Why a company car is not free
A company car you may also use privately is one of the most popular perks in a German employment contract. No car purchase of your own, no garage bills, often no fuel costs either. Still, the car is not free: the tax office treats private use as a benefit in kind, i.e. wages paid in the form of a thing. This so-called geldwerter Vorteil (taxable benefit) is added to your gross salary and taxed like normal pay. Social security contributions are due on it as well.
How high the benefit is follows from § 8(2) of the German Income Tax Act (EStG), which refers to § 6(1) no. 4 EStG. There are two methods: the flat-rate 1% rule and the logbook. This guide explains both, shows the role of drive type and commute, and works out how much net pay you actually lose each month. You can recalculate every example with your own figures in the company car calculator.
The 1% rule: the list price is the basis
Under the 1% rule you are taxed each month on 1% of the German gross list price. This means the manufacturer's recommended retail price at the time of first registration, including all optional extras and VAT. The amount is rounded down to full €100. Discounts your employer negotiated when buying the car do not matter. The same applies to used cars: even a five-year-old car is valued at the new price it had at first registration.
An example: your company car has a gross list price of €45,000. The monthly taxable benefit for private use is €450. You pay tax on this amount every month, whether you drive 200 or 2,000 private kilometres and even if the car stays in the garage for four weeks while you are on holiday. The flat rate applies to every calendar month in which the car is available to you, even if only for a few days.
In principle the flat rate covers all costs the employer bears: fuel or electricity, insurance, vehicle tax, servicing and repairs. If you bear costs yourself, for example fuel for private trips, or pay a monthly user fee, this reduces the taxable benefit. It can fall to zero at most.
The commute: 0.03% per kilometre
If you drive the company car to work, a second component is added. For trips between home and your primary place of work, 0.03% of the list price per kilometre of one-way distance is added each month. At a €45,000 list price and a 20-kilometre distance, that is 0.0003 × 20 × €45,000 = €270 a month.
Together with private use this gives a taxable benefit of €720 a month. This is the amount that appears on your payslip as a benefit in kind. With long commutes the surcharge quickly exceeds the actual 1% flat rate: from a distance of 34 kilometres it is already higher than the 1%.
The 0.03% assumes you commute on about 15 days a month. If you mainly work from home, you can choose individual valuation instead: 0.002% per kilometre of distance and actual commuting day, for at most 180 days a year. Read how this works in our article on company cars and working from home.
Electric cars and plug-in hybrids: the list price shrinks
The legislator promotes climate-friendly company cars by applying only part of the list price. For fully electric cars only a quarter of the list price is used if the gross list price does not exceed a limit. For vehicles acquired after 30 June 2025 the limit is €100,000. For acquisitions between 1 January 2024 and 30 June 2025 it is €70,000, and for earlier acquisitions from 2019 it is €60,000. Above the limit half the list price is applied.
Plug-in hybrids are valued at half the list price if they emit at most 50 grams of CO₂ per kilometre or reach a minimum all-electric range. For acquisitions from 2025 that is 80 kilometres. If the hybrid meets neither condition, the full list price applies, as for a combustion car.
Important: the reduced list price applies not only to private use but also to the commute. And the rounding down to full €100 only happens after quartering or halving. Our €45,000 example as an electric car: €45,000 ÷ 4 = €11,250, rounded down to €11,200. The taxable benefit is then €112 plus 0.03% × 20 × €11,200 = €67.20, a total of €179.20 instead of €720. More on this in the article electric company cars.
| Drive type (list price €45,000, 20 km) | List price applied | Taxable benefit/month |
|---|---|---|
| Combustion | €45,000 | €720.00 |
| Plug-in hybrid (conditions met) | €22,500 | €360.00 |
| Electric car up to the price limit | €11,200 | €179.20 |
What the company car costs you net
The taxable benefit is not what the car costs you. It is added to your gross salary, taxed and subject to contributions, but not paid out. After taxes and contributions have been deducted, it is subtracted again on the payslip. Your actual cost is therefore the sum of the additional wage tax, solidarity surcharge, church tax and social contributions caused by the benefit.
For the example with a €5,000 monthly gross salary, tax class I, no children and no church tax, our calculator gives the following: without a company car about €3,157 net remains. With the combustion car and a €720 taxable benefit the payout falls to about €2,804. The company car therefore costs you about €353 a month, of which about €196 is tax and about €157 social contributions. As a plug-in hybrid it is about €175, as an electric car only about €87. How these figures appear on your payslip is shown in the article gross to net with a company car.
Whether this is worth it depends on what a comparable private car would cost. Depreciation, insurance, servicing and energy for a mid-size car easily add up to €600 or more a month. In most cases the company car is therefore cheaper, especially if the employer also pays for energy. A full cost comparison for electric cars is available in our EV cost calculator.
The alternative: the logbook
Instead of the flat rate, the taxable benefit can also be based on actual costs. To do so you must keep a proper logbook and document the car's total costs. Only the share of costs attributable to private trips and the commute is then taxed. For electric cars and qualifying hybrids, depreciation or the leasing instalment is likewise only taken into account at a quarter or a half.
The logbook pays off above all if you drive little privately, the car has a high list price or is already largely depreciated. The downside is the effort: every trip must be recorded promptly with date, mileage, destination and purpose. How to decide is explained in our article logbook or 1% rule. The method applies to a vehicle for the entire calendar year.
Contributions and your tax return
Two levers are often overlooked. First, every contribution you make reduces the taxable benefit. If, for example, you pay your employer €150 a month for use of the car, the benefit in our example falls from €720 to €570 and your net cost from about €353 to about €278. You pay the contribution itself out of your net pay, though, so it only makes sense if it is due anyway.
Second, you may claim the commuter allowance in your tax return for the commute, even though you are taxed on it through the 0.03%. Since 2026 it is €0.38 per kilometre of distance from the first kilometre. It only has an effect to the extent your income-related expenses exceed the €1,230 employee lump sum. The commuter allowance calculator gives an overview.
Checklist for your decision
- Obtain the gross list price including optional extras from the order or from your employer.
- Check drive type and acquisition date: for an electric car the date determines the price limit.
- Count your office days: with fewer than 15 days a month, ask about individual valuation.
- Estimate your private share: with few private trips, work through the logbook option.
- Compare the net cost with the cost of your own car.
If you would rather use a company bike than a car, the company bike calculator does the maths. And the salary calculator shows how a pay rise instead of a company car would work out.
All information reflects German law as of September 2026 and does not replace tax advice. Your payslip and the car agreement with your employer are decisive.