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

Legal Limits for 2026: What Are the Rules?

The restrictions introduced by the consolidation package are now an integral part of the Income Tax Act and the VAT Act. They apply to M1 category passenger cars, i.e., vehicles with a maximum of eight seats in addition to the driver's seat.

How the CZK 2 million limit for tax depreciation works

According to Sections 30e and 30g of Act No. 586/1992 Coll., on Income Taxes, if a business purchases a passenger car for, say, CZK 3 million excluding VAT, it can claim a maximum of CZK 2 million in tax-deductible expenses through depreciation.

While the company depreciates the full price of the car for accounting purposes, for tax purposes it must exclude the amount exceeding the limit. While the company depreciates the full price of the car for accounting purposes, for tax purposes it must exclude the amount exceeding the limit (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 (from a price of CZK 3 million), the company would only claim CZK 400,000 in its tax return. The difference of CZK 200,000 is a non-deductible expense. If you need to assess the impact of these limits on your tax base and correctly set up the tax deductibility of expenses, our Prague-based tax law team can help.

The CZK 420,000 VAT limit and its implications

According to Section 72(3) of Act No. 235/2004 Coll., on Value Added Tax, the right to deduct tax on M1 category passenger cars is limited to CZK 420,000. This amount corresponds to a 21% rate on a base of CZK 2 million.

If a company purchases a car for CZK 3 million excluding VAT (VAT amounts to CZK 630,000), it can only claim a refund of CZK 420,000. This unclaimed VAT becomes a non-deductible expense.

Beware of technical improvements, as the CZK 420,000 limit is cumulative for the vehicle's acquisition and its subsequent technical improvements (modernisation, conversions). If you exhaust the limit upon purchase, you cannot claim VAT on later technical improvements.

Which vehicles are exempt from the limits?

The law defines specific exceptions for which full depreciation and VAT can be claimed even above the set limits. These are exclusively the following M1 category vehicles:

• ambulance and rescue vehicles,

• hearses,

• vehicles operated under a license (taxi services, commercial passenger transport),

• racing cars not intended for use on public roads.

When it comes to acquiring a car through leasing, the rules differ significantly depending on the type of contract:

With finance leases, the limits apply directly to the user (lessee). According to Section 30f of the Income Tax Act, only a proportional part of the lease payments, calculated based on the ratio of CZK 2 million to the total sum of payments, is tax-deductible for the lessee. Likewise, the lessee can claim a maximum VAT deduction of CZK 420,000.

For operating leases, no statutory limit applies to the lessee. The restriction on VAT deduction and tax depreciation falls exclusively on the leasing company (lessor), which acquires the car as its own asset. The lessee includes the full monthly rent in their tax-deductible expenses and claims a full VAT deduction from it as if it were a supplied service. 

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

Therefore, if your company does not operate licensed transport or an ambulance service, the limits affect you directly with a finance lease, whereas with an operating lease, they affect you only indirectly through higher rental costs.

Company Car Depreciation: How is it calculated in 2026?

From a practical point of view, it is also advisable to have the contractual terms correctly set (e.g., for finance vs. operating leases), which our contracts and negotiations practice can assist with. Passenger cars fall into the 2nd depreciation group with a minimum depreciation period of 5 years.

Straight-line and accelerated depreciation

Typically, you can choose between straight-line and accelerated depreciation under Sections 31 and 32 of the Income Tax Act. However, for cars over CZK 2 million, the cap on tax deductibility always applies.

Extraordinary depreciation for zero-emission vehicles

For new zero-emission vehicles (electric cars, hydrogen cars) for which you are the first depreciator, acquired between 2024 and 2028, the option of extraordinary depreciation under Section 30a of the Income Tax Act applies. These vehicles can be depreciated on an accelerated basis over 24 months:

• the first 12 months, evenly up to 60% of the acquisition cost,

• the next 12 months, evenly up to 40% of the acquisition cost.

Please note that hybrid vehicles (PHEVs) do not fall into this category and are depreciated over the standard 5 years. The CZK 2 million limit also applies to zero-emission vehicles, so if you buy an electric car for CZK 3 million, you will only depreciate CZK 2 million under the extraordinary scheme, and the rest is non-deductible. For a broader context on tax differences when acquiring and disposing of company assets, the comparison in the article Company Acquisition and Sale 2026: Key Tax Differences Between an Asset Sale and a Share Transfer may also be useful.

Employee's Non-Monetary Income: Car for Private Use

If an employer provides an employee with a company car for private journeys as well, a taxable non-monetary benefit arises for the employee. Its amount is based on the vehicle's acquisition cost, 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 worth CZK 2 million incl. VAT available for use will have a monthly non-monetary income of CZK 20,000. This amount is added to their gross salary and is subject to income tax and social security and health insurance contributions.

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

Logbook and Proving Entitlement to VAT Deduction

To claim a VAT deduction up to the CZK 420,000 limit, the payer must prove that the vehicle is used for their economic activity. If the car is also used for private purposes, the claim for VAT deduction must be reduced proportionally.

Record-keeping Obligation

Tax authorities require a credible record of journeys (a logbook) that demonstrates the ratio of business to private use. If the records are missing or unreliable, the tax administrator may determine the ratio by a qualified estimate or disallow the deduction entirely.

If you declare 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 for private purposes.

Selling 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 selling price. However, this is where the pitfall of the new limit becomes fully apparent, which in practice means a significant financial disadvantage.

The full selling price is taxed, the lost VAT is not refunded 

If you sell a car for which you could only claim a maximum of CZK 420,000 in VAT at the time of purchase due to the CZK 2 million limit, you must pay VAT on the entire selling price upon its subsequent sale.

Neither the VAT Act (nor the Financial Administration's methodology) allows for an adjustment of the deduction upon sale that would let you reclaim the portion of VAT you lost at the time of purchase. The loss of VAT above the CZK 420,000 threshold upon purchasing a car is permanent and non-refundable.

For example, if you buy a car for CZK 4 million + CZK 840,000 in VAT, the state will only refund you CZK 420,000 on the deduction. If you sell this car two years later for CZK 2.5 million excluding VAT, you must pay output VAT of CZK 525,000. The lost CZK 420,000 from the purchase is gone for good. The only exception is for car showrooms and dealers who purchase vehicles as "goods" for the purpose of resale – the limit does not apply to them at the time of purchase.

Penalties and risks for non-compliance

If the tax office discovers errors in the application of limits or deductions, you risk:

1. a tax reassessment (disallowance of unjustified depreciation or VAT),

2. a penalty of 20% of the reassessed 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 absolute for ordinary business owners. However, it is crucial to be aware of the harsh consequences of the subsequent sale of these vehicles and not to underestimate the correct setup of lease agreements.

The ARROWS law firm can help you set up the purchase and operation of your vehicle fleet to be compliant with Czech legislation and as economically efficient as possible. Contact us at consultation@arws.cz for an individual assessment of your situation.