Company Car: How Does It Work and What Should You Consider?

As an entrepreneur, you can choose to register a car as a company asset . This can be tax-advantageous, but there are also important rules and considerations. In this guide, we explain how it works, when it's beneficial and what you need to pay attention to.

Company car or private? Which is more advantageous?

As an entrepreneur, you have two options:

• Business: The car is registered in the company's name, and all costs, such as fuel, insurance, and maintenance, are business expenses.
• Private: The car remains in your name, and you only declare business mileage at €0.23 per kilometer (2024).

A company car is usually advantageous if you drive a lot of business kilometers and also use the car privately. A private car is often more beneficial if you drive few business kilometers and prefer not to pay additional tax.

Company Car: What are the advantages?

• All car expenses are tax-deductible, such as purchase, fuel, maintenance, insurance, and road tax.
• You can reclaim VAT on the purchase and running costs.
• No private expenses for the car, as everything is paid for business.

This can lead to tax benefits, but there are also additional costs to consider, such as the private use addition.

What is the private use addition and when do you pay it?

If you also use the company car for private purposes, you will incur a private use addition. This is a tax surcharge on your income, as the Tax Authorities consider it a form of benefit in kind.

The private use addition is a percentage of the car's list price and is added to your taxable income. The following percentages apply in 2024:

• 16% private use addition on the first €30,000 of the list price for electric cars.
• 22% private use addition for petrol, diesel, and hybrid cars.

You do not pay a private use addition if you drive less than 500 kilometers privately per year and can prove this with a complete mileage log.

VAT Refund and Correction for Private Use

If you register a car to your business, you can VAT on purchase and costs reclaim. This also applies to fuel, maintenance, and lease costs.

Do you also use the car privately? Then at the end of the year, you must apply a VAT correction , usually 2.7% of the car's list price.

Lease or Buy: Which is better?

• Financial Lease: You become the economic owner of the car and can depreciate the purchase value.
• Operational Lease: The car remains the property of the leasing company, and all costs are included in the monthly payment.
• Buying: You pay for the car upfront and benefit from full deductibility of costs and depreciation.

Leasing is convenient if you don't want to make a large upfront investment, while buying can be more advantageous in the long run.

When is a company car beneficial?

A company car is often advantageous if:

• You drive a lot of business kilometers.
• You want to reclaim the VAT on the purchase and costs.
• You want to drive a car without a private investment.
• You're considering an electric car and benefit from a lower company car tax.

If you drive few business kilometers or buy a used car, private ownership and business mileage reimbursement might be more advantageous.

Conclusion: What's the best choice for you?

The answer depends on your driving habits, tax benefits, and how you want to finance the car. Carefully consider the company car tax, deductible expenses, and VAT benefits before you decide.

Do you want to know what the best choice is for your situation? Contact Suits Finance, your e-commerce accountant, for personalized advice.

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