Tax Limits on Premium Company Cars in the Czech Republic in 2026

Mgr. Daniel Půlpán
Mgr. Daniel Půlpán
24.3.2026 | ARROWS law firm

The taxation of premium company cars in the Czech Republic is subject to strict limits, which remain fully effective in 2026 as well. The state restricts tax depreciation and VAT deductions for passenger vehicles in category M1, which significantly affects the financial calculation of the purchase. In this article, we explain which specific limits apply, what the impacts on leasing are, and how to correctly claim a VAT deduction.

The illustrative image shows a lawyer discussing the taxation of premium company cars.

Key takeaways
  • Tax depreciation of category M1 company cars is capped at CZK 2 million regardless of the actual acquisition cost.
  • VAT deduction is capped at CZK 420,000, corresponding to VAT on CZK 2 million.
  • These caps do not apply to ambulances and hearses, or to vehicles used for licensed road motor transport.
  • The restrictions now also apply to operating and finance leases.
  • A properly kept logbook and proof of the actual proportion of business use of the vehicle are critical to defending the VAT deduction claim.

Legal limits for 2026: What rules apply?

The restrictions introduced by the consolidation package are now a fixed part of the Czech Income Taxes Act and the Czech VAT Act. They apply to category M1 passenger cars, i.e., vehicles with no more than eight seats excluding the driver’s seat.

How the CZK 2 million cap for tax depreciation works

Under Section 30e and Section 30g of Act No. 586/1992 Coll., on Income Taxes, if a business acquires a passenger car costing, for example, CZK 3 million excluding VAT, it may claim a maximum of CZK 2 million as tax-deductible expenses through depreciation.

The company will depreciate the car in its accounts based on the full price, but for tax purposes it must exclude the amount above the cap. The company will depreciate the car in its accounts based on the full price, but for tax purposes it must exclude the amount above the cap (add it back to the tax base).

In practice, with straight-line depreciation (5 years):

Maximum annual tax depreciation = 2,000,000 / 5 = CZK 400,000.

If the actual accounting depreciation were CZK 600,000 (based on a CZK 3 million price), the company will claim only CZK 400,000 in its corporate income tax return. The difference of CZK 200,000 is a non-deductible expense.

VAT cap of CZK 420,000 and its impact

Under Section 72(3) of Act No. 235/2004 Coll., on Value Added Tax, the entitlement to input VAT deduction for category M1 passenger cars is capped at CZK 420,000. This amount corresponds to the 21% rate applied to a tax base of CZK 2 million.

If a company acquires a car for CZK 3 million excluding VAT (VAT is CZK 630,000), it may claim a refund of only CZK 420,000. The unclaimed VAT becomes a non-deductible expense.

Pay attention to technical improvements, because the CZK 420,000 cap is an aggregate cap for both the acquisition of the vehicle and any subsequent technical improvements (upgrades, conversions). If you exhaust the cap upon purchase, you cannot claim VAT on later technical improvements.

Which vehicles are not subject to the caps?

The law defines specific exemptions where depreciation and VAT may be claimed in full even above the set caps. These apply exclusively to the following category M1 vehicles:

  • ambulances and rescue vehicles,
  • hearses,
  • vehicles operated under a licence (taxi services, commercial passenger transport),
  • racing cars that are not intended for use on public roads.

If a car is acquired under a lease, the rules differ significantly depending on the type of contract:

For finance leases, the caps apply directly to the user (lessee). Under Section 30f of the Income Taxes Act, only a proportional part of the lease instalments is tax-deductible for the lessee, calculated based on the ratio of CZK 2 million to the total consideration. Likewise, the lessee may claim input VAT deduction up to a maximum of CZK 420,000.

For operating leases, no statutory cap applies to the lessee. The restriction on VAT deduction and tax depreciation applies exclusively to the leasing company (lessor), which acquires the vehicle into its assets. The lessee includes the monthly rent in full as a tax expense and claims full input VAT deduction on it as on a supplied service. 

However, it should be expected that leasing companies typically reflect their tax disadvantage for expensive vehicles in a higher monthly instalment price.

Therefore, unless your company operates licensed transport or an emergency service, the caps affect you directly under a finance lease, whereas under an operating lease they affect you only indirectly through higher rent.

Depreciation of a company car: How is it calculated in 2026?

Passenger cars fall into the 2nd depreciation group with a minimum depreciation period of 5 years.

Straight-line and accelerated depreciation

As a standard rule, you may choose between straight-line and accelerated depreciation under Sections 31 and 32 of the Income Taxes Act. However, for vehicles above CZK 2 million, the cap on tax deductibility always applies.

Extraordinary depreciation for zero-emission vehicles

For new zero-emission vehicles (electric vehicles, hydrogen vehicles) for which you are the first depreciator, acquired in 2024 to 2028, extraordinary depreciation under Section 30a of the Income Taxes Act is available. These vehicles can be depreciated on an accelerated basis over 24 months:

  • the first 12 months straight-line up to 60% of the acquisition cost,
  • the next 12 months straight-line up to 40% of the acquisition cost.

Please note that hybrid vehicles (PHEVs) do not fall into this category and are depreciated under the standard 5-year period. The CZK 2 million cap also applies to zero-emission vehicles, so if you buy an electric car for CZK 3 million, you will depreciate only CZK 2 million under extraordinary depreciation and the remainder is non-deductible.

Employee non-cash benefit: A car also for private use

If an employer provides an employee with a company car also for private trips, the employee receives a taxable non-cash benefit. Its amount is based on the acquisition cost of the vehicle including VAT.

Rates for 2026
  • Zero-emission vehicles (electric, hydrogen): 0.25% of the acquisition cost per month.
  • Low-emission vehicles (up to 50 g CO₂/km, typically PHEVs): 0.5% of the acquisition cost per month.
  • Other vehicles (internal combustion engines): 1% of the acquisition cost per month.

An employee who has a diesel car available costing CZK 2 million including VAT will have a monthly non-cash benefit of CZK 20,000. This amount is added to gross salary and is subject to income tax and social security and health insurance contributions.

For an electric car at the same price, the taxable amount would be only CZK 5,000.

Logbook and proving entitlement to VAT deduction

To claim input VAT deduction up to the CZK 420,000 cap, the taxable person must prove that the vehicle is used for economic activity. If the car is also used privately, the VAT deduction claim must be reduced proportionally.

Record-keeping obligation

Tax authorities require credible travel records (a logbook) demonstrating the proportion of business and private use. If the records are missing or not credible, the tax administrator may determine the ratio by a qualified estimate or disallow the deduction entirely.

If you claim 100% business use for a luxury vehicle, expect increased scrutiny from the tax administrator. The authority will examine whether you also have another private car and how it is ensured that the company car is not used privately.

Sale of a company car and VAT pitfalls

The sale of a company car is a standard taxable supply and is subject to VAT (21%) on the sale price. However, this is where the pitfall of the new limit fully manifests itself, which in practice means a significant financial disadvantage.

The entire sale price is taxed; the lost VAT is not refunded 

If you sell a car for which, due to the CZK 2 million limit, you could claim VAT on purchase only up to CZK 420,000, you must, upon its subsequent sale, remit VAT on the full sale price.

The VAT Act (nor the Financial Administration’s methodology) does not allow you, upon sale, to adjust the input VAT deduction in a way that would enable you to claim back the portion of VAT that was forfeited at purchase. The loss of VAT above the CZK 420,000 threshold upon purchasing the car is permanent and non-refundable.

For example, if you buy a car for CZK 4 million + CZK 840,000 VAT, the state will refund only CZK 420,000 as an input VAT deduction. If you sell this car after two years for CZK 2.5 million excluding VAT, you must remit output VAT of CZK 525,000. The forfeited CZK 420,000 from the purchase is definitively gone. The only exception is car dealerships and dealers that acquire vehicles as “goods” for resale—this limit does not apply to them upon purchase.

Potential issues

How ARROWS helps (office@arws.cz)

Exceeding the depreciation limit under leasing

We will review the contracts and calculate the correct amount of tax-deductible costs so you can avoid an additional tax assessment.

VAT error when selling a vehicle above the limit

We will ensure the correct calculation and remittance of VAT when selling an expensive vehicle so you can avoid an additional tax assessment and severe penalties from the tax office.

Incorrect travel logbook

We will audit the setup of travel records and internal policies for vehicle use to ensure they withstand scrutiny by the tax office.

Incorrect employee taxation

We will review payroll administration for benefit vehicles, in particular the correct determination of the acquisition price and the emissions category.

Penalties and risks for non-compliance

If the tax office identifies errors in applying the limits or deductions, you may face:

  1. an additional tax assessment (disallowance of unjustified depreciation or VAT),
  2. a penalty of 20% of the additionally assessed tax,
  3. late-payment interest for each day of delay from the original tax due date.

Final recommendation

The tax regime for premium vehicles in 2026 requires precise accounting and tax procedures. The limits of CZK 2 million (depreciation) and CZK 420,000 (VAT) are non-negotiable for ordinary entrepreneurs. However, it is crucial to understand the harsh consequences upon the subsequent sale of these vehicles and not to underestimate the proper setup of leasing agreements.

ARROWS, a Prague-based law firm, will help you structure the purchase and operation of your fleet so that it complies with Czech law while remaining as economically efficient as possible. Contact us at office@arws.cz for an individual assessment of your situation.

FAQ – Most common questions on the 2026 tax limits for company cars 

1. Can I buy two cars for CZK 1.5 million instead of one for CZK 3 million?
Yes, the limits are assessed separately for each vehicle (VIN). With two cars at CZK 1.5 million, you can claim full depreciation and full VAT for both. However, you must be able to justify the economic substance of purchasing two vehicles for your business.

2. What about VAT if I am not a VAT payer?
If you are not a VAT payer, you have no entitlement to a VAT deduction at all. The full price including VAT forms part of the acquisition cost. The CZK 2 million limit for tax depreciation then applies to this total price including VAT.

3. Does the limit also apply to used cars?
Yes, the CZK 2 million limit for depreciation and the CZK 420,000 limit for VAT apply to any acquisition of an M1 category vehicle, including used cars, provided they are acquired as business assets.

4. Is road tax payable for passenger cars?
No. Passenger cars (category M1) are no longer subject to road tax at all. The obligation to pay advances and file returns for them has been abolished. Road tax currently applies exclusively to heavy goods vehicles (categories N2 and N3) and selected trailer vehicles.

5. What if I transfer the car to private use after 3 years?
If you claimed a VAT deduction upon purchase (even only up to the CZK 420,000 limit), transferring the vehicle for the private use of a managing director or shareholder is treated as a deemed supply of goods. You must therefore remit output VAT based on the current residual (market) value of the vehicle as of the transfer date. As with a standard sale, you are not entitled to a refund of the portion of VAT that was forfeited upon purchase above the statutory limit. The loss of this portion of VAT is final.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the matter under the legal framework as of 2026. Although we take maximum care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of information from this article without prior individual legal consultation.

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