Government approves pegging company car fringe benefit tax to engine power ({{commentsTotal}})

The new tax will concern company car used for personal purposes.
The new tax will concern company car used for personal purposes. Source: (Pärnu Postimees/Scanpix)

The Estonian government on Thursday approved the proposals of Minister of Finance Sven Sester whereby the rate of the fringe benefit tax for company cars also used for personal use would be tied to the vehicle's engine power.

"We arrived at a solution in the Cabinet for how to simplify the taxation of the use of employers' cars for private purposes," Sester said in a press release. "The fringe benefit system we've been using so far will be replaced with an arrangement depending on the car's engine power, and car logbooks will disappear for company cars also used for private use."

The currently applied maximum rate of €256 per vehicle per month will be replaced with a tax depending on the car's engine power, with the rate of the tax set at €1.96 euros per kilowatt-hour, the Cabinet ruled. As such, the fringe benefit tax obligation, or income tax and social tax, will be €1.3 per kilowatt per month.

Compared to the present fixed-rate arrangement, the amount of tax to be paid will decrease for smaller vehicles with low to medium engine power. Such cars currently make up approximately 70 percent of company cars in Estonia. For cars older than five years, the tax rate will be 75 percent of the rate applied to newer cars.

If an employer has forbidden the private use of a vehicle and wishes to prove this, options will include keeping a detailed logbook of use or any other of the methods of proof of the absence of private use accepted by the country's tax administrator.

In the case of vehicles that are banned from private use by a decision of the employer, and of vehicles of the public sector available for official use only, a special entry must be made in the national vehicle register. The government had previously planned on requiring such cars to have license plates of a different color.

Editor: Aili Vahtla

Source: BNS