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What is a company car? 

A company or business car is a company vehicle that is provided to the employee for use by the employer. Whether a company car is used only for business purposes or also made available for private use has an impact on how it is treated in terms of taxation.

▶︎ Company cars without private use

Is the private use of the company car banned and the employee may use it exclusively for business purposes (for example, a business trip), there are no tax implications for the employee's monthly gross income.

▶︎ Company car with private use

If the company car is also used privately by the employee, the employer must apply a non-cash benefit. This means that the employee receives a non-cash benefit from the employer in addition to the salary. In this case, the use of a vehicle for private purposes.

Benefit in kind with private use

In order to determine the total benefit in kind that arises from the private use of the company car, a distinction is made between:

• Private-only travel
• Trips between home and the first place of work

The benefit in kind for private-only travel must be calculated separately from the benefit in kind for travel between home and the first place of work. The total benefit in kind results from both these calculations. It will then be added to the employee's gross salary in payroll and thus become subject to taxation and social security contributions.

The basis for calculating the non-cash benefit arising from the private use of the company car is always the domestic gross list price (Bruttolistenpreis [BLP]) of the vehicle at the time of its first registration.

Calculating the gross list price (Bruttolistenpreis [BLP])

The following calculations and examples are all based on the 1% rule for determining the value in use for private-only travel. Here, the employee pays tax for private travel at a flat rate of 1% of the gross list price of the car each month, regardless of how often the company car is used for private travel.

What is the gross list price (Bruttolistenpreis [BLP])?

The calculation of the private use of the company car is based on the domestic gross list price (Bruttolistenpreis [BLP]) at the time the vehicle was first registered. The relevant price is the manufacturer's recommended retail price of the vehicle on the new vehicle market. The following rule of thumb applies: The basis for calculating the BLP is the price at which the vehicle could be purchased by a private customer; operational specifics are ignored. Exceptions here are electric and hybrid vehicles; for these, a reduced gross list price is applied.

Notes:
▶︎ This calculation basis applies to leased and imported vehicles, as well as to new and used vehicles. Accordingly, the flat value in use is the same every month, regardless of how old the vehicle is.
▶︎ When calculating the gross list price, it should be noted that for taxation purposes it is always rounded down to the full hundred euro.
Example: The manufacturer's recommended retail price for the new car: €36,750.00
Gross list price: €36,700.00

Effects on the gross list price

Certain costs and additional fittings do not affect the gross list price, but some expenses for extras may increase it. See the following examples for guidance:

Costs for later fittings, for example, the later attachment of a tow bar or a liquid gas system, do not affect the BLP and won't increase it.  

Note:
For the purchase period from 1 July 2020 to 31 December 2020, the standard VAT rate was reduced from 19% to 16%. This results in an advantage in the taxation of company cars beyond 2020. The BLP for the first registration is 3% lower in this period. Since the new price also applies to used cars, the 3% discount for using the vehicle as a company car is retained even if the buyer changes.

Gross list price with own contribution 

If the employee pays part of the purchase costs, or pays a lump sum or a mileage-based own contribution, the benefit in kind is reduced.

Special provisions: gross list price for electric and hybrid vehicles 

To promote environmentally friendly engines, German legislation foresees tax breaks for company cars with an electric or hybrid drive or fuel cell vehicles. With these cars and the 1% rule, the gross list price is reduced, resulting in lower taxation of the benefit in kind.

Notes
▶︎ When the benefit in kind is determined, the environmental bonus that is also available as an environmental incentive for purchasing a new electric vehicle is not deducted from the BLP. 
▶︎ Plug-in hybrids must be able to drive at least 40 km (from 2022, 60 km; from 2025, 80 km) purely on electric power or emit a maximum of 50 g CO₂ (measured based on the WLTP standard).

Overview of the flat-rate and percentage discounts for electric and hybrid company cars from 2013

In the taxation of company cars in the period 2013 to 2030, different reductions apply for different years of purchase.

Tip:
The kWh value can be found in Part 1, Field 22 of the registration certificate.

Charging of hybrid and electric vehicles

There is a tax exemption for charging hybrid and electric vehicles that also applies to company cars, but does not affect the company car taxation according to the 1% rule. Here, a flat value in use is determined for the benefit in kind which the employer can compensate with a monthly flat rate. 

Tax assessment of charging an electric or hybrid vehicle (as of 2023)

Calculating the benefit in kind of private-only travel

If the employee is allowed to use the vehicle for both private and business purposes, they can choose between two methods for calculating the benefit in kind for private travel, unless the employer prescribes a specific method:

• 1% rule (flat-rate determination of value in use)
• Logbook method (individual assessment of the value in use)

Notes
▶︎ The employee has the right to choose, but the employer can exclude or specify one of the methods via the employment contract, labor management regulation or collective agreement.
▶︎ When choosing between the 1% method or the logbook method, the valuation is uniform for the whole year. It is not possible to change the valuation method during the year.

1% rule (flat-rate determination of value in use) 

If the employer chooses the 1% rule to determine the non-cash benefit for the flat-rate calculation of the value in use, the employee pays tax at a flat rate of 1% of the gross list price of the car for private journeys each month, regardless of how often the company car is used for private journeys. Thus, the benefit adds up to a total of 12% of the gross list price (BLP) per year. For examples of how the benefit in kind is calculated using the 1% rule, see Calculating the gross list price (Bruttolistenpreis [BLP]).

Note:
The 1% rule is always applied when own contributions are made.

Logbook method (individual assessment of the value in use)

An alternative to the 1% method to determine the value in use is the so-called logbook method. In this method, any kilometers driven for work or private purposes, including the distances between home and the first place of work, are listed individually in a properly kept logbook. The following minimum information must be included: 

• Date and mileage at the beginning and end of each individual business activity outside the workplace.
• The exact address of the destination.
• Purpose of travel and business partners visited.
• The kilometers of private travel and travel between home and the first place of work.

The logbook can be kept either electronically or manually and the following must be considered:

• Later changes to the information must be ruled out. Consequently, keeping the records in an Excel spreadsheet is not permitted (BFH 16.11.2005-VI R 64/04 BSBI 2006 II p.410).
• If an electronic logbook automatically records all trips after their completion with date, mileage, and destination, the driver must complete the records within seven days (BMF letter of 04.04.2018, margin nos. 25 and 26).

Calculation of the benefit in kind with the logbook method

If the logbook method is used to determine the benefit in kind based on an individual assessment of the value in use, the total annual costs of the vehicle (such as fuel, insurance, repairs, depreciation, etc.) have to be determined first. To determine the value of the annual depreciation (excluding special depreciation), the gross list price is divided by the depreciation period. In addition, the monthly benefit in kind of private-only travel and travel between home and the first place of work has to be determined.

Options for calculating the benefit in kind for trips between home and the first place of work

If the employee is allowed to use the company car for travel between home and the first place of work, the benefit in kind for these trips uses a different calculation method. 

If the vehicle is only used for travel between home and the first place of work, neither the 1% rule nor the logbook method is relevant. If the employee is allowed to use the vehicle for both private and business purposes, they have the right to choose between the 1% rule or the logbook method for calculating the benefit in kind for private travel, provided the employer does not specify any specific method. The employee can choose between the following methods to calculate the benefit in kind between home and first place of work:

• 0.03% monthly flat rate of the gross list price for each kilometer of distance between home and the first place of work.
• 0.002% daily flat rate of the gross list price for each kilometer of distance between home and the first place of work, as long as the employee keeps precise records of the dates on which they used the company car for this purpose.

For both methods, the employer has the option of applying a flat rate of 15% in the income tax for the benefit in kind.

0.03% monthly flat rate

The monthly 0.03% surcharge is calculated from the one-way distance between home and the first place of work and 1% of the gross list price. Kilometers are to be rounded down to the nearest full amount. 

It is completely irrelevant how often the vehicle is actually used for trips between home and the first place of work. In the case of a loss of use due to, for example sick leave or vacation entitlements. The same applies to the beginning or end of a period that the car is provided for, should the car only be used for part of a month. 

An exception is made if the company car is available to the employee for the entire month, for example if you are unfit to drive in the event of a prolonged illness. 

Special case: park and ride use

The surcharge for travel between home and the first place of work must also be levied if the employee uses park-and-ride to travel to the first place of work every day, in addition to the company car.

0.002% daily flat rate 

The 0.002% daily flat rate can only be applied if the employee keeps precise records of the dates on which they travel from home to the first place of work and these records can be used to derive the exact number of days.

Note:
Changing from the 0.03% monthly flat rate to the 0.002% daily flat rate is only permitted with the start of a new calendar year and also not permitted if the company car is exchanged during the year.

Difference between 0.03% monthly flat rate and 0.002% daily flat rate

By switching to the 0.002% daily flat rate, there is a significantly lower benefit in kind compared to the 0.03% monthly flat rate. In January alone, it is €360.00 less.

Who decides whether to apply monthly flat rates or individual assessments

It is at the discretion of the employee whether the benefit in kind is calculated using the monthly flat rate of 0.03% or using the individual assessment with the 0.002% daily flat rate. The employee can determine the method of calculation of the company car taxation for each calendar year. This means that the employer is obliged to make individual valuations based on the 0.002% daily flat rate if the employee provides evidence to this effect.

If the employer wants to prevent a calculation of the benefit in kind on the basis of actual trips, they must expressly exclude this in the employment contract.

15% income tax flat rate of the benefit in kind

The employer has the option of applying a 15% income tax flat rate to the benefit in kind of travel between home and the first place of work. Another advantage of this would be that no social security contributions become due. The flat-rate company car tax for travel between home and the first place of work is thereby always limited to the amount that the employee could claim as income-related expenses. Currently, the upper limit for the income tax flat rate is the distance allowance of €0.30, or €0.38 from the 21st kilometer of distance.

The following calculations are hereby relevant:

• Benefit in kind for private-only travel with 1% of the BLP.
• Calculation of trips based on a 0.03% monthly flat rate – (distance allowance * distance in kilometers * 15 days) = benefit in kind on trips between home and the first place of work. The calculation is always made with a flat rate of 15 usage days.
• The amount of the distance allowance * distance kilometers * 15 days can be taxed by the employer with 15% flat-rate income tax (pauschale Lohnsteuer [p.LSt]).
• The employer must add a flat 5.5% solidarity surcharge (pauschaler Soli, SolZ.) to this amount as well as a flat 6% church tax (pauschale Kirchensteuer, p.Kst.).

Laws and regulations

Income tax (Lohnsteuer [LSt])

• Regulation of the 1% method in Section 8 (2) Sentences 2 and 3 EStG in conjunction with Section 6 (1) No. 4 (2) EStG.
• Regulation of the logbook method Section 8 (2) Sentence 4 EStG.
• Regulation on the provision of a company car to the employee Section 8 R 8.1 (9) and (10) LStR.
• The 0.002% regulation for the optional daily calculation of the benefit in kind for travel between home and the first place of work and crediting the usage charge BMF letter from 3 March 2022.
• Provision of electric and hybrid vehicles as company cars in the BMF letter from 5 November 2021.
• Tax-free provision of charging current and charging stations in the BMF letter from 29 September 2020, IV C 5 - S 2334/19/10009:004, BStBl 2020 I p. 972.

Social security (Sozialversicherung [SV])

• Definition of contributory remuneration from employment in Section 14 (1) Sentence 1 SGB IV.
• Regulations under which conditions compensation components constitute remuneration that is subject to social insurance contributions in Section 1 (1) Sentence 1 SvEV.
• Evaluation of a company car as a non-cash benefit according to Section 3 SvEV.

Control of salary types 

When looking at a payslip, these three salary types should appear. The following control must thereby be observed: