The tax situation often plays a major role in the choice of a new company car. As the automotive sector evolves ever more quickly and becomes ever more electric, the tax rules are being adapted to keep pace. But what are the main points you need to consider when choosing a tax-efficient company car? What vehicle costs are tax-deductible and what will the new rules? Is it better to buy or lease a company car? We’ve put together some information for your convenience.
Tax-deduction rules for sole traders and companies
Since 1 January 2021, new rules have come into force governing the tax-deductibility of car and fuel costs. Under these rules, the difference between sole traders and companies has been reduced. Compared with the period between 1 January 2018 and 31 December 2019, a number of key changes have been introduced which apply to both corporation tax and personal income tax.
1. New ‘carbon emissions formula’ for calculating tax-deductibility
The legislator is introducing a new ‘carbon emissions formula’ for calculating the tax-deductibility of car and fuel costs based on the vehicle’s CO2 emissions. The new formula, which applies for both corporation tax (companies) and personal income tax (the self-employed and sole traders), is as follows:
DEDUCTION % = 120% - (0.5 x coefficient x CO2 emissions in grams per kilometre)
coefficient for diesel vehicles and diesel variants (e.g., hybrid diesels) = 1
coefficient for vehicles running on natural gas (CNG) with < 12 fiscal HP = 0.90
coefficient for other fuels (petrol, LPG, electric, etc.) = 0.95
- The deduction percentage amounts to a minimum of 50% and a maximum of 100%
- If the CO2 emissions ≥ 200 grams CO2/km, the maximum deduction percentage is 40%
- For all car and fuel costs relating to vehicles purchased by sole traders before 1 January 2018, the new deduction formula allows for a minimum deduction rate of 75%
- Costs relating to financing the vehicle purchase will still be 100% deductible
Examples of how the deduction percentage is calculated under the new emissions formula:
||CO2 emissions||Deduction percentage|
|petrol vehicle||0 g/km||100% (maximum)|
|diesel vehicle||50 g/km||95% (= 120% - 25%)|
|CNG < 12 fiscal HP||80 g/km||84% (= 120% - 36%)|
|petrol vehicle||90 g/km||77,25% (= 120% - 42,75%)|
|diesel vehicle||100 g/km||70% (= 120% - 50%)|
|LPG||120 g/km||63% (= 120% - 57%)|
|petrol vehicle||140 g/km||53,5% (= 120% - 66,5%)|
|diesel vehicle||190 g/km||50% (= minimum)|
Which passenger cars are subject to the new rules?
The new rules apply to
- all company cars (new, used and the current vehicle fleet)
- all cars registered to sole traders, except for vehicles purchased/leased/hired before 1 January 2018
2. The 120% deduction for electric vehicles will disappear
From now on, the maximum deduction percentage will in all cases be a maximum of 100% for all vehicle-related costs.
3. Removal of tax-efficient status for ‘false’ hybrids
‘False’ hybrid vehicles which were purchased, leased or hired on or after 1 January 2018 will lose their tax-efficient status. ‘False’ hybrids are plug-in hybrids which can travel only a short distance on the battery. In this case, the CO2 emissions are calculated as follows:
|Applicable CO2 value|
Battery capacity is < 0.5 kWh per 100 kg vehicle weight
CO2 emissions > 50 g/km
|CO2 emissions of non-hybrid version apply|
|If the non-hybrid version is not available||CO2 emissions of hybrid version x 2.5|
For hybrid vehicles which were purchased (ordered) or leased (contract signed) before 1 January 2018, the CO2 value for the hybrid version continues to apply, including after 1 January 2020.
Tax-deductibility for the part-time self-employed
If you are self-employed in a secondary occupation, you are taxed both on your earnings as an employee and on your income from your secondary occupation. This may mean you are placed in a higher tax bracket, which can mean paying a lot more tax. In such a situation; buying a new vehicle is an interesting proposition because you can set it off against your tax.
Because you use your vehicle not just in your secondary occupation, but also to travel to your main occupation and for private use, the tax-deductibility of the vehicle and fuel costs for someone who is part-time self-employed depends on what you do in your secondary occupation. You are entitled to a fixed allowance of 0.15 euros per kilometre when driving to your main occupation. You cannot of course claim any allowance for private journeys.
If you would like to increase the tax-deductibility of your vehicle, try to use kilometre records to show the taxman how many kilometres you've travelled for your secondary occupation.
If you also own another vehicle or drive a company car provided by your employer, it's better to state that you do not use the vehicle intended for your secondary occupation for private purposes. In that case, it is sensible not to claim 100% for your vehicle.
Benefits in kind (fringe benefits) for your employees
If you are an employer and you provide your employee(s) with a company car at no cost which may also be used for private purposes, a taxable benefit in kind will be calculated which is payable by the employee. The formula for calculating the taxable benefit for 2021 is as follows:
|Propulsion type||Benefit in kind|
|Petrol, LPG, natural gas (CNG)||List price x [5.5 + ((CO2 emissions - 102) x 0.1)]% x 6/7 x age percentage|
|Diesel and plug-in hybrid diesel||List price x [5.5 + ((CO2 emissions - 84) x 0.1)]% x 6/7 x age percentage|
|Electric, hydrogen||List price x 4% x 6/7 x age percentage|