Idea in short

In Germany, some employers provide an option for a company car. Employees are also allowed to use the company car for private purposes. This scenario appears enticing and lucrative. Unfortunately, in practice, this good intent has many catches . The German tax office scrutinizes company car usage in the context of perks and benefits that are liable for taxation. When you are faced with the choice between a company car and more salary, you should know the exact tax implications. Only then should you decide between the available options.

Perks are subject to payroll tax

Company cars are popular employee motivation perks. Usually, the company bears the costs of a brand new vehicle and the employee gets to use it, both for private and business purposes. The tax office considers a company car a perk with an associated financial gain. This is an in-kind benefit that an employee receives from the employer. A financial gain is always subject to income tax and social security. Anyone that avails a company car must include the financial gain in his / her tax calculation. Company cars that are not permitted for private use (e.g. vans that are exclusively intended for goods transport) are not subject to income tax and social security contributions.

1% lump sum on list price

Company car drivers can choose between two options as to how the financial gain is calculated.  The first option is the so-called 1% flat rate. The financial gain is set at 1% of the list price of the car at the time of its initial registration. The price the employer actually paid for the car does not matter.


For example, if the list price is € 30,000, the monetary advantage is € 300 per month. This amount is added to the employee’s monthly salary and the resulting amount is used as the basis for calculating the payroll tax. In addition to this 1% lump sum, 0.03% of the list price for each kilometer of the distance is set and taxed monthly for journeys between the home and the first place of work. If the employee participates in the cost of a company car for private use, these additional payments to the employer can reduce the value of the financial gain – in extreme cases, to zero.

Logbook method

In the logbook method, you should record each trip in a logbook. For business trips, employees record:

  • The date
  • The mileage at the beginning
  • The mileage end of the journey
  • The destination
  • Detours and the itinerary, if any, and
  • The purpose of the trip

For example, this could be a customer visit. For private trips, recording the traveled distance is sufficient. A short note in the logbook is sufficient for trips between the apartment and the first place of work. From the total distance traveled, the tax authorities will determine the proportion of private trips made. The employee then pays tax for only the portion of private trips.

When and how is the salary conversion worthwhile?

As a rule, which calculation basis is the correct depends on the share of private use. In salary conversion for a company car, the rule among tax experts is that the less the company car costs and the shorter the journey to work, the lower the taxation of the financial gain. Specifically, this means that the flat-rate taxation according to the 1% rule would pay for those who use their company car for private rides at least 30% of the time. Maintaining a logbook, especially for users who use their company car for private trips, entails a significant overhead and privacy concerns. However, it must always be verified on a case-by-case basis whether a partial deduction really pays off.

Incidentally, you can re-define how the financial benefit should be calculated each year. Within a year, this is only possible when you change your vehicle. The tax authorities want to prevent taxpayers from using the 1% method during months of high private use and the others using logbook.