The 1% Rule for Electric Cars in Germany: A Guide to Private Use of Company Cars

Introduction

The surge in electric vehicles (EVs) marks a transformative moment in car history, bringing changes not only to the engineering side but also to the regulatory landscape. In Germany, the unique 1% rule for EVs has sparked a major shift, influencing not just those who use company cars for personal needs but also the wider EV market. But what's this rule all about? And how does it impact EV owners, the German car market, and the collective move towards eco-friendly transportation? In this all-inclusive guide, we'll explore the details of the 1% rule, its effects on the German EV market, and the advantages it offers to those using company-issued electric vehicles.

What is the EV 1% Rule?

In the heart of Germany's regulations concerning employee mobility lies the unique "1% Rule". This rule provide guidance on how employees' private usage of company-provided EVs is managed and taxed.

The 1% Rule is a tax system in Germany that determines the taxable benefit employees receive from private usage of their company-provided cars.

This may sound a bit technical, but let's break it down:

1. Taxable Benefit Calculation: The 1% rule stipulates that 1% of the vehicle's gross list price is added to an employee's monthly salary. This translates into an increased gross income and subsequently, can lead to a higher tax bracket.
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2. Additional Distance-based Tax: Apart from the 1% addition, the rule also includes an extra 0.03% tax, applied to the vehicle's gross list price for every kilometer of distance between the workplace and the employee's home.
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3. Provisions for Imported Cars: In cases where a company car is imported and a domestic gross list price is not available, the rule allows an estimate based on the gross selling price provided by import dealers.
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4. Incentives for Electric Vehicles:The 1% rule has unique provisions for electric vehicles: thus, pure EVs (BEVs) are only taxed 0.25% rather than 1%, this kind of taxable benefit calculation can encourage the use of environmentally-friendly transport options.
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1 % Rule in Action

• James is an operation lead in a technology firm in Berlin and lives 10 km away from his office. The company car that he uses privately is Tesla Model Y. The list price is €88,341.
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• Hannah is a senior software engineer in an IT company in Munich and lives 30 km from work. Her current salary is  Her company car is Audi e-tron. The list price is €95,800.

According to the 1% rule, adjusted for pure EVs:

• James must pay a tax of €220,85 (0.25% of the list price) plus €200.10 for the commuting, a total of €420.95, as a non-cash benefit.
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• Hannah has to pay a tax of €239.50 (0.25% of the list price) plus €540.00 for commuting, a total of €779.5, as a non-cash benefit.

In case you want to drive a new Tesla 3 which costs approximately €50,000, you can make your company pay taxes from it from your salary and get a 0,25% tax.  Using the car for private purposes also? The tax is increasing to 1%.

The Impact of the EV 1% Rule on the German Market

The 1% Rule for electric vehicles (EVs) has had an influence on the German EV market, prompting both businesses and employees to consider transitioning to these environmentally-friendly vehicles.

EV 1 % rule is stimulating EV Adoption with tax benefits and indirectly promotes the transition to Electric vehicles. Employees using electric company cars for personal reasons now face a significantly lower tax burden. This, in turn, encourages a switch from conventional vehicles to electric ones.

Optimizing Benefits from the 1% Rule in Germany

The 1% rule presents an array of benefits for employees using a company-provided car. The secret to leveraging these advantages lies in understanding and adjusting the parameters that affect the rule's application.

How to maximize benefits from the EV side of the 1% rule:

1. Proximity to Workplace: The distance between your home and workplace is a critical determinant of the additional tax you'll incur under the 1% rule. The closer you live to your place of work, the less you'll be taxed due to the rule's 0.03% per kilometer levy.
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2. Tax Class: Beware of your current tax class, if you are just at the limit of the upper class, having such benefits might push you to this one and your maths for this benefit won’t just fit right anymore.
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3. EV Cost: The rule takes into account the gross list price of your company car. The less expensive the vehicle, the lower your tax burden will be. This factor benefits those who choose cost-efficient or electric vehicles, which are subject to reduced taxation rates.
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4. Out-of-Service Payments: Any payments made to your employer for personal use of the company vehicle, such as fuel costs, can decrease the value of the taxable benefit and thus lower the tax due.
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5. Commuting Frequency: If you use your company car for commuting less than 15 days per month, your tax is substantially reduced to 0.002% per kilometre, promoting the responsible use of company cars. It is especially a good idea for people having jobs they sometimes do remotely.

The 1% rule often proves more beneficial than the logbook method from a tax standpoint, especially if you drive your company car extensively for personal use, have high annual mileage, or live near your workplace. However, everyone's circumstances vary, and it's always wise to seek personalized advice from a tax professional.

Conclusion

Despite the latest eductions in federal subsidies for electric vehicles in 2023, Germany continues to promote the adoption of EVs, demonstrating its ongoing commitment to sustainable mobility.  Thus, Germany's 1% rule, an important part of its tax system, encourages the adoption of electric vehicles (EVs) by defining a tax scheme for the private use of company cars. With the government's commitment to reducing greenhouse gas emissions, the rule, along with the 0.25% rule for pure EVs, has helped catalyze the growth of the EV market.

As EV technology advances and becomes more affordable, the benefits of the 1% rule continue to make EVs an attractive choice for both businesses and employees. Staying updated about these policies is key for potential tax benefits and compliance, hence it's advisable to consult a tax advisor.

Understanding the specifics of these rules not only assists in reducing tax burdens but also in making the most of the advantages they offer. By aligning individual benefits with wider environmental goals, such policies are steering Germany towards a sustainable future.

FAQ

Q1: What is the 1% Rule in Germany for electric vehicles?

‍The 1% Rule in Germany is a tax system that determines the taxable benefit employees receive from private usage of their company-provided cars, including electric vehicles (EVs) being taxes at 0,5% for PHEVs and 0,25% for BEVs. It states that this percentage of the vehicle's gross list price is added to an employee's monthly income, which is taxable. Additionally, there's a 0.03% tax per kilometer between the workplace and the employee's home.

Q3: What factors can help maximize the benefits from the EV 1% Rule?

‍The key factors include proximity to the workplace (less distance leads to lower taxes), the cost of the EV (lower price equals less tax), out-of-service payments to the employer (which can lower the taxable benefit), and commuting frequency (less frequent use results in reduced tax).

Q3: How does the 1% Rule compare to the logbook method from a tax standpoint?

‍The 1% Rule often proves more beneficial than the logbook method, especially if you use your company car extensively for personal use, have high annual mileage, or live near your workplace. However, individual circumstances can vary, so it's advisable to seek personalized advice from a tax professional.