounting treatment
For accounting purposes from the lessee perspective, lease agreements are treated in two different ways by Spanish Standard Accounting Rules.

Operating lease
This type of agreement includes pure lease agreements as well as those with purchase options (but not those included in the categories below). These leases are booked as mere operating expenses by the lessee.

Financial lease with purchase option (Outright purchase/hire purchase)
When a financial lease with a purchase option leaves no reasonable doubt that the purchase option will be exercised, the accounting treatment for the lessee is: the purchase value of the asset, excluding any financial cost, accounted for as an intangible asset (rights on goods under financial leasing). This intangible will be amortised on an economic basis during the lifetime of the asset it refers to.

The total financial cost to be paid will be accounted for as a deferred asset account, to be passed on to P&L as the financial charge is accrued. A payable account for the total amount, ie purchase value plus financial charge will be booked to balance the asset part of the operation.

It is assumed for accounting purposes that the purchase option will be undoubtedly exercised where its value is lower than the residual value of the asset.