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Taxation of fringe benefits for employer’s automobile

A fringe benefit arises if an employer enables the use of an automobile for private journeys. It means that not the use of an employer’s automobile for private journeys is important but enabling the use of an automobile. Likewise, the compensation of private journeys using an employer's automobile is not important because it does not change the taxation of fringe benefits.

When using an employer's automobile

The procedure for the taxation of fringe benefits

The price of a fringe benefit on a new automobile is 1.96 euros per month for one kW and in the case of an automobile older than five years, the price of a fringe benefit is 1.47 euros per month for one kW. The engine power (kW) of an automobile can be found from the traffic register of the Estonian Road Administration or from the registration certificate of the automobile (the technical passport).

In the case of a hybrid automobile, the basis is the maximum engine power (kW) of the internal combustion engine indicated in the traffic register of the Estonian Road Administration or in the technical passport.
In the case of electric cars and gas cars, the basis is also the engine power (kW) indicated in the traffic register of the Road Administration or in the technical passport.

The price of a fringe benefit can be calculated on the basis of kilowatts in the case of a van as well (a vehicle of category N1) which the employer enables to use for private journeys.

Keeping driving records

As private journeys cannot be compensated on the basis of accounting any longer, therefore, keeping driving records is not necessary either. At the same time, if the employer wants to certify the use of an automobile for the purposes of business and service duties only, then it will be possible to keep driving records (for example, electronic GPS-driving records or the like). If it is certified that the employer enables the use of an automobile for service duties only, then no fringe benefits shall arise.

As the taxation of fringe benefits does not depend from the use of an automobile for private journeys and private journeys cannot be compensated on the basis of accounting, then even in the case the employer leases out the automobile to an employee at a preferential or market price, the tax liability on fringe benefits, nevertheless, shall arise on the kilowatt-based calculation.

If a car rental company or a lessor leases out an automobile to its employee as a customer with the rental market price, then the car rental company or the lessor will not have the tax liability on fringe benefits.

Notifying the Estonian Road Administration

If an employer’s automobile cannot be used for private journeys, then the employer has to notify the Estonian Road Administration about it.

If a company leases out an automobile to another company or a private person, then a notation shall be made in the traffic register of the Estonian Road Administration that the automobile is used for tasks related to business only. A commercial lessor cannot ensure that the commercial lessee makes with the car only official journeys. If the commercial lessee enables its employees to use the automobile for private journeys as well, then regardless of the notation in the traffic register of the Estonian Road Administration, the lessee shall have to declare and pay the taxes on fringe benefits for the automobile.

From the middle of December 2017 notifications can be submitted through the e-services of the Estonian Road Administration. From 2 January 2018 it is possible to submit notifications in the service bureaus of the Estonian Road Administration. More detailed information is available on the website of the Road Administration.

The Estonian Road Administration shall be notified about enabling to use vehicles of category M1, i.e. automobiles, for service duties only. No notification is to be submitted to the Estonian Road Administration in respect of the use of vehicles of category N1 (vans).

Declaration of fringe benefits

Fringe benefits for an employer’s automobile shall be declared on Annex 4 to Form TSD of the tax return by the tenth day of the following month. The tax liability on fringe benefits is usually paid on the basis of Form TSD.

Tax liability on fringe benefits

The tax liability on a fringe benefit for a new car shall be 1.30 euros per month for one kW (income tax and social tax on 1.96 euros, income tax liability 1.96 × 20/80 = 0,49 euros and social tax liability (1.96 + 0.49) × 33% = 0.81 euros, thus, the total tax liability 0.49 + 0.81 = 1.30 euros), and for a car older than five years, 0.97 euros per month for one kW (income tax and social tax on 1.47 euros).

The cost of the fringe benefit shall be calculated on the engine power of an automobile (1.96 euros for one kW or, if the car is older than five years, 1.47 euros for one kW). Thus, for example, the price of the fringe benefit 1.96  × 190 = 372.40 euros for a new automobile with the engine power of 190 kW and the tax liability on it is 246.22 euros (income tax liability 372.40  × 20/80 = 93.10 euros and social tax liability (372.40 + 93.10) × 33% = 153.62 euros, thus, the total tax liability is 93.10 + 153.62 = 246.72 euros. The price of a fringe benefit for a new automobile with an engine power of 90 kW shall be 1.96 × 90 = 176.40 euros and the tax liability calculated on it shall be 116.87 euros (income tax and social tax).

 

29.03.2021