Whether it is a single vehicle or an entire fleet, company cars are an integral part of our corporate world. However, depending on the purpose of the company, the company car is used by the employees in different ways. Thus, it may often be driven in private life. This has tax and administrative consequences, both for the company itself and for the employee. You can find out the most important facts about the taxation of company cars in this post.
We would like to point out that we disclose the following information without any claim to completeness and accuracy and that it is not intended to replace tax advice. A fiduciary or tax advisor can give you the best possible advice regarding your personal tax situation and the applicable regulations, which differ from canton to canton.
What are the types of company cars?
The company car is assigned to a single employee exclusively. In many cases, they are allowed to use the car in their private life - beyond the commuting distance. Either a charge is perceived based on the kilometres done or a monthly flat rate defined by the federal government is payable. In both cases, there are tax implications.
On the other hand, so-called pool vehicles can be used by different employees, but only for work purposes, such as vehicles for companies in the facility management sector or also for brokerage firms. In this context, all costs are your responsibility as an employer. You can and must deduct them fully from your taxes and you don’t need to make any tax adjustments.
Private use of company cars - what is possible?
The private use of a company car is one of the so-called "fringe benefits". These additional benefits make a company more attractive on the job market. At the same time, they also represent an additional expense for you as an employer, because you have to take into account important tax issues. The type of taxation depends on the conditions under which the vehicle is made available. Here, various forms of use, and therefore accounting, are possible:
- The company car can only be used for commuting.
- The company car is also available for private use, but the employee must keep a logbook of business and private travels.
- The private use of the vehicle is billed at a flat rate.
When does the company car become a "wage component" and what must be taken into account for the company in terms of taxation?
If the employee is contractually allowed to use the car exclusively for commuting and business trips, the private dimension does not apply. However, the field "F" on the salary slip must be checked.
If the use by the employer extends beyond the actual commute, a private contribution must be calculated. This must be listed in the payroll accounting. This means that the imputed income from the provision of a company car, which can also be used for private purposes, counts as taxable wages in kind. In addition, it is subject to AHV and other social benefits are also adjusted accordingly, e.g., unemployment and accident insurance premiums.
As an entrepreneur, how do I enter the "non-cash benefit" of the company car or even the "private portion" on my employer's pay slip?
The private use of the company car must be noted in the corresponding salary statement and on the employer's pay slip. In the case of the annual salary statement, the corresponding amount can be found under point 2.2. Field "F" must also be checked on the salary slip. This indicates that the employer bears the costs of the employee's commute. As a result, the employee can no longer make deductions for commuting in his/her private tax return.
There are two ways of calculating the private contribution, which have been approved by the Federal Government, either on the pay slip or on the pay stub.
- Option 1: Flat rate
A lump sum is usually applied if the employer covers all the costs of the company car. In addition to service fees, this includes expenses for tires, repairs and vignettes. In addition, the fuel must be paid for by the company. The only exceptions are longer weekend travels or private trips, where the cost of petrol or diesel is the employee’s responsibility.
The amount is calculated as follows: 0.8 percent of the purchase price is due each month. The purchase price is the price actually paid excluding VAT, in the case of a leased vehicle (the cash purchase price stated in the contract, also excluding VAT). The monthly value must also be at least CHF 150.
CHF 50,000 (purchase price) divided by 100% times 0.8% (lump sum) gives a monthly private contribution of CHF 400. The total value of CHF 4,800 is therefore shown on the salary statement under point 2.2. This is subject to AHV contributions.
- Option 2: Effective settlement
In the effective payroll run, the employee only pays for the kilometers driven privately. It is therefore his or her duty to keep a log book for the whole year. This model is best suited if the employee pays almost the entire cost of the car. The cost per kilometre is based on the kilometre rate set out in the table provided by the Touring Club Switzerland (TCS). This currently stands at CHF 0.70.
The kilometres travelled in the previous year are used as the basis for calculating the amounts for the monthly payroll, as well as for the annual salary statement. This is therefore a provisional private share, which is adjusted at the end of each year according to the actual number of kilometres travelled. Reimbursement or additional payment takes place in December of the corresponding year.
Kilometres travelled in the previous year: 9,132 km. TCS kilometre rate : CHF 0.70. The private contribution per year is therefore CHF 6'392.40. That is CHF 532.70 per month. This benefit is also subject to AHV contributions.
Are there any special forms of calculating the private share?
It is possible for the employee to "pay" for the private use of the company car. The amount of the monthly payment to be made determines the amount of the private share and therefore the amount to be taxed.
Option 1: Private contribution is - calculated as a lump sum or effectively - CHF 400, the employee pays the employer the sum of CHF 200.
In this case, the private share is reduced to 200 francs per month. The sum of CHF 2'400 is entered In the salary slip under point 2.2.
Option 2: Private contribution - calculated as a lump sum or effectively - is CHF 400, the employee pays the employer the sum of CHF 400 per month.
There is no private share to declare. However, the field "F" must be checked and the following must be noted under item 15: The private share is paid by the employee.
A third special form exists if the employee pays the full cost of the car. This means that the employee also pays for maintenance, repairs and insurance. In this case, it must be noted under item 15 in the salary slip that the private share of the company car must be specified in the assessment procedure. In this case, however, since the tax authorities recall all the details of the company during each procedure, this requires a lot of time and resources and is therefore not recommended.
What does it mean for input tax deduction if the employee uses the company car for private purposes?
Input tax can be calculated both on the purchase price and on the lease down payments, but with restrictions. As an employer, you have to declare the amount for VAT on the private share for tax purposes - a deduction is not possible. Income must also be taxed - as in the case of effective compensation.
Does buying or leasing a company car make a difference in terms of taxes?
No, in both cases it is a matter of tied capital. However, leasing increases the liquidity of a company. In addition, individual payments can be claimed as expenses for tax purposes. Depreciation is taken at the time of purchase. These can be determined by the company within the so-called maximum tax rates.
Checklist for the taxation of company cars
- Clearly define the employee’s use of the vehicle - type and scope.
- Allow the employer to use the car privately, define the type of settlement - effective or flat rate.
- Record the private share on the pay slip, as well as on the wage statement.
- If the employee pays a private share per month, it must be included in the calculation of the private share.
- If the employee pays for almost all of the operating costs of the car, the assessment procedure must be applied. Important: High administrative burden on the company side.
- When paying input tax, make sure to declare the amount of VAT of the private share.
Buying, leasing or subscribing to a company car - does that make a difference in terms of taxation?
No, in all cases it is tied capital. However, leasing and, above all, the car subscription increase the liquidity of a company. In addition, individual instalments can be claimed as expenses for tax purposes. Depreciation is carried out at the time of purchase. The expenses can be determined by the company within the so-called maximum tax rates.
- Directives of the Cantonal Tax Office of the Canton of Zurich on the calculation of income in kind from the use of a company car for private journeys for dependent employees and the private share of the car costs for self-employed persons
- Depreciation percentage of the cantons
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