To address transportation issues, there are several options:
• The company has its own car
• An employee uses their personal car for work trips
• An employee rents or provides their car free of charge to the company for the workday
1. The company has its own car
If the company owns a car that is kept in the employer’s parking lot after working hours and trips are tracked using a GPS trip diary (to monitor compliance), and if the company has notified the Road Administration and made a relevant note in the register stating that private trips are not made with the vehicle, then no fringe benefit arises for the company, and VAT can be fully reclaimed. According to this, one thing is certain – the trip diary is not lost or misplaced.
If private trips are made with a company car, a fringe benefit is generated in any case and is taxed based on the vehicle’s power (kilowatts). This means that the benefit’s value does not depend on how many kilometers are driven for private purposes but is taxed according to the car’s engine power. Legally, the taxable base for fringe benefits is €1.96 per kW. For cars over 5 years old, this rate is €1.47 per kW. This applies to passenger cars.
For vans, there are three taxation options: based on market rental price, based on the difference between market rental and discounted price, or calculating the fringe benefit based on the vehicle’s engine power and age. Therefore, it is often possible to find a more favorable option for using vans as company cars.
Expenses related to employee transportation between home and work are not considered fringe benefits if public transport cannot reasonably cover this journey within a reasonable time or cost, or if an employee with disabilities cannot use public transport or if using it significantly reduces mobility or work capacity.
Similarly, expenses related to employer’s business-related transportation of an employee under an employment contract are not considered fringe benefits if the employee’s residence is at least 50 kilometers from their workplace, or if transportation is organized by the employer using a vehicle with at least eight seats or by bus as defined by traffic law.
2. Using a personal car for work trips
Mileage reimbursement is intended for using a personal vehicle for work-related travel. Unfortunately, this is one of the most cost-effective options for employers. Reimbursement is paid based on a trip diary recording driven kilometers. The reimbursement rate can be up to 30 cents per kilometer but not more than €335 per calendar month. This amount applies per employer/company, regardless of whether the car belongs to the individual employee or not. Many companies sell official cars (at close to market value) to their employees and pay mileage allowances for business trips. Reimbursements do not have to be paid every month; they can be settled at year-end covering all months.
If an employee incurs other auto-related expenses (e.g., fuel or repair costs), these are still included within the €335 limit.
In addition to mileage reimbursement, employers can also pay for parking costs without requiring a trip diary.
Documents required for mileage reimbursement:
• A resolution from the management specifying the recipient of the reimbursement: full name, amount, and period covered
• A copy of the vehicle registration certificate
• A trip diary usually maintained in Excel containing: name of driver, vehicle registration number, odometer readings at start and end of each trip, total kilometers driven, date, and purpose of each trip
The payment of mileage allowance for personal vehicle use must be declared in INF 14 form, which must be submitted by February 1 of the following calendar year. This declaration provides the Tax Office with a complete overview of an individual’s income over the year.
3. Renting a private car for work hours
By entering into an usage agreement or lease contract, an employee’s personal vehicle can be transferred to company possession during working hours. It’s important to remember that during this time, the car becomes a company vehicle; if any private trips are made during working hours, fringe benefits based on engine power must be paid accordingly. This option also requires very precise expense tracking because all costs are proportionally divided based on usage. In this case, expenses cannot be fully charged to the company account.
Company Car and VAT
Here I would like to mention an important point regarding VAT when acquiring a vehicle — specifically about what is known as the “two-year rule.” If a vehicle is purchased solely for business use and this can be proven within two years following purchase, 100% input VAT can be reclaimed at acquisition. If even one private trip occurs within this period, then VAT deduction rights automatically reduce to 50%, applicable both at purchase and ongoing expenses. This means that when purchasing a vehicle, you should adjust your input VAT deduction either in that month’s VAT return (if declared at purchase) or in January of next year in subsequent declarations.
When adjusting input VAT after purchase due to private use, such a vehicle is considered partially used for business throughout its first two years regardless of actual usage proportions during individual months — this constitutes a penalty.
This topic might require some additional clarification for many readers. If you have further questions, we are always ready to assist with advice.
