Sale of a Company Car in 2026: VAT, Input VAT Adjustment and Accounting Treatment

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The sale of a company car from the assets of a commercial company (d.o.o. or j.d.o.o.) may at first glance appear to be a simple business transaction. However, its tax treatment depends on a number of circumstances – from whom the vehicle was purchased, when the vehicle was purchased, and whether there was a possibility to deduct input VAT. If the passenger car is to be sold to one of the EU Member States, the tax treatment also depends on whether it is a new or used passenger car.

Incorrectly calculated VAT or a failure to make an input VAT adjustment may, in certain cases, result in additional tax liabilities and tax adjustments.

First step – check when the car was purchased

The tax treatment of passenger cars at the time of sale in Croatia depends on when the cars were purchased. Based on the date of purchase of the passenger car, passenger cars can be classified into one of four groups when sold. Period of purchase of the car:

until 31 December 2009 – VAT is calculated on the selling price
from 1 January 2010 to 29 February 2012 – VAT is calculated on the selling price
from 1 March 2012 to 31 December 2017 – the supply is exempt from VAT if VAT was charged at the time of purchase and the taxable person was not entitled to deduct input VAT. VAT at the rate of 25% will also be calculated if the vehicle was purchased from a private individual, a small taxable person or a reseller
from 1 January 2018 – VAT is calculated on the selling price

As can be seen from the above, in most cases the sale of a company passenger car is subject to VAT at the rate of 25%. This primarily applies to vehicles purchased from 1 January 2018 onwards, for which the taxable person was entitled to deduct 50% of the input VAT (or 100% for vehicles for which this is prescribed by special rules). In this case, an invoice is issued to the buyer containing the taxable amount, the calculated VAT, the total amount payable, i.e. all elements prescribed by Article 79 of the VAT Act.

However, special rules apply to passenger cars purchased between 1 March 2012 and 31 December 2017. During this period, taxable persons were generally not entitled to deduct input VAT when purchasing passenger cars. If the vehicle was purchased with VAT charged, but without the right to deduct input VAT, its sale may be exempt from VAT pursuant to Article 40(2) of the VAT Act. However, there are exceptions. VAT will nevertheless be charged if the vehicle was purchased from a private individual, a small taxable person or a reseller.

Sale of a vehicle to another company

When the buyer is another company, the sale process is generally administratively simpler because the transaction takes place between two taxable persons. If there is an obligation to charge VAT, the seller issues an invoice containing all the elements prescribed by the VAT Act, including the stated taxable amount and the calculated VAT.

If the buyer meets the conditions prescribed by the VAT Act, it may be entitled to deduct input VAT in accordance with the rules applicable to passenger cars and their business use. In addition to the tax aspect, the transfer of ownership in this case is generally simpler because the invoice serves as a valid document for the transfer of ownership, meaning that no administrative fee for the acquisition of the vehicle is payable upon registration.

Sale to a private individual

When the buyer is a private individual, the obligation to charge VAT depends on the tax treatment of the vehicle, i.e. the circumstances of its acquisition. If the conditions for charging VAT are met, the seller is required to issue an invoice showing the taxable amount and the applicable VAT, except in cases where a statutory exemption applies.

The method of payment also affects the fiscalization obligation. If the private individual pays the purchase price in cash or by another method of payment subject to fiscalization, the invoice must be fiscalized in accordance with the applicable fiscalization regulations.

Regardless of the method of payment, the invoice must contain all the elements prescribed by law and serve as a valid document for the transfer of ownership of the vehicle.

Sale of a vehicle to a buyer from another EU Member State

When selling a passenger car to a buyer from another Member State of the European Union, the tax treatment depends on several important circumstances. Primarily, it is necessary to determine whether the car is new or used, as well as the status of the buyer. In this context, passenger cars are considered new if they meet one of the following conditions:

they are supplied within a period of no more than 6 months from the date of first use, or
they have not travelled more than 6,000 km.

This information directly affects the method of calculating VAT, the content of the invoice and the reporting obligations in tax records.

Input VAT adjustment – an obligation that is often overlooked

One of the most important tax obligations when selling company cars is the potential adjustment of input VAT. Pursuant to Article 63 of the VAT Act and the relevant provisions of the VAT Regulations, if the circumstances relevant to the deduction of input VAT change during the five-year period, an adjustment must be made.

For passenger cars, the adjustment period is five years, including the year of acquisition. The adjustment is made as a one-off adjustment for the remaining years of the adjustment period and is reported in the VAT return for the month in which the sale was made.

Accounting obligations when selling a passenger car

Before issuing the invoice, it is necessary to:

calculate depreciation up to the end of the month of sale and record it in the accounts,
determine the book value of the vehicle,
record the sale using the net method.

Conclusion

The sale of a company car requires considerably more than simply concluding a sales agreement. Before the sale, it is necessary to check how the vehicle was acquired, the right to deduct input VAT, any potential obligation to adjust input VAT, the obligation to calculate VAT, and the accounting impact of the transaction.

Proper preparation before the sale can significantly reduce tax risks and ensure that the entire process is carried out in accordance with the applicable regulations.

Are you planning to sell a company car or are you unsure how the transaction will be treated for tax purposes? CONEO Croatia can help you analyse your specific case and ensure that the sale is carried out in accordance with the applicable tax and accounting regulations.