Selling Fully Depreciated Company Assets to Owners: Market Price & Tax Risks

Mgr. Daniel Půlpán
Mgr. Daniel Půlpán
13.5.2026 | ARROWS law firm

Removing a fully depreciated vehicle or other asset from a company and subsequently selling it into the owner’s personal ownership is a completely common step. However, if the sale is not carried out at a demonstrably market price, both the company and the buyer may face serious additional tax assessments. This article will guide you in detail through the rules for correctly determining the arm’s length (usual) price and will show you how to carry out the asset transfer in compliance with Czech legislation.

The photo shows an expert addressing the issue of selling corporate assets to the owner.

Key takeaways
  • Market price is essential: The sale of assets to related persons must always take place at the usual price in the given place and time, not at the book residual value.
  • Adjustment of the tax base: If a company sells an asset below market price, it must mandatorily increase its corporate income tax base by the resulting difference.
  • Taxation of the buyer: An individual who buys the asset at a lower price receives a taxable pecuniary benefit subject to income tax and often also social security and health insurance contributions.
  • Strict VAT rules: When selling to an associated person who is not entitled to a full input VAT deduction, value added tax is calculated exclusively from the usual price.
  • Burden of proof: The company must be able to demonstrably substantiate the market price, ideally with an expert valuation report or a carefully prepared benchmarking analysis.

Introduction to transfers of company assets

A common practice among many companies is to purchase a high-quality vehicle or equipment that is depreciated in the accounts. From an accounting perspective, after several years the value of the asset therefore falls to zero, or only to a fraction of the original acquisition cost. At this point, many owners decide to transfer the item to themselves as an individual, or sell it to family members.

This is precisely where one of the most frequent and most serious tax errors arises. In most cases, the book residual value of an asset does not correspond at all to its real market value. While a five-year-old luxury car may have a zero value in the accounts, it may sell on the used-car market for hundreds of thousands of Czech crowns.

The Czech Income Taxes Act contains very strict rules for transactions carried out between so-called associated persons. Through this mechanism, the state prevents company profits from being covertly shifted into private hands without proper taxation. If the legislature did not regulate these transfers, companies could give all assets to their owners for a nominal amount and the state treasury would lose tax revenues.

Every sale of company assets to a related person must therefore be subject to a very thorough review. In practice, it pays to have the pricing setup, contractual documentation and supporting evidence reviewed as part of the contracts and negotiations service. Before signing the purchase agreement and issuing the invoice, it is necessary to ensure that the purchase price set corresponds to the price at which a completely independent party would buy the item on the open market.

Definition of related and associated persons under the law

To apply the tax rules correctly, we must first clearly determine whom the Czech tax authority considers an associated person. The Czech Income Taxes Act distinguishes two basic categories of associated persons. The first is a capital connection, where one person directly or indirectly participates in the capital or voting rights of another person.

In practice, this means that an associated person in relation to a limited liability company is always its shareholder. Likewise, two different companies are associated persons if they have the same majority owner. In these cases, the capital link is entirely clear and traceable in the Czech Commercial Register.

The second and much broader category is the so-called “other connection”. This group primarily includes close persons under the Czech Civil Code. These are relatives in the direct line, siblings, spouses and other persons whose harm the individual would perceive as their own. If a company sells a car to the managing director’s spouse, it is clearly a transaction between associated persons.

The “other connection” category also includes situations where persons are linked purely through personnel. A typical example is the relationship between a company and its managing director or a member of the board of directors, even if these managers do not own any equity stake in the company. The tax office examines the entire network of relationships very carefully in order to identify any non-standard transactions. If a dispute arises over an additional tax assessment or related liability of statutory bodies, it may be useful to know the procedures described in the update Have you received a demand for damages for breach of the duty of due managerial care?.

Related questions on the definition of associated persons and residual value

1. Can a company sell a car to an employee for the residual value?
An ordinary employee who is not part of the company’s management and has no family relationship to the owners usually does not fall within the definition of an associated person. Even so, caution applies here as well. If you sell an asset to an employee significantly below market price, the tax office will classify it as the employee’s non-cash income from employment, which must be taxed and is subject to contributions.

2. We are selling machines to our subsidiary. Do the rules apply here as well?
Yes, a parent company and a subsidiary are a textbook example of capital-associated persons. All transfers of assets, sales of machines or provision of services between these entities must take place exclusively at usual market prices. Otherwise, one of the companies risks an additional tax assessment. When the tax office addresses errors in posting or valuation of a transfer, the practical guidance in the article Additional tax return: How to proceed when you discover an error in your accounting and eliminate the risk of high penalties may also help. If you are unsure about your approach, contact our Prague-based law firm at office@arws.cz. 

3. The book residual value is higher than the market value. For how much should we sell?
In a situation where the market value of an asset has fallen below its book residual value (for example, with rapidly obsolescing IT equipment), you sell the asset for the real market price. If the transfers are followed by disputes over impacts on the tax base or the validity of the agreed terms, a consultation in the area of commercial and litigation disputes may be appropriate. The tax rule is always to respect the usual price, even if the sale is a loss from an accounting perspective. However, the sale must be properly documented.

Corporate income tax and risks for the selling company

A fundamental rule set out in the Czech Income Taxes Act is the obligation to adjust the tax base if prices agreed between related parties differ from prices that would be agreed between independent parties in ordinary commercial relations. This arm’s length principle is the absolute cornerstone of all tax audits.

Let us imagine a typical situation. A company owns a fully depreciated vehicle and sells it to its managing director for CZK 50,000. However, an expert appraisal or benchmarking analysis would determine that, in its condition, the car has a real market value of CZK 350,000. The difference between the agreed price and the usual price is therefore CZK 300,000.

This identified difference represents a tax issue for the company. Since the company did not receive adequate market consideration for its asset, it artificially reduced its taxable income. The law therefore requires the company to add this difference of CZK 300,000 to its corporate income tax base in its tax return.

If the company does not make this adjustment voluntarily and the tax authority discovers the transaction during a subsequent audit, the officials will adjust the tax base themselves. The company will then be assessed additional corporate income tax, a penalty of twenty percent of the additionally assessed tax will be imposed, and default interest will also be charged for each day of late payment.

Experience from ARROWS, a Prague-based law firm, shows that additional assessments arising from these transactions can be devastating for smaller companies. The tax authorities will request complete asset records for several years back and review all sales. We therefore recommend conducting an internal audit of all asset transactions before any potential audit. Contact us at office@arws.cz. 

Impact on the buyer: Taxation for an individual

The issue of an incorrectly set price does not concern only the selling company. The tax consequences can also hit the buyer very hard. If a related party purchases an asset from the company below market price, they obtain a real and quantifiable financial benefit.

Under Czech law, this financial benefit is considered taxable non-cash income. The method of taxation differs depending on the buyer’s relationship to the company. In most cases, these are shareholders, managing directors, or employees, for whom a very strict taxation regime applies under the provisions on income from dependent activity.

If a managing director buys a car for CZK 300,000 less than the market price, this amount is added to their gross monthly or annual remuneration. They must pay standard personal income tax on it. However, the financial burden does not end there, because this type of income is also subject to additional contributions.

Full social security and health insurance contributions must be paid on the difference amount, both on the employee’s (managing director’s) side and on the employer’s (company’s) side. Contributions on CZK 300,000 can therefore increase the overall cost of the transaction by tens of thousands of Czech crowns. The original intention to save money by buying a cheap car from the company thus disappears entirely.

If the asset at a reduced price were purchased, for example, by a family member of the owner who does not work in the company, they would tax this difference as other income under the relevant provision of the Czech Income Taxes Act. In that case, social security and health insurance contributions are not payable on the income, but the obligation to pay fifteen percent personal income tax remains.

Potential issues

How ARROWS helps (office@arws.cz)

Determining the usual price for specific assets: Missing supporting documents for determining market value lead to a risk that the transaction will be challenged by the authorities.

We will coordinate communication with expert appraisers and prepare a robust benchmarking analysis for the defence before the authority.

Risk of additional corporate income tax assessment: A sale below price artificially reduces taxable profit and creates an obligation to pay additional tax including penalties.

We will represent the company during a tax audit and assert all legal arguments to defend the tax base.

Incorrect social security and health insurance contributions: The buyer’s price advantage is subject to taxation and contributions as standard income from dependent activity.

We will review payroll accounting for managing director transactions and propose a safe approach to taxing the financial benefit.

Complex rules for calculating VAT: When selling to persons without entitlement to input VAT deduction, there is a risk of additional VAT being assessed based on the actual market price.

We will analyse the history of VAT deductions for the asset and determine the exact tax base for final invoicing.

Transfers of real estate with high book value: Transactions involving buildings are subject to the strictest scrutiny due to the high amounts and the risk of tax evasion.

We will prepare complete contractual documentation for the sale of real estate while minimising future tax and civil-law risks.

VAT issues in the sale of assets

In addition to income tax, value added tax is the second most significant area of audits. The sale of company assets is, from the perspective of the Czech VAT Act, a standard supply of goods and is subject to the applicable tax rate. However, for transactions between related parties, special rules apply for determining the tax base itself.

If you sell assets to a related party, you must follow the specific provision of the Czech VAT Act that targets precisely these transactions. If the agreed purchase price is lower than the usual price and the buyer is not entitled to a full VAT deduction (typically an individual who is not carrying on a business), the basis for calculating VAT must automatically be the usual price.

Let us return to our example. The company wants to sell the managing director a car for CZK 50,000 excluding VAT. However, the market price excluding VAT is CZK 350,000. Because the managing director, as a private individual, is not entitled to deduct input VAT, the company must account for 21% VAT to the state on the invoice not on fifty thousand, but on the full three hundred and fifty thousand Czech crowns.

This provision is very often overlooked, and accountants frequently account for VAT only on the formally agreed purchase price on the invoice. During an audit, the Czech tax administration will point out this discrepancy and will ruthlessly assess additional VAT on the price difference, of course including the relevant penalty.

The situation changes when the asset is sold to a related party that is a VAT payer and is entitled to a full deduction for the asset. Typically, this involves selling a machine to a sister manufacturing company. In such a case, the special rule for the VAT base for related parties does not apply and VAT is accounted for on the agreed price. Corporate income tax, however, must still be addressed using arm’s length pricing.

Related questions on VAT payments and tax base adjustments

1. How is the sale of a passenger car handled if the company was not entitled to deduct input VAT when purchasing it?
Historically, different regimes applied to input VAT deductions for passenger cars. If the company purchased the vehicle at a time when it was not allowed to claim an input VAT deduction, its subsequent sale may be fully exempt from VAT. However, assessing the asset’s history is complex, and we recommend consulting specialists.

2. Do we have to adjust the tax base even if we sell an asset at a reduced price due to damage?
Market value always reflects the actual physical condition of the asset. If a car has been in an accident or has a seized engine, its usual price logically drops dramatically. In such a case, you will not base the price on standard used-car prices, but you must have carefully documented evidence that the price corresponds to the sale of a damaged wreck.

3. Can the tax authority challenge the purchase price even several years after the sale?
Yes, the tax authority may carry out an audit and assess additional tax as a standard rule within three years from the deadline for filing the tax return. Under certain circumstances, for example when a tax loss is claimed in subsequent years, this time limit may be extended. Archiving documents evidencing how the price was determined is therefore essential.

How to correctly determine the market value of a vehicle or machine

The key task before completing the sale is to determine the usual price correctly and in a provable manner. Czech law does not prescribe one specific method for determining this price; however, in the event of a tax audit, the burden of proof always lies fully with the taxpayer—i.e., your company.

For standard passenger cars and smaller commercial vehicles, the most common approach is to prepare a comparative market analysis. This involves searching for advertisements for vehicles of the same make, model, year of manufacture, with a similar mileage and comparable equipment. The advertisements can be sourced from major automotive portals or from certified used-car dealers.

It is absolutely essential that you create clear outputs from these advertisements (for example, print them or save screenshots) exactly on the day the transaction takes place. The used-car market changes constantly, and three years later, during a tax audit, you will no longer be able to retrospectively prove the prices at which such cars were actually being sold in that month.

Another option is to approach independent used-car dealers or official dealerships and request a purchase offer for the vehicle. A written valuation from a professional car trader is very strong evidence for any potential discussion with officials of the Czech Financial Administration (tax authority).

If you are not sure about determining the price, or if it is a very specific asset, contact tax and legal advisors. At ARROWS advokátní kancelář (office@arws.cz), we will help you set up a safe mechanism for determining usual prices for all company equipment being transferred.

An expert report as the highest level of protection

While careful market research is usually sufficient for standard company cars, the situation is much more complicated for luxury sports cars, specific trucks, or specialised production machinery. These items often cannot be easily compared with commonly available advertisements because the market for them is very narrow.

In such cases, the best and safest solution is to have a formal expert report prepared by an independent court-appointed expert in the field of economics. The expert will objectively assess the physical condition of the asset, the degree of wear and tear, and take into account the current market situation.

An expert report does cost some money, but it provides the company with complete legal and tax certainty. If you have an expert’s stamp in hand, it is very difficult for the tax authority to challenge the agreed price. The burden essentially shifts to the authority, which would have to prove that the expert made a serious error.

For assets with an acquisition value in the millions of Czech crowns—typically production lines or heavy construction equipment—saving on the expert’s fee is a major management risk. Any additional tax assessment and penalties for such expensive items could cost the company a hundred times more than the report itself.

Specifics of transferring real estate from a company to its managing director

A separate and closely scrutinised chapter involves sales of company real estate to related parties. While with cars we are talking about additional assessments in the tens or hundreds of thousands, with real estate it is millions. Audits of transfers of buildings and land by tax officials are detailed, lengthy, and uncompromising.

For real estate, obtaining an expert report to determine the usual price is an absolute and indisputable necessity. The book value of buildings is often only a fraction of their real market value as a result of many years of depreciation. Moreover, market prices have risen dynamically in recent years.

The expert should prepare the report precisely as of the date of the transfer of title. If a company sells a warehouse hall to its managing director for a book value of one million, but the expert report proves a market value of ten million, the impacts on the company’s corporate income tax, the managing director’s personal income tax, and potentially also VAT will be astronomical.

In addition to the price itself, when transferring real estate it is also necessary to take into account the rules for VAT exemption after the time test has elapsed and the correct assessment of related land plots. The transaction must also be supported by a precise purchase agreement filed with the Czech Cadastral Register (katastr nemovitostí).

The legal team at ARROWS advokátní kancelář (office@arws.cz) has extensive experience in real estate law in the Czech Republic. We will ensure not only a tax-safe structure for the sale of company real estate, but also prepare flawless contractual documentation that will meet all formal requirements without unnecessary delays.

Related questions on price determination and asset transfers

1. Can we use an insurance company app to calculate the residual value to value a vehicle?
Vehicle valuation systems used by insurers or used-car dealers (e.g., the Eurotax or Cebia system) are commonly recognised by the tax authorities as a reliable source of information. An extract from such a system is a very good basis for proving the usual market value.

2. The managing director bought the car, but the company also gave him new winter tyres for free. Is that acceptable?
Any additional asset or service that the managing director receives from the company free of charge beyond the agreed purchase agreement constitutes additional taxable pecuniary benefit. If he is buying a used car, the market price should include everything that physically leaves with the car. Any sets of new tyres should be sold separately for an appropriate price.

3. Do the same tax rules apply to a gratuitous transfer of assets—a gift?
Yes, and the consequences may be even more complex. If the company gifts the car to a shareholder, the value of the gift is assessed at market prices. For the company, it is also usually a tax non-deductible expense. For the individual recipient, the gift is subject to very strict taxation and, in most cases, also social security and health insurance contributions.

Documentation and archiving as the key to success in an audit

The most common reason companies lose disputes with the tax authority is not an intentional attempt to underpay tax, but complete chaos in corporate documentation. If, three years after the sale, a managing director cannot present officials with convincing evidence of how the purchase price was determined, the chances of success are minimal.

The company must implement a systematic process for disposing of and selling assets. The foundation is to prepare a short internal protocol. This document should include a detailed description of the condition of the assets being sold, the rationale for the sale, and a precise description of the method used to determine the market price.

An integral annex to such a protocol must include all comparative materials: printed advertisements, price offers from dealers, or signed expert valuation reports. It is equally important to have photo documentation of the assets as of the sale date. Photos of a worn interior or scratched paintwork will reliably justify a lower price.

The retention obligation for these documents is long. The standard time limit for assessing tax is three years, but it may be repeatedly extended for various statutory reasons. All protocols and market price analyses should therefore be securely retained for at least five years, ideally ten years, from the sale.

If you need to set up internal guidelines for asset disposals or review transactions that have already taken place, our experts at ARROWS are at your disposal. You can contact us by e-mail at office@arws.cz and avoid unpleasant surprises during future tax audits.

Final summary

The sale of a decommissioned company vehicle or equipment to related parties may appear to be a routine step, but it entails fundamental risks to the company’s tax stability. The basic rule that cannot be circumvented is the need to set the sale price at the level of the price customary on the market.

Failure to comply with this principle triggers a cascade of unpleasant consequences. The company will face an additional assessment of corporate income tax and often complications related to incorrect VAT treatment. On the buyer’s side—whether a family member in management or a managing director—an unjustified pecuniary benefit becomes taxable, which makes the originally advantageous transaction significantly more expensive.

Protection lies in prevention and thorough preparation. Valuation by an independent expert, careful research of online listings, and detailed archiving of these supporting materials are the only effective tools for successfully handling a potential inspection by the Czech Financial Administration (tax authority).

If you are planning to buy out a fleet into personal ownership, transfer real estate to family members, or simply need to review historical asset sales, do not hesitate to contact experienced professionals. The legal and tax team at ARROWS advokátní kancelář (office@arws.cz) will safely handle the entire agenda so that your transactions are fully compliant from both a legal and tax perspective under Czech law.

FAQ – Most common questions on selling assets to related parties

1. What is the difference between the residual value and the market value of a car?
The residual value is purely an accounting concept. It represents the original acquisition cost reduced by claimed tax or accounting depreciation and over time typically decreases to zero. The market value is the amount for which the car can realistically be sold at that moment on the market to an independent buyer, and it is usually much higher than the residual value.

2. Do I have to charge VAT on the sale of a car even if the buyer is not a business?
If your company was a VAT payer when purchasing the car and claimed input VAT, the subsequent sale of the car constitutes a supply of goods. As a VAT payer, you must add VAT to the market price of the car and remit it to the state, regardless of whether the buyer is a company or a private individual.

3. Does the market price requirement also apply to the sale of old company laptops and mobile phones?
Yes, the customary market price principle applies to all company assets regardless of type. In practice, however, a three-year-old company laptop or mobile phone loses its market value very quickly. Selling it to a managing director for amounts in the low thousands of Czech crowns usually corresponds to the real market price of such electronics; nevertheless, it is still advisable to support this with a brief market check.

4. What should I do if the tax authority challenges the market price?
The key is not to panic and to immediately submit all archived documents, expert valuation reports, and comparative analyses from the time of the sale. The authority would have to refute your objective evidence. If you underestimated the documentation, contact legal counsel immediately to prevent an unlawful additional tax assessment.

5. Can I avoid additional assessments by selling the asset through an independent car dealership?
If you genuinely and transparently sell the asset to an independent car dealership for the buy-back price it offers, this is a standard commercial transaction with an unrelated party. The authority rarely challenges such a sale. However, if your shareholder then subsequently buys the same car from that dealership, the authority may reclassify the entire operation as a purposeful sham transaction.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the matter, reflecting the legal status as of 2026. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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