A company car is a motor vehicle that is acquired or leased by an entrepreneur or freelancer wholly or predominantly for business purposes. In the tax and accounting context a distinction is made between vehicles used exclusively for business and those with mixed use (business and private), where the classification affects depreciation, input VAT deduction, allocation of business expenses and the treatment of private use.
Accounting recognition and depreciation
When a company car is acquired, it must be recorded in the fixed asset register as a tangible fixed asset. The net purchase price including acquisition-related costs (e.g. delivery, commissioning) is capitalized.
For passenger cars the official depreciation table (AfA) generally provides a useful life of 6 years. Straight-line depreciation is applied based on the acquisition cost and is recorded as an ongoing expense.
- Entry on purchase: Asset account Vehicles to Bank/Cash; Input VAT to Bank/Cash (if deductible).
- Annual depreciation: Depreciation expense to Accumulated depreciation / Asset account.
- Partial-year depreciation: In the year of acquisition pro rata by months.
Input VAT, VAT and private use
When purchasing or leasing a company car, input VAT can generally be claimed under the VAT Act (UStG) if the vehicle is used predominantly for business purposes. In cases of mixed use, the input VAT deduction must be made proportionately according to the business-use share.
Private use of a company car is treated for VAT purposes as a deemed supply or as a taxable other supply; the taxable portion corresponds to the share attributable to private journeys. In practice the recording of private use is often simplified by settling according to the usage share or by applying flat-rate amounts.
1%-rule vs. logbook
For the income tax valuation of private use (EStG) two common methods are relevant:
- 1% rule: Monthly 1% of the domestic gross list price (including optional equipment) is taxed as a monetary benefit. For journeys between home and the first place of work an additional 0.03% of the list price per kilometre of distance is added.
- Logbook: Detailed recording of all trips (date, purpose, odometer reading, kilometres driven). Actual private use is applied as a percentage to the total costs. Advantage: often tax-favourable when business use is high, but time-consuming to maintain.
Practical examples and booking scenarios
Practical example 1: Company car with list price 40,000 EUR, monthly private use according to the 1% rule:
- 1% of 40,000 EUR = 400 EUR/month as a taxable monetary benefit (amount to be included in income tax assessment).
- Distance home–work 20 km: 0.03% × 20 × 40,000 EUR = 240 EUR/month additionally.
- Monthly taxable benefit to be recorded = 640 EUR.
Practical example 2: Logbook shows 20% private share with annual total costs of 12,000 EUR:
- Private share = 2,400 EUR; this amount is to be treated as a withdrawal/monetary benefit and reduces the deduction of business expenses accordingly.
Booking examples
| Transaction | Entry |
|---|---|
| Purchase (gross) | Vehicle account to Bank; Input VAT to Bank |
| Depreciation (annual) | Depreciation expense to Asset account |
| Private use (withdrawal) | Owner withdrawal to Vehicle costs / expense adjustment |
Practical tips for freelancers and small businesses
Plan in advance: the decision between the 1% rule and the logbook should be made at the start of use, as switching later in the current fiscal year is often restricted. Keep a reliable logbook if you are predominantly on business trips and want to reduce the tax burden.
- Leasing vs. purchase: Lease payments are generally immediately deductible as business expenses; when purchasing the acquisition costs must be capitalized and depreciated over time.
- Input VAT check: Input VAT deduction only for business use; document business trips and the usage-key.
- Record private withdrawals correctly: For sole proprietors private use must be booked as a withdrawal; for GmbH managing directors monetary benefits can be subject to payroll tax and social security contributions.
In complex cases (e.g. mixed financing, special leasing contracts, company cars for shareholder-managing directors) it is advisable to coordinate with a tax advisor or accountant to minimise tax risks and choose the appropriate accounting solution.