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But subsidies such as tax breaks for company cars, which make it worthwhile for employees to forgo a part of their salary in exchange for a high-end vehicle, are not going away. More than two in three new cars in Germany are bought by companies; many end up being driven mostly on personal trips.

https://www.economist.com/business/2023/07/31/what-if-germany-stopped-making-cars is the source.

How popular, as in common, is this type of deal in Germany? I presume this kind of deal is available to employees of different industries, so it would be good to know about some examples to get an idea of how common this is.

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  • This quote is mixing numbers that are unrelated to each other. Companies buy cars but these cars aren't all driven by employees. The tax privilege is for cars that are used while working for the company (Dienstwagen). One cannot simply use them for private use as far as I know or has to pay then. Most of privately used cars are bought privately. Aug 1, 2023 at 8:21
  • In the literal meaning of popular, this is very popular as only the better-paid employees are offered such a scheme. It generally signifies that you’ve ‘made it’.
    – Jan
    Aug 15, 2023 at 19:26

2 Answers 2

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It is very common. According to statistics by the Federal Motor Transport Authority more than 60 % of newly registered cars are registered by companies. Your quote concerns a subset of those, i.e., those for which private use is allowed (Dienstwagen in German). There is no statistical information regarding these but German Watch estimates that they are 20 % of newly registered cars. It is common knowledge that they tend to be larger and more expensive than average. There are large differences between industries with this deal obviously being most common for employees that do many business trips, e.g., sales people.

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  • Thanks for the reply. What about professionals that are not driving on the job? Would this kind of deal be available to, for example, software engineers at a place like SAP, or electrical engineers at a company like Siemens, or a pharmacologist at company like Bayer?
    – H2ONaCl
    Aug 1, 2023 at 14:40
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    Usually not because it would is more cost-efficient to give them simply a higher payment.
    – Roland
    Aug 1, 2023 at 15:06
  • @H2ONaCl: there has to be a minimum use while fulfilling the job of IIRC 10 % for employees and 20 % for for freelancers/business owners. Going from home to office does not count into the job-related use. Aug 12, 2023 at 15:30
  • The German watch source also says that 5 % of the German employees have access to a business car which they can also use privately. The rate will be much higher for business owners, of course - but they are much fewer: there are about 3,6 mio freelancers/business owners compared to > 40 mio employees in Germany. Aug 12, 2023 at 16:47
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how common this is

@Roland's source says about 5 % of all employees have access to a business car which they are allowed to use privately as well.


Here's how these (tax) rules work that the article refers to:

  • A car can be assigned to/owned by the company/business even if the majority of its use is private. The required minimum business use is IIRC 10 % for employees and 20 % for freelancers/business owners. The latter can choose whether the car is assigned to the business or their private life when business use is between 20 - 50 % (see at the end when that is advantageous).
  • (If the car is privately owned, business use can be reimbursed according to a rate per km defined by tax law. In principle, it is also possible to get higher reimbursement by detailed book-keeping of the costs plus a detailed driver's log (caveats see below).
    Since this is reimbursement for what tax law considers actual costs, the reimbursement is not subject to income tax.)
  • If the car is owned by the company/business, gas, maintenance and repair, insurance, depreciation, ... are also up to the company/business. Which means: no VAT on those, since they are normal business expenses like for a car that is 100 % used for business.

  • For the private use of the business-owned car, however, there are 3 possibilities

    1. If the employee/freelancer/business owner reimburses the company/business for the private use, either by the prescribed rate by tax law or by the rate according to the actual costs like the reimbursement for private car used for business. Again, there are no further income tax implications.
      If the actual cost per km is above the reimbursement rate, the employee basically got a benefit that is not subject to income tax.
      I've met this as the exception allowed by a basically "no private use" policy for business cars.

    2. A detailed driver's log is kept, and the actual costs are divided according to the privately to business-related kms ratio (plus VAT) and enter the employee/business owner's income tax declaration as non-monetary benefit.
      The driver's log is not only a lot of hassle, it is notorious that a tax inspection will always find faults there and then flat-out cancel this option.
      From a macro-economic perspective, this method is more precise than alternative 3., but more prone to tax fraud (which in turn is why tax inspections dig into this).

    3. As an alternative, the taxable non-monetary benefit can be calculated (without the need for a driver's log) by the so-call 1% flat rate which puts the monthly non-monetary benefit at 1 % of the gross list(!) price of the car for combustion engines (0.25 % for electric; 0.5 % for hybrid). This flat rate is independent of the privately driven km, the actual price or costs, and the age of the car.

Now rule 3. puts an incentive on having new business cars, and driving them a lot for private reasons. @Rolands source estimates that the 1 % flat rate leads to taxation of only about 40 % of the actual non-monetary benefit.
In contrast, if the car in question is bought used, and if it is small/has low maintenance costs, one would be at a disadvantage with 3., 2. is impractical unless private use is very low, so it may be better/cheaper to then use such a privately owned car and get reimbursed for business travel.

This somewhat explains why according to @Roland's source, most cars start as business car and are then later sold into private hands (contrast that 60 % of new cars are bought by businesses, but only 11 % of all cars are owned by businesses). And this is also why in particular rule 3 for the business-owned cars is also seen as subsidy for the car industry.

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