Low(er) emission vehicles for private use
Low(er) emission vehicles for private use
The use of cars for business purposes is a prevalent practice, both among self-employed persons and within companies. Besides serving business purposes, companies often provide cars as a benefit to their employees for private use.
It remains the case that if a company provides its employees with a car from the M1, M2 or N1 category (a passenger car) for private purposes, it constitutes non-cash income for the employee, which must be taken into account or taxed as part of their monthly wages, including contributions for health and social insurance. The standard rate is set at 1% of the entry price of the vehicle (including VAT).
With the advent of low-emission vehicles such as plug-in hybrids, employees enjoy a certain advantage. The Income Tax Act ("ITA") introduced a reduced rate of 0.5%, which can be used under certain conditions.
As of 1 January 2024, a new category of "zero-emission vehicles" has been introduced, which includes electric vehicles (until the end of 2024, electric vehicles were classified as low-emission vehicles). A new rate of 0.25% applies to this category.
Below, we will look at how to verify that the conditions for using the reduced rate of 0.5% are met for low-emission vehicles. A similar approach will be followed for the 0.25% rate for zero-emission vehicles.
When deciding whether one of the reduced rates can be used in a particular case, it is necessary to rely on two regulations. The first is the Income Tax Act 586/1992, specifically Section 6(6). In the case of low-emission vehicles, Act No. 360/2022 on the promotion of low-emission vehicles through public procurement and public passenger transport services ("Act No. 360/2022"), specifically Section 3, will apply.
Until 31 December 2025, a low-emission vehicle will be a vehicle that meets both of the following conditions simultaneously. From 1 January 2026, only vehicles that do not produce any CO2 (electric vehicles) will meet the definition of low-emission vehicles.
The CO2 consumption figure can be read from the vehicle registration certificate and the certificate of roadworthiness - see figure ř. V.7/V.8.
The data can only be verified against the vehicle registration certificate (line 48). The certificate of roadworthiness, however, indicates the relevant EURO emission standard (e.g. EURO 5, EURO 6 - see the previous screen in V.9), which sets emission limits for air pollutants.
An overview of the EURO 5 and EURO 6 emission limits can be found in the following tables (the tables are part of Annex I to Regulation (EC) No 715/2007 of the European Parliament and of the Council).
The tables show the limit values from which the 80% limit is calculated under Condition 2 and the values so calculated are compared with the emission values on the vehicle registration certificate.
Sample example:
In the screenshot below, line 48 of the vehicle registration certificate is available for review, which contains a summary of air pollutants in mg/km (or mg/kWh).
The example car according to the certificate of roadworthiness screen from the text above belongs to the EURO 6 emission standard. For the calculation we use the values from Table 2 - "EURO 6 emission limits". In the table, each column with the respective pollutant is divided into two sub-columns PI and CI. For a correct selection of the values, it is necessary to distinguish between the petrol (column PI) and diesel (column CI) engine types for the vehicle. Information on the engine type is provided in the certificate of roadworthiness alongside the fuel designation:
If we now look at carbon monoxide (CO) in the vehicle registration certificate, its production is 356.3 mg/km.
The next procedure will be shown in the following screen: In the EURO 6 emission limits table, look for the CO column and the PI column (limits for the petrol engine). Select the correct row in the table according to the first column "Category". The category can be read from the certificate of roadworthiness. In our case it is category M1, so we select the row with category "M". The limit value for CO in the table is 1,000 mg/km (see screen - circled in red).
To meet the second condition of the definition of a low-emission vehicle, the vehicle must not exceed 80% of the CO limit in the table (from a limit of 1,000 mg/km CO is 80% of the limit of 800 mg/km). For CO, the condition is met (real CO consumption of 356.3 mg/km does not exceed the 800 mg/km limit). Other pollutants from the vehicle registration certificate (THC, NMHC, NOx) are verified by the same procedure. The condition of not exceeding 80% of the limit must be met for all pollutants at the same time.
In the case of electric cars, there will be no pollutant data in the vehicle registration certificate because electric cars do not produce pollutants and are automatically considered to be emission-free.
BDO's final rule of practice and recommended practice:
Conventional vehicles (petrol, diesel) will never meet the definition of a low-emission vehicle (1% rate). A pure electric vehicle always meets the definition (0.25% rate). Hybrid vehicles (e.g. plug-in hybrid, etc.) sometimes meet the definition and sometimes do not (0.5% or 1% rate).
When verifying the conditions, it is recommended to first determine according to the certificate of roadworthiness whether the first condition of the definition of a low-emission vehicle is met - CO2 production is below 50 mg/km. If the condition is not met it can never be a low-emission (zero emission) vehicle and there is no need to examine the second condition. If the first condition is met, the second condition will be examined according to the above example.
It remains the case that if a company provides its employees with a car from the M1, M2 or N1 category (a passenger car) for private purposes, it constitutes non-cash income for the employee, which must be taken into account or taxed as part of their monthly wages, including contributions for health and social insurance. The standard rate is set at 1% of the entry price of the vehicle (including VAT).
With the advent of low-emission vehicles such as plug-in hybrids, employees enjoy a certain advantage. The Income Tax Act ("ITA") introduced a reduced rate of 0.5%, which can be used under certain conditions.
As of 1 January 2024, a new category of "zero-emission vehicles" has been introduced, which includes electric vehicles (until the end of 2024, electric vehicles were classified as low-emission vehicles). A new rate of 0.25% applies to this category.
Below, we will look at how to verify that the conditions for using the reduced rate of 0.5% are met for low-emission vehicles. A similar approach will be followed for the 0.25% rate for zero-emission vehicles.
When deciding whether one of the reduced rates can be used in a particular case, it is necessary to rely on two regulations. The first is the Income Tax Act 586/1992, specifically Section 6(6). In the case of low-emission vehicles, Act No. 360/2022 on the promotion of low-emission vehicles through public procurement and public passenger transport services ("Act No. 360/2022"), specifically Section 3, will apply.
Definition of a low-emission vehicle
To benefit from the 0.5% rate, the car must meet the definition of a low-emission vehicle. This definition is contained in the already mentioned Act No. 360/2022 (this Act is also referred to directly in Article 6(6) of the ITA).Until 31 December 2025, a low-emission vehicle will be a vehicle that meets both of the following conditions simultaneously. From 1 January 2026, only vehicles that do not produce any CO2 (electric vehicles) will meet the definition of low-emission vehicles.
Condition 1
The vehicle must not exceed the CO2 emission limit of 50 g/km.The CO2 consumption figure can be read from the vehicle registration certificate and the certificate of roadworthiness - see figure ř. V.7/V.8.
Condition 2
The vehicle must not exceed 80% of the emission limits for air pollutants in real-life operation.The data can only be verified against the vehicle registration certificate (line 48). The certificate of roadworthiness, however, indicates the relevant EURO emission standard (e.g. EURO 5, EURO 6 - see the previous screen in V.9), which sets emission limits for air pollutants.
An overview of the EURO 5 and EURO 6 emission limits can be found in the following tables (the tables are part of Annex I to Regulation (EC) No 715/2007 of the European Parliament and of the Council).
The tables show the limit values from which the 80% limit is calculated under Condition 2 and the values so calculated are compared with the emission values on the vehicle registration certificate.
Sample example:
In the screenshot below, line 48 of the vehicle registration certificate is available for review, which contains a summary of air pollutants in mg/km (or mg/kWh).
The example car according to the certificate of roadworthiness screen from the text above belongs to the EURO 6 emission standard. For the calculation we use the values from Table 2 - "EURO 6 emission limits". In the table, each column with the respective pollutant is divided into two sub-columns PI and CI. For a correct selection of the values, it is necessary to distinguish between the petrol (column PI) and diesel (column CI) engine types for the vehicle. Information on the engine type is provided in the certificate of roadworthiness alongside the fuel designation:
- petrol = BA
- oil = NM
- electricity = EL
- gas = CNG or LPG
If we now look at carbon monoxide (CO) in the vehicle registration certificate, its production is 356.3 mg/km.
The next procedure will be shown in the following screen: In the EURO 6 emission limits table, look for the CO column and the PI column (limits for the petrol engine). Select the correct row in the table according to the first column "Category". The category can be read from the certificate of roadworthiness. In our case it is category M1, so we select the row with category "M". The limit value for CO in the table is 1,000 mg/km (see screen - circled in red).
To meet the second condition of the definition of a low-emission vehicle, the vehicle must not exceed 80% of the CO limit in the table (from a limit of 1,000 mg/km CO is 80% of the limit of 800 mg/km). For CO, the condition is met (real CO consumption of 356.3 mg/km does not exceed the 800 mg/km limit). Other pollutants from the vehicle registration certificate (THC, NMHC, NOx) are verified by the same procedure. The condition of not exceeding 80% of the limit must be met for all pollutants at the same time.
In the case of electric cars, there will be no pollutant data in the vehicle registration certificate because electric cars do not produce pollutants and are automatically considered to be emission-free.
BDO's final rule of practice and recommended practice:
Conventional vehicles (petrol, diesel) will never meet the definition of a low-emission vehicle (1% rate). A pure electric vehicle always meets the definition (0.25% rate). Hybrid vehicles (e.g. plug-in hybrid, etc.) sometimes meet the definition and sometimes do not (0.5% or 1% rate).
When verifying the conditions, it is recommended to first determine according to the certificate of roadworthiness whether the first condition of the definition of a low-emission vehicle is met - CO2 production is below 50 mg/km. If the condition is not met it can never be a low-emission (zero emission) vehicle and there is no need to examine the second condition. If the first condition is met, the second condition will be examined according to the above example.