Employee discounts and car sharing for electric vehicles – Green Mobility for employers (part 2)

Why should companies implement a Green Mobility strategy?

In this series, we aim to explain the tax implications of green mobility in the context of sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). Companies that are required to create a sustainability report face the challenge of not only taking on ecological and social responsibility but also presenting this in a transparent manner. Specifically, employers affected by the CSRD are obligated to measure and report the CO2 emissions of their employees, as these are classified as significant Scope 3 greenhouse gas emissions according to the European Sustainability Reporting Standards E1-6. The ESRS provide detailed guidelines for the implementation of the CSRD. While meeting legal requirements is essential, a well-crafted sustainability strategy offers far-reaching advantages. It strengthens the employer’s brand, enhances employee retention and positions the company as an attractive and forward-thinking workplace. Moreover, the targeted integration of green mobility solutions can lead to significant tax and social security benefits.

As a general principle, mobility allowances - whether provided as benefits in kind or monetary contributions - are typically subject to income tax, Value Added Tax (VAT) and social security contributions. However, in the realm of sustainable mobility, numerous preferential treatments are available. We are going to demonstrate how companies can not only contribute to the reduction of CO₂ emissions through specific initiatives but also optimise their fiscal burden while fostering a modern, environmentally conscious work environment.

In the first article in this series, we outlined the far-reaching advantages that the permanent provision of electric cars as company cars can offer in terms of tax and social security law. In the following, we will discuss further options for making electric cars available to employees as part of the Green Mobility strategy.

Electric vehicles (continued)

Employee discount on the purchase of an electric car

Car manufacturers have the opportunity to take ecological responsibility and at the same time achieve a tax advantage by offering their employees a discount on their electric and hybrid cars. This option is also available for combustion engines, but these do not contribute to sustainability.

1.Income tax / wage tax

Only part of the discount is taxable here. Although the discounted sale of own goods to employees represents a benefit in kind, Sec. 8 para. 3 of the German Income Tax Act (EStG) stipulates that a flat-rate valuation discount of 4% and up to €1,080 per year and employee is exempt from income tax.

Example: A manufacturer grants an employee a 10% discount on a car costing €40,000. The employee's social security contributions, which are to be taken into account as a reduction in income tax, are to amount to 20% of the assessment basis.

Payment of the employee:

Calculation of the benefit in kind and the respective wage tax:

In comparison, an additional €4,000 in wages (minus €800 in social security contributions paid by the employee) would result in €960 in wage tax. The tax savings therefore amount to €643.20.

2. VAT

In principle, no VAT is payable on the discount granted, as the taxable amount in this case is the amount actually paid (€36,000 in the example) and not the market price (€40,000). However, for very high discounts, Sec. 10 para. 5 no. 2 of the German Value Added Tax Act (UStG) determines the entrepreneur's cost price as the so-called substitute assessment basis.

3. Social security law

The same basis for calculating the taxable benefit in kind is also used for social security law as is used to determine income tax. In this example, this is €1,320, which is to be assessed after deduction of the flat-rate valuation discount, the employee's payment and the discount allowance.

Car sharing

Particularly for employees in larger cities, it is often not necessary for them to always have a car at their disposal. For these employees, car sharing is an interesting and cost-effective alternative. From the perspective of the Green Mobility strategy, there are two options here:

1. Carpooling for all employees

The first option is to provide your employees with a car that anyone can use when needed.

a) Income tax / wage tax

If an employee only uses their employer's car occasionally (i.e. no more than five days per month), then according to the BMF letter dated 03 March 2022 no. 16 [IV C 5 – S 2334/21/10004 :001] with reference to Sec. 8 para. 2 sent. 4 EStG and R 8.1 para. 9 no. 2 of the Wage Tax Directive (LStR), the flat-rate value for the employee's use is 0.001% of the domestic gross list price (GLP) per kilometre driven. It is apparent that the reduction of the assessment basis to a quarter or half of the GLP for electric and hybrid vehicles under Sec. 6 para. 1 no. 4 sent. 2 no. 3 EStG should also be applied to car-sharing offers by employers with such vehicles, even if no clear statement has yet been made by the tax authorities on this point. This is supported by the fact that, according to the explanatory memorandum to the law (see German Federal Parliament [Bundestag] printed papers 19/13436 and 19/14909), the tax relief provided for in Sec. 6 para. 1 no. 4 sent. 2 no. 3 EStG is expressly intended to promote the use of climate-friendly mobility. In our opinion, this promotional idea should apply regardless of whether a vehicle is used exclusively by one employee or by several employees as part of a car-sharing scheme. Accordingly, a flat-rate usage value of only 0.00025% or 0.0005% of the GLP per kilometre driven would be taxable for shared electric vehicles.

With a GLP of €40,000 and a total distance of 100 km, the benefit in kind for a shared car would be determined as follows:

The benefit in kind extrapolated to the month or year ultimately depends on the total number of kilometres driven by the employee.

b) VAT

With regard to VAT, the tax authorities point out that, unlike the permanent transfer of a company car to an individual employee, this does not constitute a barter-like transaction within the meaning of Sec. 3 para. 12 sent. 2 UStG, in which the work performed constitutes consideration for the transfer of the vehicle. Instead, occasional transfer (on a maximum of five days per month, as above) constitutes a gratuitous transfer of value pursuant to Sec. 3 para. 9a no. 1 UStG. However, this is also taxable.

The difference between the taxation of a barter-like transaction and a gratuitous transfer of value in this context is somewhat difficult to see at first glance: This is because, according to the wording of the law, in the case of a permanent transfer, the total costs of the vehicle generally constitute the consideration pursuant to Sec. 10 para. 2 sent. 2 UStG, cf. A 15.23 para. 10 sent. 3, 4 UStAE (VAT Application Decree). This also includes costs that are not eligible for input tax deduction, cf. A 15.23 para. 10 sent. 5 UStAE (in particular: motor vehicle tax and car insurance). In the case of occasional transfer, according to A 15.23 para. 12 sent. 3, 4 UStAE, only those costs that were eligible for full or partial input VAT deduction are to be taken into account, which corresponds to Sec, 10 para. 4 sent. 1 no. 2 UStG. In our opinion, it is logical not to take into account the income tax benefits of (hybrid) electric vehicles in accordance with A 15.23 para. 11 no. 1 sent. 2 and no. 2 sent. 4 UStAE in the case of occasional transfers. The values determined in this way are net values to which VAT must be added, cf. A 15.23 para. 10 sent. 6 and para. 12 sent. 5 UStAE.

This complex calculation is simplified in practice by the fact that the employer may use the wage tax values in both cases, see A 15.23 para. 11 sent. 1, 2 and para. 12 sent. 7, 8 UStAE: However, these are then gross values from which VAT must be deducted. This is therefore an option available to the taxpayer. For the sake of completeness, it should be noted at this point that most electric vehicles are exempt from motor vehicle tax pursuant to Sec. 3d of the Motor Vehicle Tax Act (KraftStG). There may therefore be scope for structuring in this area.

c) Social security law

In accordance with Sec. 1 para. 1 sent. 1 no. 1 in conjunction with Sec. 3 para. 1 sent. 3 of the Social Security Contribution Regulation (SvEV), the basis for calculation is the same benefit in kind that is used to determine wage tax.

2. Vouchers for a car-sharing company

In addition, employers have the option of enabling their employees to use car-sharing services via vouchers from a car-sharing company. According to Sec. 8 para. 2 sent. 11 EStG (the so-called voucher regulation), vouchers for all types of benefits in kind (i.e. goods, services, etc.) of up to €50 per month can in principle be issued to employees tax-free in addition to their regular wages.

It should be noted that in this case, the benefits are subject to VAT, as the employees ultimately consume them.

These car-sharing vouchers are exempt from social security contributions up to an amount of €50 per month in accordance with Sec. 1 para. 1 sent. 1 no. 1 in conjunction with Sec. 3 para. 1 sent. 4 SvEV.

Conclusion

As demonstrated in the first article in our series, there is significant potential for savings when providing electric company cars. However, for cost reasons, this is only an option for a small number of employees. Car sharing is a lesser known but equally interesting option that is tailored to the needs of employees. In addition, car manufacturers have a special tool at their disposal in the form of company discounts, which they can use to combine sales promotion, employee satisfaction and tax optimisation.

It should be noted that (hybrid) electric cars offer many advantages:

1. They are more climate-friendly than combustion engines.
2. They are real game changers in terms of employee recruitment and retention.
3. Cost savings can be achieved as these vehicles are not affected by CO2pricing and are exempt from vehicle tax until at least 31 December 2030. There is even talk of extending this exemption until 2035 (Sec. 3d KraftStG).
4. There is strong tax subsidisation. In particular, electric cars with a GLP of (currently) €70,000 or less are in some cases even overcompensated. This amount will soon be increased to €100,000 with the announcement of the so-called "investment booster". The German Federal Council (Bundesrat) approved the draft law on 11 July 2025. Furthermore, Sec. 7 para. 2a EStG will introduce an arithmetic-degressive depreciation for electric vehicles, which will allow 75% of the acquisition costs to be written off in the first year. For reasons of legal and planning security for companies, it is to be hoped that this provision, unlike Sec. 7c EStG (a "failed" special depreciation for electric vehicles), will not be deemed contrary to EU law.

In our next article, we will take a closer look at the tax and social security benefits associated with charging (hybrid) electric vehicles.

Special thanks go to our research assistants Freeke Tasman and Lara Salomon, as well as our intern Clara Schoebel, for their valuable support in preparing this article.

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The above information is for informational purposes only and does not constitute legal or tax advice.