Company Car: Lease or Buy? What the Tax Rules Really Say

When a company needs a car, the question nearly always comes in the same form: is leasing better, because it is "tax-deductible"? The honest answer is that the tax rules look mainly at how the car is used, and much less at how it is paid for. Here we set out the rules scenario by scenario and turn them into euros.

Does leasing really save more tax than buying?

Not in total. When you buy, you deduct depreciation: for cars the rate is 25% a year, halved in the first year, so the cost is spread over five tax years. When you lease, you deduct the lease payments. In both cases the same percentages and the same cost cap apply, set by article 164 of Italy's Consolidated Income Tax Act (TUIR).

With a lease, the cap applies proportionally, through three practical rules:

• Deductible payment = payment × (18,075.99 ÷ cost borne by the leasing company) × 20%, for a general-use car.
• The initial down payment (maxicanone) is not deducted all in the first year: it is spread over the whole contract.
• The interest share built into the payments follows the same deductibility percentage and, for corporate income tax (IRES), the general limits on interest expense too; it is not deductible for regional business tax (IRAP).

What changes is timing. Article 102, paragraph 7, sets a minimum tax duration for leases: for a general-use company car, payments are deducted over no less than 48 months, the same as the depreciation period; for a car assigned to an employee and for a purely instrumental vehicle, half of that is enough, 24 months (a summary of the rules, in Italian). If the contract is shorter, the deduction is still stretched to the minimum period.

How much can you deduct, depending on how the car is used?

The percentage depends on use, and the use has to be documented: an assignment agreement, a log, consistency with the business. The rules are the same for leasing and buying.

Purely instrumental use

100% deductible, no cap, and VAT fully recoverable. The scope is narrow, though: it covers vehicles without which the business cannot operate, such as those of a driving school, a chauffeur service or a car-rental business. A car used to visit clients does not qualify.

General business use

The most common case: the car belongs to the company and is not assigned to anyone in particular. 20% deductible, on a maximum cost of €18,075.99 for purchase and leasing, and on a maximum rental charge of €3,615.20 a year for long-term rental. VAT is 40% recoverable, a regime the Council of the European Union has extended to 31 December 2028. Sole traders and self-employed professionals can apply it to one vehicle only; corporations have no limit on the number.

Sales agents and representatives

80% deductible, with a cost cap of €25,822.84 and €5,164.57 a year for rental, and VAT fully recoverable. Leases follow the 48-month minimum tax duration.

Car assigned to an employee for mixed use

70% deductible, with no cost cap, provided the car is assigned to the employee for most of the tax year. In return, the employee pays tax on the fringe benefit. This is where leasing gives its clearest tax advantage, because payments can be deducted over as little as 24 months.

Car assigned to a company director

The 70% rule does not automatically extend to directors. Costs are fully deductible up to the fringe benefit taxed in the director's hands, and anything above that follows the 20% rule within the cost caps (further detail, in Italian).

A note on IRAP: for companies that compute it from their financial statements, the article 164 limits do not apply and car costs count in full, as Italy's Supreme Court confirmed in order 11791/2024. The interest share of lease payments remains excluded.

An example: a €40,000 car, two different uses

Take a €40,000 car for a company paying IRES at 24%. To keep the comparison readable we leave aside VAT and financing costs, and look only at how much of the car's price becomes a deduction.

• General business use, purchase. The recognised cost stops at €18,075.99, 20% deductible: €3,615.20 in all, over five tax years (€451.90 in the first and last, €903.80 in the others). Total IRES saving: €867.65.
• General business use, 48-month lease. The same €3,615.20, over four years of €903.80. Same saving, €867.65. On a €40,000 car the tax system gives back less than €900, whichever contract you choose.
• Car assigned to an employee, purchase. 70% of €40,000 is deductible, that is, €28,000, over five tax years (€3,500 in the first and last, €7,000 in the others). IRES saving: €6,720.
• Car assigned to an employee, 36-month lease. The same €28,000 is deducted over three years, about €9,333 a year. The total saving is still €6,720, but it arrives two years earlier: discounted at 4%, the advantage is worth about €235.

In short, leasing moves the same tax saving forward in time. What that head start is worth depends on your company's cost of money.

VAT: is it better to pay it all upfront or on the lease payments?

When you buy, VAT is paid in full on delivery: €8,800 on €40,000. For a general-use car or one assigned to an employee you recover 40%, that is, €3,520, while the remaining €5,280 becomes part of the cost, within the same deduction cap. With a lease, VAT is paid on each payment and recovered at the same percentage, one payment at a time. The final bill is similar; what changes is the initial outlay, which a lease spreads over the contract.

How much does an employee with a company car pay in 2026?

The employee does not pay for the car, but pays tax on the value of its private use, the fringe benefit. Since 2025 the calculation starts from the ACI cost per kilometre for 15,000 km and takes a share that depends only on the powertrain (circular 10/E of 2025):

• 50% for petrol, diesel, LPG, methane and non-plug-in hybrids;
• 20% for plug-in hybrids;
• 10% for fully electric cars.

Legislative Decree 148 of 2026 added two adjustments, in force from 2026: the value rises by 50% after 31 December of the fifth year from first registration, even if the car passes to another employee, and by a further 5% if the car has accessories not valued in the ACI tables. The same decree removed the new-registration requirement, so a reassigned used car can also follow the ACI tables. Cars assigned between 1 July 2020 and 31 December 2024, and those ordered by the end of 2024 and delivered by 30 June 2025, remain under the previous regime.

An example with a hypothetical ACI cost of €0.60 per kilometre, that is, €9,000 for 15,000 km: the taxable fringe benefit is €4,500 a year for a petrol car, €1,800 for a plug-in and €900 for an electric car. After the fifth year, the same petrol car reaches €6,750. Leasing or buying changes none of these numbers; the choice of engine does.

When does it make sense to buy the car?

• When the company has surplus cash it does not need for working capital: buying avoids the financing cost built into lease payments.
• When the car will stay in the company for a long time, well beyond the four or five years of deductions, and keeps a residual value.
• When the car costs little more than the €18,075.99 cap and is for general use: leasing brings nothing forward, because the minimum tax duration is 48 months anyway.

Leasing suits a company whose cash and credit lines are needed for the business, one that replaces cars every three or four years, and above all one that assigns the car to an employee, because that is where the deduction really gets shorter.

There is a third route, long-term rental. For a general-use car the rental charge is 20% deductible within €3,615.20 a year, while the services included in the fee, such as maintenance and insurance, follow the 20% rule separately; for a car assigned to an employee the 70% rule applies with no cap, as for leasing and buying. The advantage of rental is mostly operational rather than fiscal.

Questions that rarely get a straight answer

These are questions we are asked often and that rarely get a direct answer. The reference is always article 164, together with article 51 for fringe benefits.

Is the initial lease down payment deductible all in the first year?

No. The initial down payment is spread over the whole contract together with the periodic payments, and deducted year by year at the percentage that applies to the car's use. It lowers the instalments; it does not bring the deduction forward.

How is the buyout price of a leased car deducted?

On buyout the car becomes a company asset and the price paid becomes its cost: it is depreciated at 25% a year, at the same deductibility percentages linked to its use. The buyout is usually a small share of the value, so it weighs little.

Does an electric company car have a higher deductibility cap?

No. The €18,075.99 cap and the 20% and 70% percentages apply to every powertrain. Electric pays off on the employee's fringe benefit, which stops at 10% of the ACI cost, and on running costs, not on the company's deduction.

Under Italy's flat-rate regime, is leasing or buying better?

From a tax point of view it makes no difference. Under the flat-rate regime (regime forfettario) costs are not deducted one by one, because income is calculated by applying a coefficient to revenue. The choice rests only on cash, affordable instalments and how long the car will be used.

When the company sells the car, is the capital gain taxed in full?

No. Capital gains and losses count in the same proportion as the depreciation deducted: if the car was 20% deductible, the gain weighs on taxable income in that measure too. Article 164 itself provides for this.

If the employee pays something towards the car, does the fringe benefit go down?

Yes. Amounts the employee pays, or that are withheld from pay, for private use of the car are subtracted from the fringe benefit value, down to zero. It is a useful lever when the car has a high ACI value.

Leasing or buying: how do they compare?