As a self-employed person, car leasing is among the options you may consider when buying a vehicle for your business. But how exactly does it work and what are the pros and cons? In this article, we dive deeper into the subject of car leasing for the self-employed.
What is car leasing?
Car leasing is a form of long-term rental where you obtain the use of a car for a fixed monthly fee. Unlike buying a car, leasing means you do not become the owner of the car. Instead, you pay for the right to use the car for a pre-agreed period and amount of kilometres.
Tip:
Car leasing can be a cost-effective solution for self-employed people who need a car for business use but do not want to bear the full cost of purchasing a car.
✅ Benefits of car leasing as a self-employed person
- Fixed monthly cost: As a self-employed person, you know exactly what you will spend monthly on your car as the lease price is fixed. This makes financial planning easier.
- No large investment needed: You don’t have to invest a large amount in car purchases all at once, which is especially convenient if you prefer to stop the capital in your business.
- Maintenance and repairs included: Many lease contracts include maintenance, repairs and sometimes even insurance. So you won’t be left with unexpected costs.
- No worries about depreciation: You do not suffer from the car’s depreciation, which is the case when buying.
- Tax advantages: Lease costs are often tax deductible for self-employed people, which can provide tax benefits.
Tax deductions and car leasing for the self-employed
It is important to understand how tax deductions work when leasing a car as a self-employed person. Here are some important points to consider.
Tax deduction for car leasing
The cost of leasing a car can often be deducted as a business expense. This means you can deduct these costs from your taxable income, which can help reduce your tax bill.
Attention!
If you also use the car for personal use, you can only deduct the part of the costs related to business use.
Calculating the deduction
Calculating the deduction depends on several factors, including the type of car, CO2 emissions and fuel consumption. In general, you can expect to deduct a significant portion of the costs.
A simple way to calculate the deduction is to multiply the total amount of the lease cost by the percentage of business use of the car. For example, if you use the car 80% for business purposes, you can deduct 80% of the cost.
Tax deduction for fuel costs
Besides the lease cost, you can also deduct the cost of fuel for business use of the car. This is usually calculated based on actual fuel consumption, so it is important to keep accurate records of your business mileage and fuel costs.
Tip!
Be sure to view our blog article on how to process a mileage allowance in your accounts!
❌ Disadvantages of car leasing as a self-employed person
- Contractual obligations: You are stuck with a lease contract for the agreed periods and it can be expensive to waive here early.
- Less flexibility: If your business activities change, your lease car may no longer be suitable and updating it can be difficult or expensive.
- No ownership: At the end of the lease contract, you do not own the car unless you select a financial lease or decide to buy it.
- Potential extra costs: Upon returning the car, you may be charged extra for any damage or wear and tear beyond normal signs of use.
- Insurance and excess: Sometimes insurance is more expensive through a lease arrangement, and you often bear the excess yourself in case of damage.
Car leasing and insurance 🚗
If you are leasing a car, it is important to make sure you have good insurance. This is not only required by law, but it can also protect you from financial losses in case of an accident or damage to the car.
Required car insurance
In Belgium, it is required by law to have car insurance civil liability (BA). This insurance covers the cost of damage you cause to others with your car.
If you lease a car, chances are the leasing company will arrange this insurance for you. However, it is important to check this and make sure you are adequately covered.
Additional insurance
Besides the required BA insurance, you may also want to consider closing additional insurance policies. These are some of the most common ones:
- Comprehensive insurance: This insurance covers the cost of damage to your own car, regardless of whether you were at fault in the accident.
- Driver’s insurance: This insurance covers medical expenses and other costs you may incur if you are injured in an accident.
- Legal expenses insurance: This insurance covers the cost of legal assistance if you get involved in an accident dispute.
Tip:
It is important to consider your insurance needs carefully and make sure you are adequately covered. Be sure to compare quotations from different insurance companies to find the best deal.
Car leasing and the future 🌍
The landscape of car leasing is constantly changing, with new trends and developments changing the way we lease cars.
Electric leasing ⚡
One of the biggest trends in car leasing right now is the shift towards electric vehicles. More and more leasing companies are offering electric cars in their offerings, and many self-employed people are choosing electric leasing because of the tax advantages and lower operating costs.
Future tax rules 🧾
It is also important to keep abreast of the changing tax rules around car leasing. In Belgium, from 2026, the rules of the game around the tax deductibility of a car will change. The deductibility will be gradually phased out. Eventually, only electric company cars will still be tax deductible.
Conclusion
Leasing a car as a self-employed person can be a smart financial decision, with numerous benefits such as predictable monthly costs, access to newer models and tax advantages. However, it is important to consider your options carefully, choose the right leasing company, and make sure you are fully aware of the tax implications of car leasing
Tip:
Deciding to buy a car? Then be sure to view how to stop a car in a sole proprietors’ accounts!
