Many business owners ask themselves: Should I use my private car for business purposes, or should I invest in a company-owned vehicle? What is the most tax-efficient option?
First Things First: The use of a vehicle must fundamentally make sense. For example, a kiosk owner with just one retail location will struggle to justify the need for a company car or the (excessive) use of a private car for business purposes.
Private Car
Using a private car for business purposes can offer interesting opportunities to optimize compensation that is exempt from social security contributions. However, this is (unfortunately) only advantageous in a minority of cases. The following factors determine whether using a private car is tax-efficient:
- Type of Vehicle:
The use of affordable and fuel-efficient vehicles, ideally up to the mid-range class, is essential. The mileage allowance – even if the tax authorities approve a rate higher than 70 cents per kilometer – is never sufficient in practice to cover the high maintenance costs of upper- or luxury-class vehicles. - Mileage:
To generate substantial tax-free compensation, the mileage must be correspondingly high. With low mileage, occasional costs such as servicing and repairs cannot be offset effectively. - Area of Use:
In urban areas with relatively high parking fees and low mileage, using a private car is not worthwhile. The parking fees, already included in the flat mileage allowance of CHF 0.70, are disproportionately high in such cases. Predominantly using the vehicle on highways is key to keeping costs low and income high.
Calculation example (click here)
An employee drives 15,000 business kilometers per year using their private VW Golf, purchased for CHF 35,000 (excluding VAT). The company reimburses them CHF 0.70 per kilometer, covering all costs and accident risks.
For this analysis, only the variable costs are relevant — the employee owns the car independently of their professional activities. They pay all costs related to the car, including parking, and no business expenses are recorded.
According to TCS, the total variable costs amount to CHF 3,957 per year (fuel, tires, servicing, repairs, depreciation due to mileage). For 15,000 kilometers, this translates to variable costs of CHF 0.264 per kilometer. The employee receives CHF 10,500 annually from their employer. After deducting the variable costs, CHF 6,543 remains entirely tax-free.
This amount can be used to offset the significant fixed costs (primarily depreciation due to aging). In this example, the CHF 6,543 precisely covers the fixed costs for one year. In other words, the employee can fully cover both the fixed and variable costs of business use with the mileage reimbursement. The only expense they must personally bear is the variable cost of private use, which, at CHF 0.264 per kilometer, is relatively low.
If the private car is indispensable for the daily commute to work, corresponding professional expenses can be claimed in the private tax return (subject to the cantonal maximum limits).
Flat-rate car expenses
In some cases, instead of reimbursing employees for the actual kilometers driven, companies provide flat-rate allowances to compensate for the business use of private cars. This avoids the high administrative burden of maintaining a mileage log.
These flat-rate allowances should approximately match the costs determined through actual mileage calculations. In other words, flat-rate allowances must not disguise hidden salary payments. Tax authorities generally do not scrutinize these allowances, provided they are not excessive and the business model necessitates car usage.
However, excessive or unjustified expense reimbursements may lead to demands for back payments from social security and tax authorities. In severe cases, a tax penalty procedure may follow.
To minimize the risk of disputes with the tax office, it is advisable to have flat-rate car expenses approved in advance as part of an additional regulation (commonly referred to as a “flat-rate expense regulation”) by the tax office. This ensures that unpleasant surprises are avoided.
Assessment of a private car from the company’s perspective
Pros
- Significantly reduces complexity in company bookkeeping.
- No need to tie up company liquidity in vehicles or commit to expensive, long-term leasing contracts with limited flexibility.
Cons
- Potential conflicts between employees and the company regarding damages or accidents.
- Limited ability for the company to influence vehicle selection.
- The company lacks knowledge of the actual variable costs of private cars and may end up paying excessive or insufficient compensation.
- No comprehensive optimization is possible, as would be the case with a uniform fleet of vehicles.
- Flat-rate car allowances must be declared as a specific amount on the employee’s salary statement (this does not apply to actual car expenses based on mileage, where a simple checkbox for actual reimbursement suffices).
Assessment of a private car from the employee’s perspective
Pros
- Tax- and social contribution-free compensation with the right choice of vehicle and area of use
- Freedom for the employee to choose their own vehicle.
Cons
- Potential conflicts with the company regarding damages or accidents.
- Effort required to maintain a complete and accurate mileage log.
- The company may not know the actual variable costs of the private car and could pay insufficient compensation.
Company car
If the car is not privately owned but is company property, the situation becomes somewhat more complex. The car is also used privately by the employee (e.g., 5’000 kilometers annually), resulting in a salary adjustment for the private use. This adjustment is calculated either using a flat rate or an actual determination of the private portion (annually, a flat rate of 9.6% of the purchase price excluding VAT, or CHF 0.70 per kilometer driven privately). The gross salary adjustment, which accounts for private use, naturally leads to higher personal tax liability. Additionally, all social security contributions must be paid on the private use portion.
Flat-rate calculation of salary adjustment: 9.6% * 35’000 = CHF 3’360
Actual calculation of salary adjustment: 5’000 * 0.70 = CHF 3’500
The private use of company-owned assets triggers an adjustment to the input VAT deduction. This means that the company owes VAT on the private portion to the Federal Tax Administration.
VAT owed with the flat-rate method: 0.077 * 3’360 / 1.077 = CHF 240.20
VAT owed with the actual method: 0.077 * 3’500 / 1.077 = CHF 250.25
As a logical consequence, the employee driving a company car may not claim work-related expenses for commuting in their private tax return, as the company covers all vehicle-related costs, including fuel for private trips (excluding vacation travel). Therefore, the box F on the salary certificate must be checked.
Due to the introduction of the FABI framework, a maximum limit for work-related expenses has been established, which could result in an additional salary adjustment in the employee’s private tax return for long commutes. The free use of a company car for an excessive commute is considered a taxable benefit. The employee must declare this as “additional income” or “other income” in their tax return.
At the federal tax level, the deduction is capped at CHF 3,000 per year as of January 1, 2016. In the canton of Zurich, the deduction has been limited to CHF 5,000 per year since January 1, 2018. This is particularly bad news for commuters with long working distances.
Example of salary adjustment due to commuter deduction limit (FABI) (click here)
A commuter residing in the canton of Zurich drives a company car daily for a 120-kilometer round trip from home to work. Over 220 working days per year, the following costs are incurred, which are covered by the company:
220 x 120 x 0.70 = CHF 18’840
The commuter must therefore declare CHF 13,840 as “additional income” in their tax return (commuter costs minus the CHF 5,000 exemption). In the canton of Zurich, this is reported under line 5.4 for income and line 8 for work-related expenses. At the federal level, an additional CHF 15,840 must be declared (commuter deduction capped at CHF 3,000 per year). Naturally, the “normal” private use portion for personal vehicle use is also added to the salary adjustment.
Assessment of a company car from the company’s perspective
Pros
- Comprehensive fleet optimization is possible.
- Vehicle selection is controlled by the company.
Cons
- High costs: Tied-up capital or long-term leasing contracts.
- Administrative effort: Input VAT correction and accounting workload.
Assessment of a company car from the employee’s perspective
Pros
- Motivation and compensation factor for the employee.
- No need for a mileage log.
Cons
- Gross salary adjustment for private use (private portion).
- Declaration of additional income for long commutes (commuter deduction/FABI limitation).
- Limited influence on vehicle selection.
Conclusion
The decision to use a company car or a private car depends on many factors and is not easy to make. In general, the high costs of expensive vehicles should be borne by the company (to reduce input VAT profit), while affordable private vehicles, which have already been purchased, offer potential for optimized private compensation or at least guarantee a cost-covering operation.
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