How to Properly Tax Your Company Car
With your new job comes a sleek company car. Employees often need these vehicles to impress the company's clients during customer visits, and they can usually use them for personal purposes as well. Since they didn't have to purchase the car themselves, it is considered a taxable fringe benefit in Switzerland.
We'll explain exactly how to do that and what expenses can reduce the tax burden in this guide from CARIFY.
The 1% Rule
In neighboring Germany, there is a flat 1% rule for calculating taxes on company cars. The decisive factor is the list price the company car had at its initial registration, regardless of whether the company bought, rented, or leased the car. The monthly taxable fringe benefit amounts to 1% of the list price.
In simpler terms, if the list price was €30,000, the tax office calculates a taxable fringe benefit of €300 per month, which is added to the employee's income (including social contributions). However, this only applies for full months in which the employee could or was allowed to use the car.
The list price refers to the manufacturer's recommended retail price. This includes costs for optional equipment or retrofitted extras, including value-added tax. What if there was no value-added tax incurred, your company negotiated a special price for the vehicle, or it was purchased as a used car?
Unfortunately, these factors do not matter to the German tax authorities.
In Switzerland, the approach is slightly different: According to the "Directive of the Cantonal Tax Office on the Determination of Natural Income from the Use of a Company Car for Private Trips by Non-Self-Employed Persons and the Private Share of Car Expenses by Self-Employed Persons," 0.9% of the actual purchase price for the company car is due monthly (equivalent to an annual amount of 10.8%), excluding value-added tax, but at least CHF 150 per month.
This is also a flat rate that is independent of the privately driven kilometers. The annual amount must be recorded in box 2.2 of the payslip.
Leased cars are a special case. Their assessment is based on the purchase price without value-added tax specified in the lease agreement. If the employer purchases the car at the end of the lease and the employee continues to use it as a company car, this price remains relevant for tax calculation, even if the takeover price of the vehicle was lower.
In the case of leased company cars, the user may have the option to buy the car at the residual value at the end of the lease agreement. This creates a taxable in-kind benefit for tax purposes, which is calculated as the difference between the market value of the vehicle at the time of takeover and the purchase price or residual value:
Market Value - Purchase Price = Taxable In-Kind Benefit
Mileage Logbook Method
If employees use their company car for private purposes only sparingly, the flat rate calculation is not advantageous for them. In such cases, they end up paying more taxes than the fringe benefit they receive. In this situation, keeping a mileage logbook is a better option. In this method, every privately driven kilometer is recorded at a rate of CHF 0.75 per kilometer, as calculated by the Touring Club Switzerland (TCS).
The basis for the calculation in the current year is the kilometers driven in the previous year, with a precise settlement at the end of the year. Sometimes, multiple employees share a pool car for both business and personal trips. In such cases, a mileage logbook is essential to determine individual use accurately.
What exactly is a mileage logbook?
The driver must document when, where, and how far they drove, including the reason for the trip. The Swiss tax administration calculates the exact taxable fringe benefit based on privately driven distances documented by the mileage readings. It may sound cumbersome, but there are now tax office-compliant digital mileage logbooks that meet the requirements of the Swiss Federal Roads Office (ASTRA).
Coverage of Fuel Costs
As an employer, you can deduct all operating net costs from your taxes. This includes the purchase of company vehicles as well as their maintenance. Therefore, most employers are generous with fuel costs.
They not only cover fuel for business trips but also for personal journeys. However, using the company car for holidays on the company's dime is not allowed. Employees must also pay for fuel during extended absences from the workplace.
Other Costs Associated with Company Cars
Operating costs for cars are high. This is why employees appreciate it when the company covers all ongoing expenses related to the company car: taxes, insurance, as well as service, maintenance, and any necessary inspections or repairs. Since the company can deduct these costs except for value-added tax, this arrangement is advantageous. Seasonal tire changes are also included.
Please note that if an employee parks incorrectly and receives a parking ticket or incurs fines for other traffic violations, they are responsible for paying these fines, as well as parking fees, tolls, road vignette costs, or membership in an automobile club, which are typically not covered.
Tax-Reducing Options for Company Cars
Both companies and employees enjoy tax benefits with company cars.
We've examined them for you:
Employees: The dream of having a Porsche at the company's expense is not possible. Tax benefits are not available for every car. The tax authorities set limits for economical mid-range cars. This is also advantageous for users of company vehicles, as the flat rate allowance does not cover the consumption of high-end cars.
Flat rate or not? Depending on how often the company car is used for personal purposes, the flat rate taxation or the mileage logbook may be more favorable. In cases of doubt, a mileage logbook can help determine the actual private use.
Not every employer covers all ongoing costs for company cars; employees may have to make contributions in some cases. These contributions reduce the taxable fringe benefit, and they can be claimed as a tax deduction. However, unlike the employer, employees do not receive tax benefits, such as the deductibility of all operating costs for company cars.
Companies: All net costs related to the company fleet are tax-deductible.
For companies with employee turnover, leasing models are advantageous. Instead of investing in an expensive company fleet that is only partially utilized (but still incurring maintenance costs), many companies opt for on-demand leasing. When an employee changes, the vehicles are simply returned to the leasing company.
Electric and Hybrid Vehicles as Company Cars Have Tax Benefits
In Germany, environmentally friendly powertrains for company cars are fiscally appealing. For plug-in hybrids, employees only need to report 0.5% of the gross list price as a taxable fringe benefit each month, while pure electric vehicles and fuel cell vehicles are taxed at only 0.25%. In Switzerland, according to Swiss eMobility, in the first half of 2019, 10% of all Swiss new registrations were electric vehicles, with an upward trend.
This is due not only to a good charging infrastructure but also to incentives and tax benefits. These benefits vary by canton. There is currently no uniform tax reduction for electric company cars.
Switzerland (overall): Reduction of automobile tax from 4% for imported electric vehicles, no tax on electricity as fuel
Graubünden: 80% discount on road tax
Zug: 50% reduction in motor vehicle tax
Zurich: Waiver of motor vehicle tax
Debunking car subscription myths is essential to help consumers make informed choices about this increasingly popular alternative to traditional car ownership.
What About the Private Use of Company Cars?
As long as the employer does not explicitly prohibit it, employees are allowed to use a company car for private purposes. They don't need to own or maintain their own vehicle but still have a means of transportation.
The tax office views this as a taxable fringe benefit. In the case of some vehicles, such as utility vans from a trade business or cars with company logos, private use is limited. There is an option for users of company cars to separately pay the employer for private trips.
The per-kilometer rate is 75 Rappen. In all three cases, private use does not need to be taxed as a fringe benefit beyond the regular salary. It goes without saying that the commute between home and the workplace is free for employees using the company car. Therefore, the field marked "F" must be checked on the payslip.
There are many advantages for companies to provide employees with company cars. Since all net costs are tax-deductible, the tax burden can be effectively reduced. However, the high administrative effort is a disadvantage. Employees benefit from a high-quality vehicle that costs them nothing and is often available for personal use. However, the taxable fringe benefit can be significant. If there is minimal private use, keeping a mileage logbook is necessary.
Discover electric cars as company cars in CARIFY's flexible subscription
Do you want a flexible, convenient, and cost-effective car subscribtions for your company car fleet that minimizes administrative overhead? Then take a look at our CARIFY car subscriptions. Your advantage: You don't have to invest large sums in the fleet and can adjust its size to the company's needs.
All ongoing costs are already included in the monthly rate, and you don't have to worry about anything else. You can be extremely flexible and get the exact car you need, conveniently delivered to your home within 9 days. Many of our vehicles have environmentally friendly and efficient electric drives:
Renault Mégane: The representative electric sedan impresses with a long range and good equipment.
VW e-Golf: An ideal company car for young companies. Reliability and maneuverability are among the advantages of this compact electric car.
Nissan e-NV200: With a range of 280 km and a sliding door, this electric utility vehicle is perfect for employees who frequently transport bulky cargo.
KIA EV6: Perfect for field sales representatives with all-wheel drive and a long range.
Check out our affordable electric cars as an option for your company car fleet!