Using Personal Vehicles for Business

A personal vehicle is a vehicle that is in the use of an employee or a member of a company’s managing or control body and is not in the ownership or possession of the company. Such vehicle can be used for company-related trips in two manners – by using a personal vehicle for business purposes or by renting a vehicle for the use of the company. When using a personal vehicle, account of the business use is kept with a logbook. When using a vehicle rented for the company, keeping of the logbook is not mandatory, but in such case, the company must pay a monthly fringe benefit tax from 256 euros, which is the fringe benefit price established with the regulation of the Minister of Finance. Payment of the tax is not required if the vehicle is used 100% only for business, but the company must still be ready to prove the purpose of the use to the Tax Board if necessary. The easiest way to do this is via a logbook.

When using a personal vehicle, the employer will compensate the trips related to business tax free in the maximum amount of up to 335 euros. The compensation includes any and all expenses related to the use of the vehicle (repairs, fuel etc.), due to which it is necessary to consider for this option, if the 335 euros covers all expenses made on work trips. The compensation limit is based on a calendar month and it cannot be transferred for settling to other months, additionally, if a larger compensation is paid, fringe benefit tax must be paid for the part of the compensation the exceeds the limit. Therefore it is not reasonable to use a personal vehicle for business trips, if the expenses made on business trips are permanently higher than 335 euros per month. The logbook must feature the name of the person who uses the vehicle, licence plate number of the vehicle as well as the start and end readings of the trips together with detailed description of the purpose of the work trip.

A more flexible compensation of expenses is possible through renting a personal vehicle to the company. In such case an employee or a member of the board gives their personal vehicle for a fee or free of charge to the use of the company. When renting for a fee, it should be observed that the rental fee would be in compliance with the market price, because fringe benefit tax is charged for a fee that is higher than normal. Income tax must be withheld from the rent paid to the employees or members of the board of the company. In case of renting the company will pay all expenses related to the use of the vehicle to the extent of 100%, but any personal trips taken with the vehicle must be compensated to the company, otherwise the fringe benefit tax must be paid on the expenses made on personal trips. When using a logbook, the same data as when using a personal vehicle must be recorded, the only difference being that account must be kept on both work and personal trips (detailed description of private trips is not required).

Should you have more questions on the use and taxation of passenger vehicles, please send an e-mail to juristid[at]koda.ee.