In our companion article on buying or leasing an electric vehicle through a Portuguese LDA, we walked through how VAT recovery, depreciation ceilings, and autonomous tax make company-owned vehicles (especially electric vehicles) a very tax-efficient purchase. That article assumes the car will be purchased by a business. In this article, we’ll discuss the question we receive often from our expat accounting clients in Portugal: whether they should purchase a car personally or through their Portuguese LDA.
Buying a vehicle through your LDA is frequently the most tax efficient option. This isn’t just cheaper because of VAT and depreciation benefits that reduce your business taxes. It’s cheaper because buying personally usually means getting the money out of the company first, which means paying company IRC tax, followed by personal IRS and potentially Social Security contributions on top of that.
Before you run out the door to buy a company car, remember that there needs to be some real business use for the vehicle (it can be used for both personal and business use though), there’s additional administrative burden to purchasing a vehicle through your company, and it will create additional taxable income for the individual. You’ll need a written agreement between the company and the individual if there’s any personal use, and you’ll need to maintain a usage log to support the business-use claim. We’ll walk through exactly what’s needed, and why, in section 7 below.
As always we recommend speaking with your accountant in Portugal before making any major decisions to confirm how these decisions impact your specific situation. If you’re looking for an English Speaking Accountant in Portugal, don’t hesitate to contact us.
1. Why “Buying Personally” Really Means “Extract, Then Buy”
Unless the purchase is funded from money that never touched the company, the cash for a personal car purchase almost always starts as profit sitting inside the LDA. To turn that profit into a car registered in your own name, it has to leave the company first. To get the money out of the company the profits get taxed at the company level (IRC), and again when the money crosses from the company’s account into yours (IRS, and potentially Social Security contributions).
There are two routes money can take out of a Portuguese company to a shareholder: dividends and salary. Both result in tax, and those taxes are what really make purchasing a vehicle through the business appealing (in addition to VAT, depreciation, and other tax benefits).
2. Route One — Dividends
When a Portuguese company distributes profit to an individual shareholder, it is taxed at a flat 28%, on top of the IRC the company already paid on that profit when it was earned (15% for most small businesses on amounts less than €50,000, and 19% after that).
Let’s pretend you want to buy an electric vehicle for €60,000 using your personal money (not through the business), and that €60,000 comes from dividends earned from your business:
- At the 15% IRC rate (profit within the first €50,000 taxable bracket), the company needs to generate roughly €98,000 of pre-tax profit to hand you €60,000 net.
- At the 19% IRC rate (profit above that bracket), it needs closer to €103,000.
Either way, close to 40% of the profit generated to fund the purchase disappears in tax before it ever reaches your personal account — before you’ve spent a euro on the vehicle itself.
3. Route Two — Salary
The alternative is to pay yourself the money as salary rather than a dividend. This avoids IRC on that portion of profit entirely, since salary is a deductible company expense, but it picks up Social Security on both sides (11% withheld from the employee, 23.75% paid by the employer on top) plus progressive IRS withholding, which tops out at 48%.
Using the same €60,000 target, and assuming the owner is already at or near the top IRS bracket, the company would need to pay a gross salary of roughly €131,000 to leave the individual with €60,000 after IRS and Social Security contributions from the employer (23.75%) and the employee (11%).
4. Route Three — Don't Extract Anything
Compare both of those routes to what happens when the company simply buys the car itself, as described in our companion article: the effective cost to the business is €60,000 (after VAT recovery on a qualifying electric vehicle), with no additional taxes. No dividend withholding, no payroll taxes, no progressive IRS brackets, because nothing has to leave the company and land in a personal account. The €60,000 stays exactly where it is, and the car becomes a company asset available for business use.
5. Side by Side
| Route | What has to happen first | Company profit or cost required | Leakage vs. €60,000 |
|---|---|---|---|
Company buys the car directly | Nothing — the company just pays for it | €60,000 (after VAT recovery) | 0% |
Dividend from new profit — 15% IRC bracket | Earn the profit, pay IRC, then 28% dividend withholding | ≈ €98,000 pre-tax profit | ≈ 39% |
Dividend from new profit — 19% IRC bracket | Same, at the higher IRC bracket | ≈ €103,000 pre-tax profit | ≈ 42% |
Salary, near/at the top IRS bracket | Employee IRS and Social Security contributions from company and individual | ≈ €131,000 gross salary + company costs | ≈ 54% |
Figures are illustrative, based on a €60,000 EV, 2026 IRC rates, and 2025 IRS/Social Security rates. They assume the owner is a Portuguese tax resident with no other reliefs applied. Actual results depend on the client’s total income, family situation, and which tax year applies.
6. When Does Buying Personally Actually Make Sense?
- Money that never touched the company: personal savings, foreign income already taxed elsewhere, an inheritance, or funds from before the business existed. None of the extraction costs above apply, because there’s no extraction happening.
- Little or no genuine business use: if the car is realistically a personal vehicle that occasionally runs a business errand, routing it through the LDA creates two problems; there’s a weaker case for the deductions if AT ever asks, and (as covered below) a personal-use fringe benefit that claws back some of what was saved. Buying personally and claiming the €0.40/km mileage allowance for genuine business trips is often cleaner.
- Thin or negative company profits: the tax shield from depreciation and expense deductions is only worth something if there’s IRC profit to shelter. A pre-revenue or loss-making company gets less — or none — of the income-tax side of the benefit, though the VAT recovery and ISV/IUC exemptions on a qualifying EV still apply regardless of profitability.
- An exit, sale, or multiple shareholders on the horizon: a company-owned vehicle is a company asset, which means it shows up in a valuation, a due-diligence process, or a conversation with co-investors. If that complexity isn’t worth it for one car, buying personally sidesteps it.
- Cars priced above the relevant ceilings: once you’re past €62,500 for an EV, or €25,000–€50,000 for a combustion, hybrid, or LPG/CNG vehicle (see our companion article for the full breakdown), the tax case for company ownership weakens sharply — and the extraction math above still applies on top if the purchase would otherwise be funded from company profit.
7. Company-Owned, Personally Driven — What’s Required
Buying the car through the company doesn’t mean it can never be driven for personal reasons, but personal use of a company car has its own tax rules, separate from everything above, and staying compliant means keeping a few specific things in place.
Three things need to be in place:
- A Contract: A written agreement between the company and the employee or Managing Director, signed before personal use starts. This is what allows personal use to be taxed cleanly as a benefit in kind and without it, private use becomes a murkier question of fact instead of a straightforward calculation.
- Additional Taxable Income for the Employee: The monthly benefit-in-kind value, added to payroll for every month the car was available for personal use, and taxed through the normal IRS withholding tables. It’s treated as income because, in substance, it is: the individual is receiving something of value, even though no cash changes hands.
- A Usage or Mileage Log: Wherever there’s genuine business use, it should be recorded in a usage log. This doesn’t change the personal-use calculation below, but it’s what supports the claim that the vehicle is a real business asset in the first place. In other words it doesn’t impact the individual, it impacts the business saying they bought the car for business reasons.
The usage log can be annoying in practice, but important to do. A car funded through the company but used only personally, with no genuine business trips at all, risks AT deciding the vehicle was never a legitimate business asset to begin with, which can remove the tax benefit at the company level entirely. That means losing the VAT recovery, the depreciation, and the running-cost deductions that made company ownership attractive, while the individual still owes IRS on the personal-use benefit regardless.
With the agreement in place, personal use is taxed as a benefit in kind, added to the individual’s Category A (employment) income. The taxable value is calculated as:
0.75% × the vehicle’s value on 1 January of that year × number of months of use
“Value” isn’t the original purchase price. It’s reduced each year using a fixed depreciation table set by the Portuguese government, starting at 0% accumulated depreciation in year one and reaching 90% by year ten, with a 10% floor that never disappears after that. For a €60,000 electric vehicle in its first full year of use, that works out to €60,000 × 0.75% × 12 months = €5,400 of taxable income added to the individual’s payroll for the year, on top of whatever salary they already draw. By year 10, it’s only €540 of additional taxable income.
That €5,400 is taxed at the individual’s own marginal IRS rate, on top of whatever they already draw in salary. For someone already at the top bracket, that works out to an extra €2,592 a year in IRS (48% of €5,400), collected through ordinary payroll withholding. This amount can be meaningfully less for someone in the lower brackets, since the rate drops off sharply further down the income scale. One point that does work in the client’s favour: unlike the salary route in Route Two, this specific benefit carries no Social Security on either side, employer or employee, the entire added cost here is IRS.
- A Contract: A written agreement between the company and the employee or Managing Director, signed before personal use starts. This is what allows personal use to be taxed cleanly as a benefit in kind and without it, private use becomes a murkier question of fact instead of a straightforward calculation.
8. Key Takeaways
- Buying through the company usually wins not just because of VAT recovery and depreciation, but because it skips the cost of extracting cash from the company altogether.
- Personal ownership still makes sense in specific situations: money that never touched the company, little or no real business use, low or negative company profits, or an approaching exit.
- A company car that’s also driven personally brings its own tax rules, so get the written agreement in place and the taxable benefit calculated correctly from day one.
- Personal use of a company car adds real IRS tax to the individual, but no additional Social Security contributions for either the company or the individual.
- If a company car is used only personally, with no genuine business trips, the risk isn’t just a bigger tax bill, it’s losing the company-level tax benefit (VAT recovery, depreciation, running costs) entirely.
Please note that this article is for informational purposes only. It reflects our understanding of the rules in force as of the time of writing and is not meant to be specific financial or tax advice. IRC rates, dividend withholding, Social Security contribution rates, and IRS brackets are set annually and can change, and the right extraction strategy depends heavily on a client’s total income, existing salary, and family situation. Please talk to your Elevate contact, or our business advisory team in Portugal, to work through the numbers for your specific situation before buying a vehicle personally or through your company.