Table of Contents
How financing actually works in a car sale
The sale of the vehicle: accounting and taxation
The finance company's commission: how to declare it
VAT on financed sales: when it becomes due and how it is declared
Tax returns affecting financed sales
What documentation the dealership must keep
Common mistakes when declaring financed sales
Frequently asked questions
How financing actually works in a car sale
When a customer finances the purchase of a vehicle, three parties are involved: the customer, the dealership, and the finance company. The flow is as follows: the customer signs a finance agreement with the finance company, the finance company pays the total amount of the vehicle to the dealership, and the customer repays that amount to the finance company in monthly instalments.
From the dealership's point of view, this has an important accounting consequence: even if the customer pays in instalments over months or years, the dealership collects 100% of the vehicle price at once from the finance company. The sale is treated exactly the same as a cash sale. There is no deferred income, no management of partial collections, and no risk of non-payment.
What is different is the commission. Most finance companies pay the dealership a commission for arranging the finance for the customer. This commission is additional income with its own tax treatment, distinct from the sale of the vehicle.
These two concepts — the sale of the car and the finance commission — are independent transactions with separate accounting entries and tax declarations. Treating them as one is the most common mistake.
The sale of the vehicle: accounting and taxation
The sale of the vehicle is recorded in exactly the same way as any other sale, regardless of whether the payment comes from a finance company and not directly from the customer.
Numerical example: sale of a vehicle for €15,000 under the general scheme (VAT at 21%).
Journal entry at the time of issuing the invoice and delivering the vehicle:
Account | Debit | Credit |
|---|---|---|
(430) Customers | €18,150 | |
(700) Sales of goods | ||
(477) Output VAT |
Journal entry when the finance company transfers the amount:
Account | Debit | Credit |
|---|---|---|
(572) Banks | €18,150 | |
(430) Customers |
If the vehicle is sold under the REBU margin scheme (purchased from an individual), the entry is different: there is no broken-down VAT, the income is recorded for the total price, and the VAT calculated on the margin is settled in Form 303 using the specific boxes for the scheme. Financing does not change the scheme applicable to the sale.
When VAT becomes due. VAT is due at the time of delivery of the vehicle and issuance of the invoice, not when you receive payment from the finance company. If you deliver the car on 28 March but the finance company pays into your account on 5 April, the VAT must be declared in the first quarter (the March one), not the second.
The finance company's commission: how to declare it
The commission that the finance company pays to the dealership for arranging the finance constitutes a provision of services by the dealership to the finance company. It is an income subject to VAT at 21% for which the dealership must issue an invoice.
This is the point that generates the most errors. Many dealerships do not issue an invoice for the commission and do not declare it as income, either because they consider it secondary income or because the finance company settles the amount directly with them without requesting an invoice. This is a tax error: the commission is income from the business activity and must be declared.
Numerical example: €450 commission for finance intermediation.
Journal entry when registering the commission invoice:
Account | Debit | Credit |
|---|---|---|
(430) Finance Company (customer) | €544.50 | |
(705) Provision of services | ||
(477) Output VAT |
Journal entry when the finance company pays the commission:
Account | Debit | Credit |
|---|---|---|
(572) Banks | €544.50 | |
(430) Finance Company (customer) |
In some operations, the finance company does not pay the commission directly but deducts it from the amount it transfers to the dealership. For example, if the vehicle is worth €15,000 and the commission is €450, the finance company may transfer €15,450 (price + commission) or it may transfer €15,000 and the commission arrives separately. In any case, the commission invoice must be issued and declared.
To find out what other business income and expenses have similar obligations, check out the guide on deductible expenses for second-hand car dealerships.
VAT on financed sales: when it becomes due and how it is declared
Sale of the vehicle. VAT is due on the date of delivery of the vehicle and issuance of the invoice. The fact that the payment comes from the finance company does not change either the time of tax point or the taxable amount. The taxable amount is the total price of the vehicle, not the amount that the dealership finally receives after possible discounts or commissions.
Finance commission. The VAT on the commission becomes due when the service is provided, which in practice coincides with the moment the finance is processed (usually on the same day as the sale or very close to it). It is settled in Form 303 of the quarter in which the invoice is issued.
Possible exemption of the commission. Some finance companies argue that the financial intermediation commission could be exempt from VAT according to Article 20.One.18 of the VAT Law (financial transactions). However, that exemption applies to financial transactions themselves, not to the commercial intermediation services carried out by the dealership. The dealership’s commission is a commercial mediation service, not a financial transaction, and is subject to 21% VAT. This point can lead to discrepancies with some finance companies: it is advisable to clarify this with your tax advisor.
To understand how these operations are declared in Form 303 together with the rest of your business activity, you can consult the guide on how to issue invoices correctly in car trading.
Tax returns affecting financed sales
Form 303 (Quarterly VAT). Both the VAT on the sale of the vehicle and the VAT on the commission are declared in Form 303 of the corresponding quarter. There are no specific boxes for financed sales: they are declared in exactly the same way as any other sale with VAT.
Form 347 (Annual return of operations with third parties). If the volume of transactions with the same finance company exceeds €3,005.06 in the calendar year (which almost always happens if there is a minimum volume of financing), those operations must be declared in Form 347. This includes both the vehicle sales collected through the finance company and the commissions received.
Form 190 (Annual summary of withholding taxes). If the finance company applies any type of withholding tax on commissions (which is not common but can happen), it must appear in Form 190. Most often there is no withholding because the dealership is a company or a self-employed business billing with VAT, not a professional subject to personal income tax (IRPF) withholding.
To understand when withholding taxes apply in the day-to-day operations of a dealership, you can consult the guide on when it is mandatory to apply withholding tax in car trading.
What documentation the dealership must keep
Sales invoice to the customer. It must include the complete details of the buyer, the description of the vehicle, the price, and the corresponding VAT (or the margin scheme reference if applicable). The fact that the finance company pays does not change to whom the invoice is issued: it is issued to the customer, who is the one buying the vehicle.
Finance agreement signed by the customer. This proves that the payment was made by a financial institution on behalf of the customer. It is the document that explains why the payment into the bank account comes from the finance company and not from the buyer themselves.
Commission invoice issued to the finance company. The intermediation commission must be invoiced. If the finance company settles the commissions via a monthly statement or summary without requesting an individual invoice per transaction, the dealership must still issue the corresponding invoice.
Finance company clearance slip. The statement or document that the finance company issues detailing the transferred amount and the commissions applied. This is the evidence that allows the reconciling of the recorded income with bank movements.
To see how to integrate all this documentation into the file of each vehicle, you can review the guide on mandatory documentation for each purchase and sale transaction.
Common mistakes when declaring financed sales
Not declaring the finance commission. This is the most common mistake. The commission is income from the business activity subject to VAT. Failing to declare it is a tax infraction that tax authorities can detect by cross-referencing the finance company's data (which does declare the payment) with that of the dealership.
Declaring the VAT of the sale in the quarter in which the finance company pays, rather than in the quarter of delivery. VAT is due upon delivery of the vehicle, not upon collection. If you deliver in March and receive payment in April, the VAT belongs to the first quarter.
Not issuing an invoice for the commission. Even if the finance company settles commissions directly, the dealership must issue an invoice. Without it, the income may not be correctly documented and the VAT on the commission may remain undeclared.
Reducing the taxable amount of the sale by the commission amount. Some dealerships subtract the commission from the amount collected and only declare the difference. This is incorrect: the taxable amount of the sale is the total price of the vehicle agreed with the customer, regardless of what the dealership receives after deducting the finance company's commission.
Confusing the financing operation with an in-house instalment sale. If the dealership finances directly (without the intervention of an external finance company), the treatment is completely different: there is deferred income, interest that may or may not be subject to VAT, and non-payment risk management that does not exist in financing through an external entity. Most dealerships do not finance directly, but it is important to be clear on this.
To ensure you apply the correct scheme for each sale, check the guide on when to invoice with VAT and when to apply the margin scheme (REBU).
More than 750 dealerships already use Dealcar to manage their daily operations
Dealcar records every sale with its payment method (cash, financed, mixed) and allows you to track outstanding payments from finance companies. With every transaction correctly documented from the start, preparing quarterly returns and the annual Form 347 is a task that requires no sorting through backlog.
If you want to see how it works, you can book a free demo at dealcar.io.
Frequently asked questions
Do I have to declare the sale even if the finance company pays it instead of the customer?
Yes. The sales transaction is declared in the quarter of delivery of the vehicle and issuance of the invoice, regardless of who makes the payment and when. The finance company is the collection method, not the buyer.
Does financing change the taxable amount for VAT?
No. The taxable amount is the total price agreed with the customer. The fact that the payment is made by the finance company does not change either the base or the applicable VAT rate.
What happens if the customer fails to pay the instalments to the finance company and they repossess the car?
The dealership has already collected the full price from the finance company. If the finance company repossesses the vehicle due to non-payment by the customer, that transaction is between the finance company and the customer: the dealership is not involved unless it has personally guaranteed the operation (which is neither common nor recommended).
Do I have to issue a commission invoice even if the finance company does not ask for it?
Yes. The obligation to issue an invoice lies with the dealership, not the finance company. Even if the finance company settles commissions via bank transfer without requesting an invoice, the dealership must issue one to correctly document the income and the corresponding VAT.
If the dealership pays any fee or subscription to the finance company to access their financing network, that expense is deductible as an operating expense of the business. If there is no payment from the dealership to the finance company (it only receives commissions), there is no expense to deduct in relation to the financing.
Table of Contents
How financing actually works in a car sale
The sale of the vehicle: accounting and taxation
The finance company's commission: how to declare it
VAT on financed sales: when it becomes due and how it is declared
Tax returns affecting financed sales
What documentation the dealership must keep
Common mistakes when declaring financed sales
Frequently asked questions
How financing actually works in a car sale
When a customer finances the purchase of a vehicle, three parties are involved: the customer, the dealership, and the finance company. The flow is as follows: the customer signs a finance agreement with the finance company, the finance company pays the total amount of the vehicle to the dealership, and the customer repays that amount to the finance company in monthly instalments.
From the dealership's point of view, this has an important accounting consequence: even if the customer pays in instalments over months or years, the dealership collects 100% of the vehicle price at once from the finance company. The sale is treated exactly the same as a cash sale. There is no deferred income, no management of partial collections, and no risk of non-payment.
What is different is the commission. Most finance companies pay the dealership a commission for arranging the finance for the customer. This commission is additional income with its own tax treatment, distinct from the sale of the vehicle.
These two concepts — the sale of the car and the finance commission — are independent transactions with separate accounting entries and tax declarations. Treating them as one is the most common mistake.
The sale of the vehicle: accounting and taxation
The sale of the vehicle is recorded in exactly the same way as any other sale, regardless of whether the payment comes from a finance company and not directly from the customer.
Numerical example: sale of a vehicle for €15,000 under the general scheme (VAT at 21%).
Journal entry at the time of issuing the invoice and delivering the vehicle:
Account | Debit | Credit |
|---|---|---|
(430) Customers | €18,150 | |
(700) Sales of goods | ||
(477) Output VAT |
Journal entry when the finance company transfers the amount:
Account | Debit | Credit |
|---|---|---|
(572) Banks | €18,150 | |
(430) Customers |
If the vehicle is sold under the REBU margin scheme (purchased from an individual), the entry is different: there is no broken-down VAT, the income is recorded for the total price, and the VAT calculated on the margin is settled in Form 303 using the specific boxes for the scheme. Financing does not change the scheme applicable to the sale.
When VAT becomes due. VAT is due at the time of delivery of the vehicle and issuance of the invoice, not when you receive payment from the finance company. If you deliver the car on 28 March but the finance company pays into your account on 5 April, the VAT must be declared in the first quarter (the March one), not the second.
The finance company's commission: how to declare it
The commission that the finance company pays to the dealership for arranging the finance constitutes a provision of services by the dealership to the finance company. It is an income subject to VAT at 21% for which the dealership must issue an invoice.
This is the point that generates the most errors. Many dealerships do not issue an invoice for the commission and do not declare it as income, either because they consider it secondary income or because the finance company settles the amount directly with them without requesting an invoice. This is a tax error: the commission is income from the business activity and must be declared.
Numerical example: €450 commission for finance intermediation.
Journal entry when registering the commission invoice:
Account | Debit | Credit |
|---|---|---|
(430) Finance Company (customer) | €544.50 | |
(705) Provision of services | ||
(477) Output VAT |
Journal entry when the finance company pays the commission:
Account | Debit | Credit |
|---|---|---|
(572) Banks | €544.50 | |
(430) Finance Company (customer) |
In some operations, the finance company does not pay the commission directly but deducts it from the amount it transfers to the dealership. For example, if the vehicle is worth €15,000 and the commission is €450, the finance company may transfer €15,450 (price + commission) or it may transfer €15,000 and the commission arrives separately. In any case, the commission invoice must be issued and declared.
To find out what other business income and expenses have similar obligations, check out the guide on deductible expenses for second-hand car dealerships.
VAT on financed sales: when it becomes due and how it is declared
Sale of the vehicle. VAT is due on the date of delivery of the vehicle and issuance of the invoice. The fact that the payment comes from the finance company does not change either the time of tax point or the taxable amount. The taxable amount is the total price of the vehicle, not the amount that the dealership finally receives after possible discounts or commissions.
Finance commission. The VAT on the commission becomes due when the service is provided, which in practice coincides with the moment the finance is processed (usually on the same day as the sale or very close to it). It is settled in Form 303 of the quarter in which the invoice is issued.
Possible exemption of the commission. Some finance companies argue that the financial intermediation commission could be exempt from VAT according to Article 20.One.18 of the VAT Law (financial transactions). However, that exemption applies to financial transactions themselves, not to the commercial intermediation services carried out by the dealership. The dealership’s commission is a commercial mediation service, not a financial transaction, and is subject to 21% VAT. This point can lead to discrepancies with some finance companies: it is advisable to clarify this with your tax advisor.
To understand how these operations are declared in Form 303 together with the rest of your business activity, you can consult the guide on how to issue invoices correctly in car trading.
Tax returns affecting financed sales
Form 303 (Quarterly VAT). Both the VAT on the sale of the vehicle and the VAT on the commission are declared in Form 303 of the corresponding quarter. There are no specific boxes for financed sales: they are declared in exactly the same way as any other sale with VAT.
Form 347 (Annual return of operations with third parties). If the volume of transactions with the same finance company exceeds €3,005.06 in the calendar year (which almost always happens if there is a minimum volume of financing), those operations must be declared in Form 347. This includes both the vehicle sales collected through the finance company and the commissions received.
Form 190 (Annual summary of withholding taxes). If the finance company applies any type of withholding tax on commissions (which is not common but can happen), it must appear in Form 190. Most often there is no withholding because the dealership is a company or a self-employed business billing with VAT, not a professional subject to personal income tax (IRPF) withholding.
To understand when withholding taxes apply in the day-to-day operations of a dealership, you can consult the guide on when it is mandatory to apply withholding tax in car trading.
What documentation the dealership must keep
Sales invoice to the customer. It must include the complete details of the buyer, the description of the vehicle, the price, and the corresponding VAT (or the margin scheme reference if applicable). The fact that the finance company pays does not change to whom the invoice is issued: it is issued to the customer, who is the one buying the vehicle.
Finance agreement signed by the customer. This proves that the payment was made by a financial institution on behalf of the customer. It is the document that explains why the payment into the bank account comes from the finance company and not from the buyer themselves.
Commission invoice issued to the finance company. The intermediation commission must be invoiced. If the finance company settles the commissions via a monthly statement or summary without requesting an individual invoice per transaction, the dealership must still issue the corresponding invoice.
Finance company clearance slip. The statement or document that the finance company issues detailing the transferred amount and the commissions applied. This is the evidence that allows the reconciling of the recorded income with bank movements.
To see how to integrate all this documentation into the file of each vehicle, you can review the guide on mandatory documentation for each purchase and sale transaction.
Common mistakes when declaring financed sales
Not declaring the finance commission. This is the most common mistake. The commission is income from the business activity subject to VAT. Failing to declare it is a tax infraction that tax authorities can detect by cross-referencing the finance company's data (which does declare the payment) with that of the dealership.
Declaring the VAT of the sale in the quarter in which the finance company pays, rather than in the quarter of delivery. VAT is due upon delivery of the vehicle, not upon collection. If you deliver in March and receive payment in April, the VAT belongs to the first quarter.
Not issuing an invoice for the commission. Even if the finance company settles commissions directly, the dealership must issue an invoice. Without it, the income may not be correctly documented and the VAT on the commission may remain undeclared.
Reducing the taxable amount of the sale by the commission amount. Some dealerships subtract the commission from the amount collected and only declare the difference. This is incorrect: the taxable amount of the sale is the total price of the vehicle agreed with the customer, regardless of what the dealership receives after deducting the finance company's commission.
Confusing the financing operation with an in-house instalment sale. If the dealership finances directly (without the intervention of an external finance company), the treatment is completely different: there is deferred income, interest that may or may not be subject to VAT, and non-payment risk management that does not exist in financing through an external entity. Most dealerships do not finance directly, but it is important to be clear on this.
To ensure you apply the correct scheme for each sale, check the guide on when to invoice with VAT and when to apply the margin scheme (REBU).
More than 750 dealerships already use Dealcar to manage their daily operations
Dealcar records every sale with its payment method (cash, financed, mixed) and allows you to track outstanding payments from finance companies. With every transaction correctly documented from the start, preparing quarterly returns and the annual Form 347 is a task that requires no sorting through backlog.
If you want to see how it works, you can book a free demo at dealcar.io.
Frequently asked questions
Do I have to declare the sale even if the finance company pays it instead of the customer?
Yes. The sales transaction is declared in the quarter of delivery of the vehicle and issuance of the invoice, regardless of who makes the payment and when. The finance company is the collection method, not the buyer.
Does financing change the taxable amount for VAT?
No. The taxable amount is the total price agreed with the customer. The fact that the payment is made by the finance company does not change either the base or the applicable VAT rate.
What happens if the customer fails to pay the instalments to the finance company and they repossess the car?
The dealership has already collected the full price from the finance company. If the finance company repossesses the vehicle due to non-payment by the customer, that transaction is between the finance company and the customer: the dealership is not involved unless it has personally guaranteed the operation (which is neither common nor recommended).
Do I have to issue a commission invoice even if the finance company does not ask for it?
Yes. The obligation to issue an invoice lies with the dealership, not the finance company. Even if the finance company settles commissions via bank transfer without requesting an invoice, the dealership must issue one to correctly document the income and the corresponding VAT.
If the dealership pays any fee or subscription to the finance company to access their financing network, that expense is deductible as an operating expense of the business. If there is no payment from the dealership to the finance company (it only receives commissions), there is no expense to deduct in relation to the financing.
