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Taxation of cars changes as of 1 January 2018

The price of a kilowatt of a car will be 1.96 euros

The taxes paid on the use of the employer’s car for private purposes will depend only on the power and age of the car in the future (not the distance travelled) and travel logs will no longer be required. The number of kilometres driven with the car for private purposes will no longer matter and the age of the car will be considered instead.

The price of a kilowatt of a car will be 1.96 euros of which the tax payable on the fringe benefit (income and social tax) will be 1.3 euros per kilowatt per month. If the car is more than five years old, the price of the fringe benefit will be reduced by an additional 25%.

Keeping a travel log will no longer be required

In addition to the abolition of the obligation to keep a travel log, the amendment to the Income Tax Act will also take away the option of an employee to compensate their employer for the use of the company car for private purposes. In other words, if you use your employer’s car for private purposes, then this is a fringe benefit in any case irrespective of you agreeing to and being prepared to pay your employer for it.

Notation in Traffic Register

The owner of a company car will have to make a notation in the Traffic Register about the cars the use of which for private purposes is not permitted (guaranteed by the employer). The initial idea of the Ministry of Finance, which was to use special marking of licence plates, was replaced with the requirement of making an entry in the register. The explanatory memorandum to the act promises that the tax authority will prepare a guideline for the taxpayers that shows them how to prove that cars are not used for private purposes.

The legal amendments have passed the first reading in the Riigikogu and the plan is to enforce the act as of 1 January 2018.


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