Are electric company cars fiscally interesting?

Electric cars hardly emit any fossil fuels. As a result, these cars are receiving increasing attention in view of climate targets. More and more companies are considering electrifying their company cars to do their bit as well. This also puts your company on the map as a sustainable company. This is all very well, but of course the financial picture cannot be forgotten.

Co2 solidarity contribution

An employer who provides a company car to an employee must pay a monthly Co2 solidarity contribution since 2005. The Co2 solidarity contribution is based on the company car's Co2 emissions and the fuel type of the company car. Until 1 July 2023, the current formula is multiplied by 1.3525. From 1 July 2023, it will be multiplied by 2.25. In the following years, this factor will also increase further. However, this increase only applies to company cars purchased, leased or rented from that date.

For electric company cars, the minimum non-indexed Co2 solidarity contribution will be used. This currently corresponds to an indexed amount of 28.17 euros per month. The current minimum will be further indexed to 31.34 euros per month in 2023. The minimum non-indexed Co2 solidarity contribution will also continue to increase over the years.

Tax deductibility

Company cars have a favourable tax regime. For example, the tax deductibility of a company car is between 40 and 100 per cent. This means that the employer can deduct between 40 and 100 per cent of the company car-related costs from taxable income. Thus, the taxable income reduces and the employer ends up paying less taxes. As with the Co2 solidarity contribution, deductibility also depends on the fuel type and Co2 emissions of the company car. We briefly outline the difference between the deductibility of conventional, plug-in hybrid and electric company cars.

Conventional 🚙

The deductibility of conventional company cars is calculated using a specific formula. This formula therefore takes into account the factors mentioned above. A more environmentally friendly company car will enjoy a higher deductibility than a less environmentally friendly company car. Very polluting company cars (>200g Co2/km) have a deductibility of only 40 per cent. In practice, the deductibility of other conventional company cars often varies between 50 and 70 per cent. In theory, it can vary between 50 and 100 per cent.

Plug-in hybrid 🚙🔌

With plug-in hybrid commercial vehicles, a distinction must be made between a 'real' plug-in hybrid commercial vehicle and a 'fake' plug-in hybrid commercial vehicle. A 'fake' plug-in hybrid commercial vehicle is a commercial vehicle that has a battery capacity of up to 0.5 kWh and/or has Co2 emissions of at least 50g Co2/km. A 'real' plug-in hybrid company car is treated like conventional company cars. As a result, these have a deductibility that in practice will be between 80 and 100 per cent.

For 'fake' plug-in hybrid company cars, one has to use the Co2 emissions of a corresponding vehicle. This is a vehicle with the same fuel type, make, model and bodywork. Where the power ratio of the two vehicles is as close as possible to 1, and is between 0.75 and 1.25. If no vehicle can be considered a matching vehicle, the Co2 emissions of the 'fake' plug-in hybrid company car must be multiplied by 2.5. In these cases, the deductibility will be similar to that of a conventional company car.

❗In addition, the tax deductibility of fuel costs drops to 50 per cent for plug-in hybrids purchased, leased or rented since 2023. This is not the case for charging costs.❗

Electric 🚙🔋

Electric company cars enjoy 100 per cent tax deductibility. So from this perspective, the electric company car is very interesting to invest in.

Deductibility in the future

A lot will change in the coming years regarding the tax deductibility of company cars. For purchased, leased and rented conventional and plug-in hybrid company cars, purchased between 1 July 2023 and 31 December 2025, the tax deductibility will decrease every year from 2025 onwards. In fact, the deductibility of these vehicles drops by 25 per cent every year. In 2025, this will thus correspond to a tax deductibility of no more than 75 per cent. The current lower limits of 50 and 40 per cent also fall away in 2025. In 2028, there will thus be no more deductibility for these company cars. All company car-related costs will then be rejected expenses and thus subject to corporate income tax.

Company cars purchased from 2026 onwards must be Co2 neutral to still be tax deductible.

Electric company cars have 100 per cent tax deductibility until 2026. From 2027, tax deductibility will start to decrease here too. Thus, the tax deductibility for electric cars purchased, rented or leased will still be 90 per cent in 2028, and 67.50 per cent in 2031. The tax deductibility will therefore remain in place for electric cars beyond 2028. The tax deductibility of the purchase year is also retained for life for that vehicle. So the most interesting thing from this perspective is to buy, rent or lease an electric company car before 2027.

The figure below shows the tax deductibility for the next few years.

Benefit in Kind

The last financial aspect considered is the Benefit in Kind. The Benefit in Kind is mainly a cost for the employee, but the employer also pays taxes on it. The employer pays 17 per cent of the Benefit in Kind as corporate tax, if the fuel cost is not covered for private travel. If it is, the employer pays 40 per cent of the Benefit in Kind.

The Benefit in Kind itself, for the employee, is determined based on the age, catalogue value, fuel type and Co2 emissions of the company car. Whereby a newer, more expensive and a more polluting car will have a higher Benefit in Kind. In 2022, the minimum Benefit in Kind is 1,400 euros.

Conclusion

To check whether that an electric company car is fiscally interesting, an example is worked out comparing the three fuel types in 2023 and 2028. The three cars used are:

• Audi A4 Avant - Diesel (list value of 44,430 euros);
• Audi Q3 - Plug-in hybrid petrol (list value of 50,010 euros);
• Volkswagen ID.4 - Electric (list value of 50,465 euros).

From this example, it can be concluded that the diesel car has the highest TCO, and the electric car has the lowest TCO. In 2023, the cost for the diesel car is 14.28 per cent higher than the cost for the plug-in hybrid car and 28.54 per cent higher than the cost for the electric car. Due to tax changes in the following years, this difference will increase sharply in 2028. The diesel car will then cost 20.59 per cent more than the plug-in hybrid car and 59.43 per cent more than the electric car.

From another angle, it can be concluded that the diesel car in this example has become 30 per cent more expensive between 2023 and 2028. For the plug-in hybrid car this is 23.17 per cent and for the electric car it is 4.80 per cent. This is without taking into account future inflation.

Another benefit expected is that the purchase prices of electric cars will continue to fall in the coming years. As a result, the TCOs of electric cars will potentially be even lower.

Finally, it is important to mention that this is only one example comparison. So in reality, these differences may vary. The example does indicate clearly that the current costs between the three cars are currently similar, and that costs will increase in the future mainly for conventional vehicles and plug-in hybrids.

       

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