1 percent rule for company cars: overview of flat-rate taxation & comparison with the logbook

The 1-percent rule is intended to simplify the taxation of company cars when used for personal purposes—and is therefore of great importance to many employees. This is because anyone who uses their company car for purposes other than business travel must pay taxes on the resulting monetary benefit.

A company car is not only considered a status symbol but is also a popular perk. But what tax obligations come with personal use? And which taxation method is best for whom? In this article, you’ll learn how the 1-percent rule works, when it applies, and what you need to keep in mind.

Company car taxation: What does this mean for employees?

Meal allowance, company cell phone, vouchers: All benefits that employees receive from their employer in addition to their salary are referred to as non-cash benefits. In accordance with §8 of the Income Tax Act the non-cash benefit is equivalent to income and must be taxed accordingly as soon as the limit of EUR 44 is exceeded.

In the case of company cars in the fleet, the non-cash benefit does not arise solely through the ownership of a vehicle. Only if the employer expressly permits the private use of the company car in the employment contract does a non-cash benefit arise for the employer. There are two options for company car taxation: Either a flat rate using the 1% method or by keeping a logbook.

Once you have decided on one of the two methods for company car taxation, you must use it for the entire calendar year. It is not possible to switch between the two methods within the year.

What are the tax implications of using a company car for personal purposes?

Regardless of the method chosen, the use of a company car for private journeys always leads to an additional tax burden – because the non-cash benefit increases the taxable amount of income. It is irrelevant how often the company car is used outside of working hours: Even occasional private journeys count as added value that must be taken into account for tax purposes.

Both the 1 percent rule and the logbook model have an impact on income tax and VAT, particularly for the employer. The so-called first place of work of the employee is also decisive for the tax assessment, as journeys there are treated differently from completely private journeys for tax purposes.

If certain journeys are not clearly documented in the logbook or if private and business use are mixed, the tax office may reject the entire regulation. In such cases, no costs can be deducted and tax is paid at a flat rate – often to the detriment of the employee. This makes it all the more important to separate business and private journeys precisely, especially in the case of electrically powered vehicles, where additional special regulations apply.

What is the 1 percent rule?

The permitted private use of a company car represents a non-cash benefit for the employee. In accordance with Section 8 of the Income Tax Act, this non-cash benefit is taxable income for the employee. The 1 percent rule is a tax regulation to fulfill this obligation.

With the 1 percent rule, the private use of the company car is thus compensated at a flat rate. This should significantly simplify the tax process for employees and companies.

The so-called usage value of the vehicle is not determined individually, but is set at a flat rate based on the gross list price. This makes the method particularly attractive for employers with a large number of company vehicles in their fleet.

As the non-cash benefit is considered income, it is subject to both income tax and VAT – the latter is particularly relevant for employers.

The regulation also primarily affects company cars that are regularly used for journeys between home and work, as these must be taken into account for tax purposes in addition to private use.

How is the 1 percent rule applied?

If you also use your company car privately, you can apply the 1 percent rule for company car taxation. Under this rule, the non-cash benefit arising from the private use of the company car is taxed monthly at a flat rate. For this purpose, 1 percent of the domestic gross list price of the company car at the time of initial registration is applied.

The gross list price corresponds to the new vehicle price including VAT and all optional extras, regardless of the actual purchase value or age of the vehicle. This means that even with an older or used company car in the fleet , the original list price of the new car is taken as the basis.

As illustrated in the calculation example, the tax burden for the employee is increased by the non-cash benefit of the company car. In this case, the employee must now pay tax on 400 euros more as a non-cash benefit.

1 percent rule: Travel between home and work

If the company car is also used for the journey between home and work, this must be taxed at 0.03% of the gross list price in Germany each month.

Because the employee also uses the company car to commute to work, his taxable income in the example increases by an additional 240 euros. Combined with the non-cash benefit of 400 euros under the 1% rule, the employee’s taxable income increases to 3,640 euros as a result of the company car.

Exceptional case: journeys between home and place of work on less than 15 days per month

For employees who drive to work in a company car less than 15 days a month, however, a different rule applies. They must also pay monthly tax on the company car at 0.002 percent of the gross list price per kilometer and journey. This means that each journey is considered individually.

According to the calculation example, the taxable income of an employee with a company car amounts to a total of 3,560 euros. The tax burden for an employee who only uses their company car to travel to work 10 days a month is therefore 80 euros lower.

1 percent regulation for hybrid and electric vehicles

Electric vehicles and certain plug-in hybrid vehicles are eligible for tax breaks when it comes to taxing the monetary benefit, compared to company cars with conventional powertrains.

For purely electric vehicles, only one-quarter of the gross list price is used to calculate the monetary benefit, provided the legal requirements are met. As a result, the taxation is equivalent, in mathematical terms, to the so-called 0.25 percent rule. For electric vehicles purchased after June 30, 2025, this benefit applies to a gross list price of up to 100,000 euros.

For eligible plug-in hybrid vehicles, half of the gross list price is generally used as the basis for calculation, which corresponds to the 0.5 percent rule. For vehicles purchased on or after 2025, the plug-in hybrid must either emit no more than 50 grams of CO₂ per kilometer or have a minimum electric range of 80 kilometers.

Even for trips between home and the primary place of work, the reduced list price is factored into the calculation of the monetary benefit.

This calculation example briefly illustrates that an employee with an electric company car, assuming the same level of use , must pay taxes on a significantly lower imputed income than an employee with a company car powered by an internal combustion engine. The taxable income for an electric company car is 3,160 euros—that’s 480 euros less than for a company car with an internal combustion engine. This makes electric vehicles very attractive for use as company cars.

When does the 1 percent rule not apply?

The 1 percent rule may or may not always be applied. In certain cases, other rules apply or alternatives for taxation are possible. Some such cases are listed below:

• No private use: If the employee does not use the company car privately, but exclusively for professional purposes, there is no non-cash benefit and the employee does not have to pay tax on it according to the 1 percent rule.
• Use of the logbook method: Employees also have the option of documenting their private and business journeys in a logbook. In this case, the flat-rate 1 percent rule can be avoided.
• Short-term use: If a company car is only provided to an employee for private use for a short period of time, such as a few days or weeks, the non-cash benefit can be calculated on a daily basis instead of the 1 percent rule.

Advantages and disadvantages of the 1 percent rule

The advantage of the 1 percent method is that the calculation is relatively simple and time-saving, as you do not have to record each journey individually. However, the disadvantage of this formula for company car taxation is that the calculation method is based on the list price of the company car.

This means thatthe more expensive the vehicle, the higher the taxable amount. However, a cheaper company car and a long commute can also be tax disadvantageous with the 1 percent method. The flat-rate company car tax is therefore particularly worthwhile for employees who frequently use the company car for private journeys.

Calculation example

• Gross monthly income: 3,200 euros
• New price: 48,000 euros
• Distance home → workplace: 30 kilometers on 20 days per month

Calculation:

• 48,000 x 0.01 = 480 Euro
• 48,000 x 30 x 0.0003 = 432 Euro
• 480 euros + 432 euros = 912 euros

This results in a monthly non-cash benefit of EUR 912, which must be added to the salary as additional income for company car taxation in 2024. Instead of the EUR 3,200, this results in a taxable monthly gross income of EUR 4,112 for the employee.

Further advantages

• Simple handling: The calculation of the non-cash benefit means that it is no longer necessary to keep a time-consuming logbook. This reduces the administrative burden and saves time. The method is therefore particularly worthwhile for employees who frequently undertake private journeys.
• Planning security: Thanks to the flat rate, employees and employers know exactly how high the taxable non-cash benefit is. This enables a clear calculation of the costs.

Disadvantages

• Disproportionate burden: For employees who only rarely use their company car privately, the flat rate can lead to an excessive tax burden, as it does not reflect the actual use.
• High costs for expensive vehicles: For very expensive vehicles, flat-rate taxation can lead to high monthly tax payments, even though the vehicle is used very little privately.

Taxation of company cars with a logbook

If you only make a few private journeys with your company car, it is worthwhile taxing your company car with a logbook. This documents all journeys, whether private or business. It is important to ensure that all journeys are recorded as completely as possible and that no subsequent additions are made. The tax office can only determine the correct tax rate for the use of the company car if you keep a complete logbook.

Advantages and Disadvantages of the Logbook

Company car taxation using a logbook is more time-consuming than the 1 percent method, as every journey has to be recorded. However, this can prove to be more tax-efficient in the long term. This is because instead of a flat-rate taxation as with the 1 percent rule, the private use of the company car is recorded more accurately with the help of a logbook.

Using an electronic logbook for the taxation of company cars

An electronic logbook is particularly useful if you make a lot of journeys with your company car and complete documentation is not always possible. As with manual logbooks, electronic logbooks may not be subsequently adjusted and thus manipulated. For large fleets, electronic logbooks also make sense in terms of owner liability and driving license checks.

Which method for company car taxation is worthwhile?

A company car not only offers employees a great deal of flexibility and mobility, it also means financial savings, as there is no need to purchase a private vehicle. Whether a logbook or the 1 percent method makes sense for company car taxation depends on the individual case.

The more private journeys you make with the company car, the more advantages the 1 percent method offers for company car taxation. If you only use the company car rarely or for short private journeys, you can save more money with the logbook. Accuracy, both in keeping the logbook and in applying the 1 percent rule, pays off at the latest when you file your annual tax return.

• The method for taxing the personal use of company vehicles is relatively simple and straightforward to apply.
• Drivers of company-owned electric vehicles also benefit from a lower taxable benefit.
• The 1-percent rule can result in a disproportionate tax burden if employees do not use their company car for personal purposes very often. In such cases, keeping a logbook may be more advantageous.

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