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Changes in the Estonian fringe benefit taxation of company cars

From 1 January 2018, the fringe benefit tax rules will be significantly changed for company cars which can be driven by employees also for their private purposes.

• The employee can not compensate no longer the value of private trips driven with the company car to the employer on the basis of the logbook and therefore, the company is liable to pay monthly fringe benefit taxes on each company passenger car (registered under category M1 or M1G) according to the engine power and the date of registration of the respective company car.
• In case of up to 5-year old passenger car, if it can be driven also for non-business purposes, the monthly value of the fringe benefit will be EUR 1,96 per each kW of the car.
• In case of more than 5-year old passenger car, if it can be driven also for non-business purposes, the monthly value of the fringe benefit will be EUR 1,47 per each kW of the car.
• The company car will be deemed to be 5-year old, when as of the last date of the taxable month 5 years has passed from the date of initial registration of that car.
• For example, if the engine power of the company passenger car, which is less than 5-year old, is 114 kW and the private trips can be driven with such company car, then the employer must pay on the value of the fringe benefit (114 x 1,96 = EUR 223.44) on a monthly basis fringe benefit taxes in the amount of EUR 148.03 (income tax EUR 55.86 and social tax EUR 92.17).
• There will not arise fringe benefit tax liability, if the company car is used only for business purposes or when the car is temporarily deleted from the car register or the entry of the car register is suspended.
• The employer, which is the owner or the authorised user of the company passenger car, is required to inform the car register of the Estonian Road Administration, if the passenger car can be used only for business purposes (see also questions and answers – only in Estonian language: https://www.mnt.ee/et/soiduk/kkk-tulumaksuseaduse-muudatuse-kohta). If the purpose of use of the passenger car will be changed, then the employer must inform the car register, which makes the respective change of entry in the car register. These notifications are exempt from state fees.
• It is expected that like today, also from 2018 the employer must prove, if so required, the use of the company car only for business purposes and explain the measures, which are applied by the employer for securing the business use of the car (logbook, etc.). For further information please see the webpage of the Tax and Customs Board – only in Estonian language: https://www.emta.ee/et/ariklient/tulu-kulu-kaive-kasum/tsd-muudatused-2018-aastal/tooandja-soiduauto-erisoodustuse
• From 2018, the above described determination of the fringe benefit value of the company car may be under the optional basis applied also to the private use of the truck with full weight of up to 3500 kg (i.e. N1 category vehicle). In such a case, for VAT purposes the taxable value of the self-supply is the value of the fringe benefit. Like today, there will remain another alternative for determining the value of the fringe benefit on the basis the fair market value of the rental of these vehicles, if these are not used only for business purposes.
• Therefore, the employer must decide whether it will allow the employee to use the company car also for private purposes (by paying fringe benefit taxes in accordance with the new order effective from 1 January 2018) or whether it will allow to use the company car only for business purposes (no fringe benefit taxes, but requires the existence of proof of evidence).