Leasing, renting or buying a car: which is the best option?

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In this article, we’ll distinguish between the different types of leasing, renting, and purchasing a vehicle, and discuss which option might be most beneficial based on your specific needs.

1. Financial leasing, operational leasing, renting or buying: the differences

2. Leasing

There are two main types of leasing:

• Financial leasing

• Operational leasing

The main distinction between financial leasing and operational leasing lies in the ownership of the asset.

2.1 Financial Leasing

Financial leasing is a financing solution (similar to a loan) where a leasing company acquires an asset and makes it available to the lessee, usually a business or an independent professional. The leasing company remains the legal owner, but not the economic owner.

This type of leasing is distinguished by the fact that the asset is recorded on the lessee's balance sheet, allowing it to be depreciated (for example, over a period of five years) as if the lessee were the owner. Payments made reduce the debt associated with the asset, with each leasing invoice separating the principal portion from the interest. This separation enables clear management of assets and depreciation on the balance sheet.

In general, financial leasing involves a purchase option at the end of the contract for up to 15% of the investment value of the asset.

VAT Consideration: For financial leasing, VAT payments are spread over the duration of the lease contract, unlike direct purchases where VAT is generally paid in a single installment. VAT is distributed across monthly invoices, easing the initial financial burden and allowing partial recovery as part of VAT returns.

💡 Financial leasing offers valuable financial and accounting flexibility for independent professionals or companies, allowing them to use an asset without a significant upfront investment, while also providing a potential solution for asset acquisition at the end of the lease.

💡 If you have a Utility vehicle, remember to select the category Vehicle > Utility Vehicles > Financial Lease Contract or Monthly Financial Lease Invoice. Each monthly invoice should be recorded under Vehicle > Utility Vehicles > Financial leasing monthly invoice only for the amount corresponding to the capital repayment. Only the VAT portion will be partially deductible If your invoice includes interest on the finance lease, this should be entered in the Interest and bank charges category. The same applies if the invoice includes insurance -> category: Vehicle > Utility Vehicles > Insurance. And also for maintenance -> category: Vehicle > Utility Vehicles > Maintenance and repairs. 💡 To do this, you'll need to click on “split expense” so that you can encode the amounts in the corresponding categories. For each category, you'll need to create an item in the expense. 🚨 For a Utility vehicle, the system does not require you to register the vehicle in the system!

2.2 Operational Leasing

In an operational leasing contract, the leasing company retains the legal and economic ownership of the vehicle, managing its acquisition, insurance, taxes, maintenance, and repairs. All these costs are included in the monthly invoice and can be adjusted during contract negotiation. Unlike financial leasing, this type of contract is not considered an investment for the lessee, and the vehicle cannot be depreciated on their balance sheet. Payments are recorded as business expenses. Additionally, certain options such as insurance, maintenance, and repairs are generally included, but the lessee can add extra services such as a replacement vehicle, roadside assistance, winter tires or a fuel card.

Operating leases generally include a purchase option of more than 15% of the investment value of the asset.

For operational leasing, your monthly invoice is calculated based not only on the selected options but also on the contract duration and agreed mileage. Throughout the contract, the leasing company keeps you informed of the vehicle's condition and required maintenance, allowing you to monitor variable costs and prevent unexpected expenses.

VAT Consideration: With an operational lease, VAT is spread throughout the leasing period. This means that VAT-related amounts are included in monthly payments, eliminating the need for upfront financing. Additionally, this VAT can be reclaimed when submitting the VAT return.

💡 Operational leasing is particularly suitable in situations where:

• The lessee wants to avoid having the leased asset appear on their balance sheet.

• The lessee prefers to record lease payments as operating expenses in their income statement.

• Purchasing the asset at the end of the contract is of secondary interest.

🚨Your monthly operational lease invoice should be added in the Expenses tab under the category Vehicle > Automobile > Operational leasing. If the invoice includes insurance -> category: Vehicle > Automobile > Insurance. And also for maintenance -> category: Vehicle > Automobile > Maintenance and repairs. 💡 To do this, you'll need to click on “split expense” so that you can encode the amounts in the corresponding categories. For each category, you'll need to create an item in the expense.

💡 If you have a utility vehicle, don't forget to select the category Vehicle > Utility Vehicles > Operational leasing. If the invoice includes insurance -> category: Vehicle > Utility Vehicles > Insurance. And also for maintenance -> category: Vehicle > Utility Vehicles > Maintenance and repairs. 💡 To do this, you'll need to click on “split expense” so that you can encode the amounts in the corresponding categories. For each category, you'll need to create an item in the expense. 🚨 For a utility vehicle, the system does not require you to register the vehicle in the system!

3. Financial Renting

Renting is essentially a form of leasing where you do not acquire ownership of the vehicle, meaning that it is not considered an investment for your business. As a result, the vehicle does not need to be recorded on the company's balance sheet, meaning it does not affect the company’s level of debt. The leasing company therefore retains both the legal and economic ownership of the vehicle.

When your business opts for renting, it enters into an agreement to lease a company car with a leasing company, setting the contract duration, maximum mileage, and cost in advance.

The payments made for renting are immediately treated as operational expenses, with no possibility of depreciation, and the lease expense is directly deductible.

Depending on the contract conditions, there may be an option to purchase the vehicle at the end of the renting period, usually with a buyout option set at a minimum of 16%.

VAT Consideration: associated with renting, the principle is similar to that of leasing, with VAT spread across the monthly payments and the possibility of partial recovery through the VAT declaration. However, the ability to deduct VAT is limited, as the vehicle is considered for mixed-use, which offers various approaches to VAT deduction.

💡 Renting stands out because it is not considered an investment, and therefore the rented vehicle is not recorded as an asset on the company's balance sheet. The costs associated with the rental are directly accounted for as expenses. Additionally, the renting period is shorter than that associated with leasing, allowing for quicker deduction of the full costs related to the vehicle.

🚨The renting invoice should be added in the "Expense" tab under the category Vehicle > Automobile > Car rental or financial renting. If the invoice includes insurance -> category: Vehicle > Automobile > Insurance. And also for maintenance -> category: Vehicle > Automobile > Maintenance and repairs. 💡 To do this, you'll need to click on “split expense” so that you can encode the amounts in the corresponding categories. For each category, you'll need to create an item in the expense.

💡 If you have a utility vehicle, don't forget to select the category Vehicle > Utility vehicles > Utility vehicles rental or financial renting. If the invoice includes insurance -> category: Vehicle > Utility Vehicles > Insurance. And also for maintenance -> category: Vehicle > Utility Vehicles > Maintenance and repairs. 💡 To do this, you'll need to click on “split expense” so that you can encode the amounts in the corresponding categories. For each category, you'll need to create an item in the expense. 🚨 For a utility vehicle, the system does not require you to register the vehicle in the system!

4. Purchasing a Vehicle

The acquisition of a vehicle for business use is considered an investment and, as such, is subject to depreciation over its economic lifespan. Tax regulations typically require the depreciation period to be no less than five years for a new vehicle and three years for a used vehicle.

VAT Consideration: a portion can be reclaimed through the periodic VAT declaration, and the remaining amount is depreciated along with the vehicle. It’s important to note that in the case of resale, any gain is subject to taxation, while a loss can be deducted.

💡 For vehicles, VAT deduction is generally at the legal flat rate of 35% and can go up to 50%.

Advantages of purchasing a vehicle:

💡 Purchasing is generally more cost-effective, as you have the freedom to choose your garage, insurer, etc. You avoid additional costs often included in leasing or renting contracts, such as fuel and taxes, resulting in significant savings.

Author - Valesca Wilms

As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.

Who is Valesca ?