Summary
A company car – a free car – is a taxable employee benefit. It is the right to use the car that is taxed, not the actual private mileage. The taxable value is calculated as a percentage of the car’s value plus an environmental surcharge, and the employer reports the amount monthly along with the salary. The current rates can be found at skat.dk.
Short answer
A company car – also known as a free car – is a taxable employee benefit. It is the right to use the car that is taxed, not how much the employee actually drives it for private purposes. If you make a company car available for private use, the employee is therefore liable for tax, regardless of whether the car is only used privately to a limited extent. The taxable value is calculated as a percentage of the car’s value plus an environmental surcharge, and you must report this amount each month along with the salary. You can find the current rates on skat.dk.
What is a company car?
A company car is a car that you, as an employer, make available to an employee and which may also be used for private purposes – including journeys between home and work. It is one of the most popular employee benefits, but also one where it is easiest to make mistakes regarding taxation. The rules are set out in Section 16 of the Tax Assessment Act, and they apply regardless of whether the car is purchased or leased.
It is the right to use the asset that is taxed
The key point regarding a company car is that it is the private use of the car – not the actual mileage – that triggers taxation. If an employee has access to use the car for private purposes, taxation applies, even if the car is used almost exclusively for business purposes. However, employees with a company car cannot, at the same time, claim a travel allowance.
When can you avoid paying tax?
Taxation can be avoided in two typical cases. The first is a car with yellow number plates, which may only be used for business purposes. The second is where there is a written agreement stipulating that the car must not be used for private purposes – not even for journeys between home and work – and you, as a business, ensure that the agreement is adhered to, for example by checking that fuel and servicing costs correspond to business mileage. Without such an agreement and monitoring, a car with white or ‘parrot’ number plates that is made available for use will be subject to taxation.
How to calculate the value
The taxable value of a company car consists of two parts: a percentage of the car’s value plus an environmental surcharge, which is calculated on the basis of the car’s green road tax. The car’s value depends on its age: for a car that is no more than three years old at the time of purchase, the new car price is used, whilst the basis is reduced as the car gets older. There is also a statutory minimum base value below which the value cannot fall. The percentage rate itself, the environmental surcharge and the minimum base value are laid down in legislation and are subject to adjustment – so you should always check skat.dk before doing your calculations.
Co-payment and partial availability
If the employee pays you a sum from their taxable income in return for the use of the car, this personal contribution is deducted from the taxable value before you submit your return. If the employee only has the car at their disposal for part of the year, tax is only payable on the months during which the car was available – and these are rounded up to full months.
Reporting
The value of a company car is taxed as A-income, and AM contributions must be paid. You add the car’s annual value and the environmental surcharge together, divide by 12, and report the monthly amount via eIndkomst along with the employee’s other salary. It is your responsibility as an employer to ensure that the calculation is correct and that the correct amount is reported.
Electric cars and charging points
Electric cars and plug-in hybrid cars are taxed according to the same general principles as petrol and diesel cars. Electricity paid for by the employer to charge the company car itself is regarded as a standard operating expense and is not taxed separately, and a charging point installed at an employee’s home may, under certain conditions, be tax-free. The rules governing electric vehicles are detailed, so please check the specific circumstances on skat.dk.
We can help you with your company car
A company car is an attractive employee benefit, but the calculations, personal contribution and reporting must be precise, otherwise you may end up with an unexpected tax bill. At Dansk Løn Service, we manage company car taxation as an integral part of our payroll processing. Read more in our guide to employee benefits, or Contact us.
The rules have been simplified here, and the rates are subject to change. If in doubt, always seek specific guidance on skat.dk or from a payroll officer.