If you use a privately-owned car, van, or motorcycle for business purposes, either for your self-employed activity (as a freelancer or company director) or in the context of an employment contract, your vehicle expenses can be eligible for a tax deduction. Car deductions are among the most-claimed tax deduction items, but they do require a bit of admin.
First, you need to keep track of your mileage to be able to calculate the total distance driven at the end of the calendar year. You need to distinguish between (i) business trips, (ii) home-to-work travel and (iii) private trips. The latter category obviously never entitles you to any tax deduction. For home-to-work travel (commuting between home and work or vice versa) you are allowed to deduct a fixed amount of 0.15 €/km for a maximum of 200 km (or € 30.00) per day. This amount includes all expenses related to your car (e.g. fuel, insurance, parking, etc.). If you travel to work by bike instead, you can even claim 0.27 €/km (tax year 2024).
In other words, the only category of expenses for which you actually need to keep receipts of all your expenses are the business trips. If you keep a logbook and you deduct the total mileage for home-to-work travel and private trips, it is possible to calculate your business-use percentage (this is the ratio or percentage split between work, home-to-work and personal driving). Then, you can claim the allowed business percentage of the car related expenses. These expenses include e.g. fuel, parking, registration and road tax, insurance, servicing, interest on loan costs, depreciation, and other running costs.
For example, if your total annual mileage is 25,000 km and your business trips amount to around 5,000 km, you can claim 20% of all your car expenses as a tax-deductible expense. Before 1/01/2020, this amount had to be further reduced to 75%. From 1/01/2020 onwards, individuals (and companies) claiming their car expenses must apply the following formula to determine the deductibility of their car expenses: 120% – (0.5% × fuel coefficient × amount of CO2 in g/km)
The coefficient is set at 1 for diesel engine vehicles, 0.90 for vehicles running on natural gas, and at 0.95 for vehicles with a different type of engine. The minimum deductibility is 50% (except for cars that emit more than 200 g of CO2/km – for which the deductibility drops to 40%) and the maximum is 100%. For example, a car with a petrol engine (fuel coefficient = 0.95) that emits 100 g of CO2/km, the deductibility is as follows: 120 – (0.5 × 0.95 × 100) = 72.5%. Do note that special rules apply for so-called ‘false hybrids’ and ‘plug-in hybrids’. The deductibility for fuel cars purchased after 30 June 2023 will be gradually reduced until it will be 0% in 2028.
If you do not want to make the effort of keeping track of all your receipts or your car expenses are relatively minor, the tax office will always let you apply a standard business expense deduction. This includes all your business expenses, and evidently not only your car costs.
If you are not sure which deduction method is best for you, we can assist with optimizing your business expenses and preparing your income tax return.