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Because if you, as a self-employed individual, use the company car for private purposes, you must definitely take into account a taxable benefit that is subject to income tax. If you're not careful with your tax filing, you can regularly encounter trouble with the tax authorities.
How does the tax assessment for the company car work?
According to the Income Tax Act (EStG, § 6, paragraph 1, sentence 4), there are two options for tax assessment:
- The lump-sum taxation of the company car (one percent rule)
- Keeping a mileage log.
Note: Once the method of taxation has been chosen, it cannot be changed within a year, except if a new company car is purchased during the year. In that case, the method can be determined at the time of purchasing the vehicle.
Which option is the most tax advantageous for you is something you need to determine individually, as it varies depending on the vehicle and its usage. For this purpose, you should consider the following points:
- How many kilometers are driven with the company vehicle?
- How many of these kilometers are due to private use of the vehicle?
- How many kilometers result from trips between home and the workplace?
- What was the gross list price at the time of purchase?
When should you use the one percent rule for the company car?
With the one percent flat-rate taxation, 1% of the gross list price as well as 0.03% for each kilometer of the commute are taxed. Consequently, this method is suitable when your company car has a low gross list price (recommended retail price at the time of initial registration) and is used predominantly for private purposes. For electric or hybrid electric vehicles, whose list price is significantly higher, the Income Tax Act contains a compensatory provision. Additionally, the lump-sum approach reduces the effort required for tax documentation of private usage.
If you want to keep a mileage log: What should you pay attention to?
If you want to waive the one percent rule for the company car because you drive a vehicle with a high gross list price or use the company car for private purposes only occasionally, keeping a mileage log is necessary. Even if multiple persons use the company car, maintaining a mileage log that documents all trips with a commercially and privately used car is advisable. These include:
- Business trips
- Private trips
- Trips between home and the first workplace
- Family trips in case of dual household management
- Trips related to other income sources.
The tax office requires a complete recording for the mileage log. Therefore, the following data must always be recorded for each business trip:
- Date as well as start and end of the trip
- Mileage at the start and end of the trip
- Distance traveled
- Starting point and destination of the trip (preferably with postal code, city, street) (For business trips, mere location information in the mileage log is sufficient only if the visited customer or business partner can be clearly identified from the location information or if their name can be easily determined with the help of documents that do not require supplementation.)
- Purpose of the trip
- Contact person/driver
The recording can be done either by hand or with an electronic mileage log. A handwritten mileage log must be kept as a bound book and must not consist of individual sheets or an Excel spreadsheet. In addition, entries must be made immediately after the end of the trip. Handwritten mileage logs are often criticized during tax audits because errors can easily occur. Therefore, switching to an electronic mileage log is at least worth considering, as, when operated correctly, the probability is high that the tax office will accept the mileage log document.
Key criteria for selecting an electronic mileage log include, for example:
- Is the technology used tamper-proof?
- Is this technology also recognized by the tax office and therefore legally secure?
- Are trips automatically recorded as soon as the vehicle is in motion?
- Are corrections to recorded trips limited to a period of 7 days?
- Is data protection ensured for private trips (e.g., anonymized recording or deactivation of the tracking function) or can a distinction be made between private and business routes during a trip?
If you use your private car for business trips:
If you use your private vehicle for business purposes more than 10% of the time, you can treat it as a company car for tax purposes. If more than 50% of the trips are for business purposes, you must do so, as the vehicle is then fully allocated to the business assets. In this case, the tax office considers the private use of the car as a taxable benefit. Again, you can choose between the one percent rule or a (electronic) mileage log - see above. Advantage: If your vehicle is classified as a company car, it is considered necessary business assets for tax purposes. This means that all costs associated with the car are tax deductible!
