German Company Car Tax Explained

The taxable thing is not your private driving. It is the possibility of it. If your employer lets you use the car for private trips, a value is added to your gross pay every month for income tax and social security, whether you drove 2,000 private kilometres that month or none.

The tax office assumes a car handed over without restriction is also used privately, and the burden is on you to show otherwise. A clear written ban on private use that the employer genuinely enforces is the strongest way to avoid the benefit; a vehicle plainly unsuitable for private use, such as a workshop van fitted out with racking, is another. Simply saying you did not drive it privately is generally not enough.

There are two main valuation methods. The percentage method takes 1 % of the gross list price a month for the private use, plus 0.03 % of that list price per kilometre of the one-way commute, with the list price cut to a half or a quarter for a qualifying electric or plug-in hybrid car. The logbook method (Fahrtenbuch) instead taxes the real private share of the car's real running costs.

The percentage method is automatic. You only get the logbook if you keep one. You choose per car and you are locked in for the whole calendar year: you can switch only at the turn of the year or when the car changes. As a rule of thumb, the percentage method wins for a car used mostly privately; the logbook wins when most of the driving is for work.

The logbook adds up every euro the car costs in the year, turns that into a cost per kilometre, and taxes the kilometres that were not business trips. Here is a 55,000 EUR car driven roughly two-thirds for work:

If you keep a second home for work (a doppelte Haushaltsführung), one trip home per week is free: no benefit is added, and you also cannot deduct that trip. Every additional trip home in the same week is taxed at 0.002 % of the list price per kilometre of the one-way distance. A 300 km trip home in a 50,000 EUR car therefore adds 300 EUR to your taxable pay (50,000 x 0.002 % x 300) each time beyond the first weekly trip.

Ordinary weekend driving that is not a trip back to your main home is simply private use, already inside the 1 % figure or the logbook's private share.

Two arrangements look alike and behave very differently. A Nutzungsentgelt is money you pay your employer, from your net salary, for the right to use the car privately. It comes straight off the taxable benefit, euro for euro, down to zero.

A Gehaltsumwandlung (salary sacrifice) reduces your contractual cash salary in exchange for the car. The company-car benefit is then added separately for payroll tax, and the salary reduction itself does not lower that benefit. Only the first arrangement reduces what you are taxed on.

If you buy the car from your employer when the lease ends for less than it is worth, the employment-related discount can be a taxable benefit in the month you buy it. The comparison is generally the car's market value at the time of transfer, not its original list price. Pay 12,000 EUR for a car worth 18,000 EUR and 6,000 EUR is added to that month's taxable pay. A price at or above market value adds nothing.