Company Cars in Germany — Pro and Cons of living in “The Car Country”

If you are an international company and your are planning to enter the German market and thinking about hiring local sales staff, the issue of a company car will arise during the negotiations with the potential future colleague sooner or later.

While this might be a “upper-management issue” in many countries, in Germany this will be an issue for most sales jobs, most jobs where the employee has to drive a lot and definitely for all middle- to upper-management positions. Usually all costs, including gas — at least for the home country, often for all of Europe — are covered by the employer.

Germany is considered “the car country” by most people and company cars have a long tradition. It became a status symbol and having the latest and greatest car waiting for you after work, when everybody leaves the office, is a daily little triumph for many.

This is why the company’s car policy that comes with the work contract is sometimes more important than the work contract itself. So if you can’t offer the exact salary a potential candidate is looking for, you might be able to convince him to start working with you by letting him order a bigger car, a bigger engine or more gadgets for his car. This might run you cheaper and make him as happy as the desired salary bump. Sometimes the employee will even gladly cover the increase of the monthly leasing costs, as long as he is allowed to get this additional step-up in size, power or accessories and show them to his colleagues and neighbors.

Car allowances are not very popular and have a cheap aftertaste for many employees. So don’t expect them to be enthusiastic about such an offer instead of a company car.

Let’s find out what the real costs for the employee are…

Most Germans consider the company car as an “almost free” car for it’s proud user, especially the ones that are craving one and didn’t get it, yet. But is this the truth?

Maybe a brand new car suddenly becomes very affordable and the employee doesn’t have to worry about a down payment, unexpected expensive repairs or paying for gas but is this really all there is to that?

The employee monthly has to pay taxes for 1% of the official SRP of the car. Plus, he has to pay taxes on every kilometer from his home to his office, if he doesn’t have a home office contract.

There are basically two cases for the employee which make a company car rather expensive :

1. You live rather far from the office and have to drive there every day:

Then you not only have to pay taxes on 1% of the value but also 0.3% for the distance between your home and the office.

Example:

Price of the car: 50,000€ –> 50,000€ * 1% = 500€

Distance home to office: 70km –> 50,000€ * 0.3% * 70 = 1,050€

Monthly gross salary: 5,000€

Your taxable monthly income just went from 5,000€ to 6,500€ which would mean you will get approx. 850€ less per month after taxes.

850€ x 12 months: 10,200€ per year

You can own a pretty nice car which will cost you less than 10,200€ per year.

2. You rarely use it for your private purposes:

If you have a busy job where you have to drive a lot, the chances are high that you are not too crazy about spending your evenings and weekends in the car.
In this case you are left with the full cost of a company car but don’t have the benefits of a “free car for your private purposes” as others might who drive a lot in their free time. Let’s say you only use it to go grocery shopping and for a short trip on the weekends and your weekly total is 50 km –> 2,600km per year

Example:

Price of the car: 50,000€ –> 50,000 * 1% = 500€

Your monthly cost after taxes will be around 270€ for the car –> 3,240€ per year

This leaves you with cost per km of 1.25€ which is 4 times of what most car allowances would grant you.

Our tip to employees for negotiating their contract:
Don’t forget that your employer will definitely NOT pay the full 50,000€ for the car in that example as most car manufacturers grant rather high rebates (often up to 20%-30%) to companies as they are interested in optimizing the sales statistics in their favor. But the government is aware of this, because — as you now — Germany is THE Car Country 😉

*The examples are based on the following assumptions: taxes of 2018, Lohnsteuer Klasse 1, Baden Württemberg, Kirchensteuer, gesetzl. Krankenversicherung, keine Kinder, Alter 35

Addendum 2019:
The tax law has been changed since January 2019 for electric cars. For all plug-in hybrid and full electric cars the tax has been reduced to 0,5%. This is a great way to save taxes for the employee!