Our clients regularly have questions about the taxation of an employee’s private use of a company vehicle. Such use is treated by tax law as additional material remuneration to the company employee: the provision of a vehicle for personal use. This benefit is subject each month to income tax and social security contributions.

Two methods are used to assess the benefit for private use: a flat-rate calculation under the 1% rule or a calculation of actual expenses for private use based on a logbook.

The 1% rule provides for an amount equal to 1% of the vehicle’s value (the vehicle price corresponding to the manufacturer’s domestic gross price list) in Germany at the time of the vehicle’s initial registration. This value applies regardless of whether the vehicle was purchased new or used, whether it is leased, whether it was reimported into Germany, or whether company advertising (a logo) is affixed to it.

As a result, if you today provide your employee with a company car that was first registered in 2005, then in addition to the salary agreed in the employment contract he will have to pay each month income tax and social security contributions for using the “new” 2005 car equal to 1% of its value as shown in the manufacturer’s price list.

The flat-rate calculation is not affected by the degree of private use of the vehicle...