VAT and corporate tax in IT renting: what changes compared with buying
There are two real tax advantages in operating renting and one that is often talked about but does not exist. It is worth separating the three before deciding, because the one that does not exist is precisely the one that features most in sales pitches.
First: the rent is an expense for the year
In operating renting, the asset does not go onto the company's balance sheet. The rent is a cost of the period and is fully deductible for corporate tax (IRC) in the financial year in which it is incurred. In a contract of €30,000 over 36 months, with rents of around €1,002, that means approximately €12,024 of deductible expense per year.
When you buy, IT equipment is depreciated at 33.33% a year under Regulatory Decree 25/2009, over three years. Note that the deduction period ends up being similar: in both cases, the total cost goes through the profit and loss account in about three years. The difference in absolute value is small.
Where there really is a difference: in 48 or 60-month contracts, renting spreads the expense over four or five years, while depreciation concentrates it in three. For a company with uneven results, spreading may be better. For a company with an exceptionally good year, concentrating is better. There is no universal answer.
Second: VAT is spread over the contract
On a purchase of €30,000, the company pays €6,900 of VAT upfront at the time of acquisition and recovers it in the next periodic VAT return. It is money that leaves the account and comes back, but it leaves first, and for many companies the "first" is what matters.
With renting, VAT is charged on each rent: around €230 a month instead of €6,900 in one go. For a taxable person entitled to deduct it, the final amount is exactly the same. What changes is the cash-flow profile, and in a tight year that difference is very real.
The advantage that does not exist: "you do not pay VAT"
You often hear that with renting "you do not pay VAT". It is false. It is paid on each rent, at the standard rate, exactly as it would be on a purchase. The only thing that changes is the timing.
Likewise, the idea that renting "does not count as debt" deserves caution. It does not create a financial liability in the same sense as a loan, and under the accounting standard for small entities an operating lease stays off the balance sheet. But it is a firm multi-year commitment, and any competent credit analyst takes it into account when assessing the company. Counting on the opposite is an illusion.
An example, with all the numbers
| €30,000 fleet, 36 months | Buying | Renting |
|---|---|---|
| Cash outflow in month 1 | €36,900 | €1,232 |
| VAT paid upfront | €6,900 | €230/month |
| Total cost (36 months) | €30,000 | €36,072 |
| Annual deductible expense | €10,000 | €12,024 |
| IRC saving at 20% | €6,000 | €7,214 |
| Cost net of tax | €24,000 | €28,858 |
Indicative, rounded figures, for illustration only. The applicable IRC rate varies with taxable income and the entity's tax regime, and the municipal and state surcharges (derrama) must also be taken into account. The specific treatment should be confirmed with the company's certified accountant.
The honest conclusion
In this example renting costs more in absolute terms, and tax does not cancel out that difference, it only reduces it to around 16% of the purchase value. Note that the example assumes an independent funder. When the financing comes from the manufacturer itself, which has a commercial interest in placing its brand, the numbers can be reversed completely.
The decision is still about what the company does with the capital it did not tie up, and about the value of having the fleet renewed by contract. Tax is a supporting argument, not the argument. Anyone who sells you renting on the strength of tax advantages is selling you the wrong reason.