Taxing electric cars: How to promote sustainable mobility efficiently

The German government continues to support the ramp-up of electromobility. For example, at the 4th meeting of the "Concerted Action Mobility" (Auto Summit) on November 17, 2020, it was decided to extend the innovation premium through the end of 2025, while electromobility will also receive tax incentives. The VDA is committed to further improving the taxation conditions for electric vehicles and to reducing tax obstacles.

To create incentives for the use of electric vehicles as company cars, the German government has introduced a tax relief for evaluating the private use of (partly) electrically powered company cars, which applies to both the 1% and the logbook method.

For completely electric vehicles provided to an employee for private use for the first time after December 31, 2018, only half of the gross list price serves as the monthly tax base. This halving of the tax base also applies to the distance between the employee's home and place of work. Under certain conditions, this also applies to journeys to the employee's home.

This ruling applies until December 31, 2030. 

For completely electric vehicles with a gross list price of up to €60,000, only a quarter of the gross list price serves as the assessment basis, thus resulting in a de facto assessment basis of 0.25% of the gross list price per month.

In addition, plug-in hybrids (PHEV) can also benefit from this tax incentive if the vehicle emits a maximum of 50g CO₂/km or has an electric range of at least 40km. This range requirement will apply until December 31, 2021, after which it will increase to 60km, and from January 1, 2025, onward it will be increased to 80km. For all other PHEVs, the existing discount (disadvantage compensation) will continue to apply.

The regulation does not only apply to new cars; used cars are also covered if they were made available to the employee as a company car for the first time after January 2019.

The financial benefit for receiving free or discounted electricity for charging vehicles at the workplace and from the company's own charging devices has been tax-free since the 2017 financial year, and will remain so until the end of 2030 (Section 3 No. 46 EStG). This means that there is no need for time-consuming recording and proof of the amount of electricity used (recording by meter and payroll accounting).

Where employees bear the electricity costs of charging themselves, these costs can be reimbursed tax-free by the employer as a reimbursement of expenses within the framework of Section 3 No. 50 EStG (BMF letter of 14.12.2016, Para. 19). If the vehicle is charged at a public charging point and an amount invoiced, this can be easily verified and reimbursed accordingly.

If, on the other hand, an employee charges his or her company car at their private household, the accounting process is much more complicated: To make the correct reimbursement, the employee must prove to the employer both the actual amount of electricity used and the individual electricity price or the costs per kWh based on the private contract with the supplier.

For this reason, the legislator has allowed this proof to be waived as long as a certain fixed sum is reimbursed on a monthly basis. Since January 1, 2021, through December 31, 2030, employers can reimburse expenses free of tax and other contributions as the following monthly lump sums:

a) With the additional possibility of charging at the workplace

• For electric vehicles, €30 a month
• For hybrid plug-ins, €15 a month

b) Without the additional possibility of charging at the workplace

• For electric vehicles, €70 a month
• For hybrid plug-ins, €35 a month. 

Higher electricity prices, greater electric mileage, and an overall increase in the number of electrically powered company cars are already leading to a greater administrative burden for employers and employees in producing the required documentation and ultimately more work for the tax authorities, too. In the future, this situation will become even more pronounced as electromobility takes off.  

In addition to the flat rates already provided for, we also propose the introduction of a flat electricity rate per kWh unit to allow a practical accounting of charging costs and as an incentive for PHEVs to then run on electricity. This would effectively relieve employers, employees, and the tax authorities and at the same time promote an increased use of electricity, especially for PHEVs.

With a flat rate for electricity per kWh, similar to the flat rate for the distance traveled to work, the actual electricity consumption could be compensated for uniformly by means of an average, standard market electricity price per KWh, thus dispensing with recording and proof of individual electricity tariffs. This typifying would represent a simplification in the mass wage taxation procedure, and thus make charging the company vehicle at home more attractive for the employee, while facilitating the administration of reimbursing expenses for the employer.

For further application matters see the BMF letter of 29.9.2020.

Also limited until December 31, 2030, employers can tax financial benefits for the discounted transfer or gifting of charging devices at a flat rate of 25% (plus solidarity surcharge and church tax, if applicable) (Section 40 (2) Part 1, No. 6 of the EStG). This also applies to subsidies from the employer for the purchase of such a charging device if employees acquire these themselves (prerequisite: Additionality requirement).

For further application matters see the BMF letter of 29.9.2020.

The "Annual Tax Act 2019" allowed for a special depreciation for newly purchased electronic commercial vehicles registered for the first time as business assets (Section 7c of the EStG). According to this, 50% of the acquisition costs are to be deducted in the year of acquisition in addition to the normal depreciation. Electric commercial vehicles are electrically powered vehicles of the vehicle classes N1, N2, and N3 (BEV, FCEV). Combining this with other special depreciation or increased depreciation is not possible.

It should be noted, however, that this regulation is not currently applicable, as it is still subject to approval by the Commission under state aid law. The German government is holding talks with the Commission on this matter, and the VDA is working towards a speedy conclusion so that this regulation may soon come into force.

For the full details, see the Act on the Further Fiscal Promotion of Electromobility and on the Amendment of Further Fiscal Regulations of 12.12.2019 as well as the VDA statement. 

There is also an important improvement for electric vehicles in terms of vehicle tax: For first-time registrations from January 1, 2016, through December 31, 2025, there is a tax exemption of up to 10 years for electric vehicles (completely electric or fuel cell vehicles, but not hybrids). It will be granted until December 31, 2030, at the latest. Once this tax exemption expires, the vehicle tax payable of €11.25 (up to 2,000kg), €12.02 (up to 3,000kg), and €12.78 (up to 3,500kg) per 100cc or part thereof will be reduced by 50%.

The tax for running particularly low-emission passenger cars with spark- or compression-ignition engines and carbon dioxide emissions of up to 95 g/km is waived for five years from the date of first registration to the amount of €30 per year if the vehicle is registered for the first time in the period from June 12, 2020, through December 31, 2024.