The 1 percent rule is intended to simplify the taxation of company cars for private use. In this article, we explain what the 1 percent rule is and when and how employees can apply it. We also take a look at the advantages and disadvantages of the taxation method.
Contents
- What is the 1 percent rule?
- How is the 1 percent rule applied?
- 1 percent rule: Travel between home and work
- Exceptional case: Less than 15 days of travel between home and work per month
- When does the 1 percent rule not apply?
- 1 percent rule for hybrid and electric vehicles
- Advantages and disadvantages of the 1 percent rule
What is the 1 percent rule?
The permitted private use of a company car represents a non-cash benefit for the employee. According to Section 8 of the Income Tax Act, this non-cash benefit is income that the employee must pay tax on. The 1 percent rule is a tax regulation to meet this obligation.
With the 1 percent rule, the private use of the company car is thus compensated at a flat rate. This should significantly simplify the tax process for employees and companies.
How is the 1 percent rule applied?
Under the 1 percent rule, the non-cash benefit arising from the private use of the company car is taxed monthly at a flat rate. For this purpose, 1 percent of the gross list price of the company car in Germany at the time of initial registration is applied.
The gross list price corresponds to the new vehicle price including VAT and all optional extras, regardless of the actual purchase value or age of the vehicle. This means that even with an older or used company car in the fleet , the original list price of the new car is taken as the basis.
Calculation example
- Taxable income (excluding company car): 3,000 euros
- Gross list price company car: 40,000 euros
Gross list price x 0.01 = 40,000 euros x 0.01 = 400 euros
As illustrated in the calculation example, the tax burden for the employee is increased by the non-cash benefit of the company car. In this case, the employee must now pay tax on 400 euros more as a non-cash benefit.
1 percent rule: Travel between home and work
If the employee also uses the company car for journeys between home and work, they must also apply a further rule in addition to the 1 percent rule for private use. The journeys between home and work are therefore monthly tax of 0.03 percent of the gross list price per kilometer traveled.
Calculation example
- Taxable income (without company car): 3,000 euros
- Gross list price company car: 40,000 euros
- Commute: 20 kilometers (20 days a month)
40,000 euros x 0.01 = 400 euros and
40,000 euros x 0.0003 x 20 = 240 euros
Total monetary benefit: 400 euros + 240 euros = 640 euros
The additional use of the company car on the way to work then increases the employee’s taxable income in the calculation example by a further 240 euros. Together with the non-cash benefit from the 1% rule of 400 euros, his taxable income is increased by the company car accordingly to 3,640 euros.
Exceptional case: journeys between home and place of work on less than 15 days per month
For employees who drive to work in a company car less than 15 days a month, however, a different rule applies. They must pay additional monthly tax on the company car at 0.002 percent of the gross list price per kilometer and journey. This means that each journey is considered individually.
Calculation example
- Taxable income (excluding company car): 3,000 euros
- Gross list price company car: 40,000 euros
- Commute: 20 kilometers (10 days a month)
40,000 euros x 0.01 = 400 euros and
40,000 Euro x 0.00002 x 20 x 10 = 160 Euro
Total monetary benefit: 400 euros + 160 euros = 560 euros
According to the calculation example, the taxable income of an employee with a company car amounts to a total of EUR 3,560. The tax burden for an employee who only uses their company car to travel to work 10 days a month is therefore 80 euros lower.
When does the 1 percent rule not apply?
The 1 percent rule may or may not always be applied. In certain cases, other rules apply or alternatives for taxation are possible. Some such cases are listed below:
- No private use: If the employee does not use the company car privately, but exclusively for professional purposes, there is no non-cash benefit and the employee does not have to pay tax on it according to the 1 percent rule.
- Use of the logbook method: Employees also have the option of documenting their private and business journeys in a logbook. In this case, the flat-rate 1 percent rule can be avoided.
- Short-term provision: If a company car is only provided to an employee for private use for a short period of time, such as a few days or weeks, the non-cash benefit can be calculated on a daily basis instead of the 1 percent rule.
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1 percent rule for hybrid and electric vehicles
While employees who drive a company car with a conventional drive have to pay tax on it using the 1 percent rule, the situation is slightly different for electric vehicles. Instead of 1 percent, only 0.5 percent of the gross list price is taxable as a non-cash benefit.
In addition, there are § Section 6 para. From 2020, there will even be a further benefit for electric vehicles purchased or leased between December 31, 2018 and January 1, 2031. If the list price of these vehicles is less than 60,000 euros, only 0.25 percent of the gross list price must be taxed as a non-cash benefit.
From 2024, the limit for vehicles purchased after December 31, 2023 will even be raised to 70,000 euros. Only 0.03 percent of the quartered list price will also be applied for journeys between home and work. This regulation also applies to hybrid vehicles.
Calculation example
- Taxable income (without e-company car): 3,000 euros
- Gross list price e-company car: 40,000 euros
- Commute: 20 kilometers (20 days a month)
40,000 euros x 0.25 x 0.01 = 100 euros and
40,000 euros x 0.25 x 0.0003 x 20 = 60 euros
Total monetary benefit: 100 euros + 60 euros = 160 euros
The calculation example briefly shows that an employee with an electric company car has to pay tax on a significantly lower non-cash benefit than with a company car with a combustion engine for the same use . The taxable income with a company car is EUR 3,160 – that is EUR 480 less than for the company car with a combustion engine. This makes e-vehicles very attractive for use as a company car.
Advantages and disadvantages of the 1 percent rule
As a flat-rate method of taxation, the 1 percent rule offers both advantages and disadvantages. You should therefore pay attention to this:
Advantages
- Simple handling: The calculation of the non-cash benefit means that it is no longer necessary to keep a time-consuming logbook. This reduces the administrative burden and saves time. The method is therefore particularly worthwhile for employees who frequently undertake private journeys.
- Planning security: Thanks to the flat rate, employees and employers know exactly how high the taxable non-cash benefit is. This enables a clear calculation of the costs.
Disadvantages
- Disproportionate burden: For employees who only rarely use their company car privately, the flat rate can lead to an excessive tax burden, as it does not reflect the actual use.
- High costs for expensive vehicles: For very expensive vehicles, the flat-rate taxation can lead to high monthly tax payments, even though the vehicle is used very little privately.
Conclusion on the 1 percent rule
- The method for taxing the private use of company vehicles is relatively simple and straightforward to apply.
- Company car drivers with e-vehicles also benefit from a lower non-cash benefit that they have to pay tax on.
- The 1 percent rule can lead to a disproportionate burden if employees do not often use the company car privately. In this case, a logbook may be more favorable.
