The use of a company vehicle by the entrepreneur for private purposes means an advantage for him in his private sphere for tax purposes. This is because it may save him the expense of purchasing his own vehicle for private purposes or other non-business purposes (e.g. journeys within the scope of real estate management).
The use of a company car for private purposes must be taken into account for income tax purposes in the following constellations:
– Employees: the use of the car leads to an inflow of wages.
– Shareholders of a corporation: the use of a company car for private purposes may constitute a hidden profit distribution.
– Sole proprietorships: the private use of a company car must be recorded as a withdrawal.
Inflow of salary
The provision of a company car by the employer to his employee for his private use leads to an enrichment of the employee and thus to a salary within the meaning of § 19 EStG (German law on income tax). The amount of the taxable share must be calculated either according to the 1% rule or the logbook method.
Unless it is expressly excluded that the employee was given a company car for his private use, this leads to wages in the amount of the benefit of use, irrespective of the actual use. An assertion by the employee that the company car is not used for private journeys does not prevent taxation of the private share.
Hidden profit distribution
If a car is part of the business assets of a corporation and is given to a controlling shareholder or sole shareholder, it must be explicitly agreed that private use is permitted. Otherwise, private use of the car may result in a hidden profit distribution.
If, on the other hand, private use of the car is expressly permitted in the employment contract with the corporation, this is a benefit of use which, as in the case of an employee, is calculated either according to the 1% method or according to the driver’s logbook method.
Withdrawal in the sole proprietorship
The situation is similar in the sole proprietorship. According to general life experience, company vehicles that are available for private purposes are actually used privately. The share attributable to private use is taxed as a withdrawal.
Determining private use according to the logbook method
With the logbook method, a precise calculation of the private share is made. In doing so, the total expenses are determined by means of receipts of the corresponding expenses for the vehicle (e.g. fuel receipts and workshop invoices) and the scheduled depreciation.
The share of private and business journeys is determined from the logbook. Accordingly, the total expenses are allocated to private use in proportion and not deducted as business expenses.
Private share with 1% rule
Under the 1% rule, the private use value of the vehicle is determined monthly at 1% of the gross list price.The list price is defined as the manufacturer’s recommended retail price, rounded down to the nearest hundred euros, for the motor vehicle used at the time of its initial registration, plus the costs of special equipment (e.g. navigation devices) installed at the factory at the time of initial registration, and VAT.
VAT treatment of the logbook method
Private use of business objects is taxable according to § 3 para. 9a no. 1 UStG (German law on VAT) if the use of an object assigned to the business, which entitled to input tax deduction, is made by an entrepreneur in Germany for purposes outside the business. Also, for the application of VAT, similar to income tax, items are deemed not to be assigned to the business if less than 10 % of them are used for business purposes.