Taxation of employer’s car fringe benefit
A fringe benefit applies when the employer’s car is used for private trips. This means that what matters is not the actual use of the employer’s car for private trips, but the availability of the car for such use. Reimbursement for private trips with the employer’s car is also irrelevant, as it does not affect the taxation of the special allowance.
The procedure for taxation of the fringe benefit
In 2018, the fixed fringe benefit price of 256 euros per month was replaced by a rate based on the power of the passenger car engine (at the price of a kilowatt).
When enabling the use of a car owned or possessed by the employer for work, professional or service tasks or for activities not related to the employer’s business, the price of the fringe benefit is:
- for a new passenger car 1.96 euros per kW per month
- for a car over 5 years old 1.47 euros per kW per month
The motor power (kW) information of the passenger car can be found in the traffic register of the Transport Administration or on the registration certificate (technical passport) of the passenger car.
NB! In the case of hybrid passenger cars, the basis is the maximum power (kW) of the internal combustion engine stated in the Traffic Register of the Transport Administration or technical passport of the vehicle.
NB! In the case of electric cars and gas cars, the engine power (kW) stated in the traffic register of the Transport Administration or technical passport of the vehicle.
The price of the fringe benefit can also be calculated on a kilowatt basis for a van (N1 category vehicle) that the employer allows to be used for private trips.
Keeping a logbook
It is not possible to reimburse private trips based on records, so maintaining a mileage log is not necessary. However, if the employer wishes to prove that the car is used solely for business and work-related trips, a mileage log can be kept (e.g., an electronic GPS log or similar).
If it is proven that the employer allows the car to be used only for work trips, no fringe benefit arises.
NB! Taxation of the fringe benefit does not depend on the use of the car for private trips, and it is not possible to reimburse private trips based on the calculation. Also, in case the employer rents the car to the employee at a discounted or market price, the obligation to pay income tax on the fringe benefit still arises based on the kilowatt calculation.
If a car rental company or lessor rents a car to its employee as to a customer with the rental market price, the car rental company or lessor does not have the obligation to pay income tax on the fringe benefit.
Notifying the Transport Administration
If the employer does not allow the use of business car for private trips, he informs the Transport Administration about this
If a company rents a car to another company or a private person, a note must be made in the traffic register of the Transport Administration that the car is used only for the performance of work duties. The lessor cannot guarantee that the lessee only makes business trips with the car. If the lessee allows his employees to use the car for private trips as well, regardless of the entry in the traffic register of the Transport Administration, the lessee must declare and pay taxes on the fringe benefit for the car.
The Transport Administration can be informed via the e-service and at the Transport Administration’s service offices.
The Transport Administration must be notified only about the use of M1 category vehicles (passenger cars) for business trips. The use of N1 category vehicles (vans) does not need to be reported.
If, according to the Transport Administration, the company owns or uses cars with valid insurance, and they are used only for the performance of work duties, please check that the employment register (TÖR) contains the working persons and the wage payments declared in Appendix 1 and 2 of the TSD. Employees working in the company are a prerequisite for business trips.
If the Transport Administration has not been notified, then it means the employer allows employees to use the company car for private trips. Therefore, it is necessary to fill in the TSD appendix 4, code 4040 and pay the tax liability.
Declaration of a fringe benefit
Fringe benefits need to be declared in Annex 4 of the tax declaration form TSD by the 10th of each following month. Enabling the use of the employer’s car is declared in Annex 4 of the TSD under code 4040 “Enable the use of the employer’s car for activities not related to work, professional or service tasks or the employer’s business”. The tax liability of the fringe benefit is normally paid on the basis of the TSD.
Tax liability of the fringe benefit
The tax liability of the fringe benefit is calculated according to the power of the passenger car, which is 1.96 euros per kW for a new passenger car and 1.47 euros per kW for a passenger car over 5 years old.
Example 1
For a new 190 kW passenger car the price of the fringe benefit is 1.96 × 190 = 372.40 euros and taxes are calculated on it as follows:
income tax 372.40 × 20/80 = 93.10 euros
social tax (372.40 + 93.10) × 33% = 153.62 euros,
the total tax liability is 93.10 + 153.62 = 246.72 euros.
Example 2
In the case of a new 90 kW passenger car, the price of the fringe benefit is 1.96 × 90 = 176.40 euros and taxes are calculated from it as follows:
income tax 176.40 x 20/80 = 44.10
social tax (176.40 + 44.10) x 33% = 72.7,
the total tax liability is 44.10 + 72.7 = 116.87 euros.
Use of the car exclusively for business purposes
If the company wants to deduct 100% of the input VAT from the purchase and use of the car and not pay tax on the fringe benefit, it must be ensured that the car cannot be used for non-business purposes.
Emergence of a fringe benefit from the employer’s vehicles
According to Section 48( 4 ) of the Income Tax Act (TuMS), any kind of good, service, donation fee or financially valued discount that is given to an employee in connection with working for an employer is considered a fringe benefit. Among other things, a fringe benefit is also the use of a vehicle for free or at a reduced price.
The purpose of taxation of the fringe benefit is to equally tax both monetary and non-monetary benefits given to the employee. It is important to note that the employee’s financial income is taxed as a fringe benefit, not the employer’s expense. Therefore, it can sometimes happen that the employer has not (directly) incurred expenses, but the fringe benefit has been granted, and the tax liability has arisen.
VAT calculation related to passenger cars
A procedure applies to the car and the goods and services purchased for its use. Instead of taxing the personal use of the car, the deduction of the VAT paid on the car (including when renting or leasing) and the purchase of goods and services for its use is limited. The general limit for deducting input VAT is 50%.
Generally, 50% of the input VAT is deducted from the calculated VAT when purchasing a car used in business and using it under a usage contract and receiving goods and services for its use. This 50% is considered to represent the business use of the car.
NB! The limitation of deducting input VAT applies to a vehicle of category M1 (including M1G) whose gross weight does not exceed 3,500 kilograms and which, in addition to the driver’s seat, does not have more than 8 seats.
If the taxable person also has tax-free turnover or activities that are not considered business, then these circumstances must also be taken into account when deducting input sales tax.
Car-related costs are, for example, motor fuel, spare parts, maintenance, repairs, parking fees, costs for car transport (ferry ticket).
The following are not considered as car expenses:
- advertising placement costs on the vehicle.
- purchase or rent of a trailer.
If a car purchased for the company is used for private trips in addition to business trips, then the procedure applies that 50% of the input tax is deducted from VAT when purchasing a car used in business or using it under a usage contract and receiving goods and services for its use (or less, for example, if the company has a part of its turnover exempt from tax). Therefore, regardless of the extent to which the vehicle used in business is used for private consumption, the input sales tax can be deducted to the extent of 50%.
The car is not considered to be in private use for (that means it is considered only for business purposes) the transport of employees between home and workplace in the employer’s car, if the conditions set out in § 48 subsection 5 1 of the Income Tax Act are met, about which you can read more “Employee transport to and from work § 48 of the Income Tax Act pursuant to paragraph 5¹ .”
EXAMPLES OF INPUT VAT DEDUCTION
Example 1
A car is used both for business and private consumption. 60% of this car is used for taxable turnover and 40% for tax-free turnover.
Motor fuel was purchased for 50 euros + VAT 10 euros.
3 euros (10 × 0.5 × 0.6) can be deducted from input VAT.
Example 2
The car is used exclusively for business. 60% of this car is used for taxable turnover and 40% for tax-free turnover.
Motor fuel was purchased for 50 euros + VAT 10 euros.
6 euros (10 × 0.6) can be deducted from the input VAT.