The question regarding the company car tax rules is very frequently raised among Romanian employers. Especially those who allow employees to use company cars not only for work-related tasks, but also for personal purposes. In such cases, the tax treatment applied to the use of the company car and related expenses is different from that when an employee uses the car strictly for work purposes.
Often, employers either do not know the correct tax treatment that must be applied, or the practical situations are so diverse and specific that the legislation does not cover all of them. This fact leaves room for interpretation very often in practice.
Moreover, this lack of clarity can lead to incorrect application of tax rules, resulting in significant tax penalties. Such penalties can arise from underreporting taxable benefits, failing to withhold and pay the appropriate taxes, or misclassifying personal use of a company car as business use.
In addition to the direct penalties, incorrect application of company car tax rules can also lead to increased scrutiny from tax authorities and maybe reputational damage. Companies might face audits and investigations, which can be both time-consuming and costly. Therefore, understanding and correctly applying the company car tax rules is crucial for tax compliance.
Moreover, it’s important to consider the broader implications of these rules. They may impact payroll calculations, employee compensation packages, and company tax planning. Ensuring accurate and compliant application of company car tax rules helps in maintaining transparency and trust with both employees and tax authorities.
In this article, we explain in a structured manner the situations in which the company car tax rules apply in Romania and how the tax legislation applies in these cases. We will cover the general principles, specific exemptions, and practical examples to illustrate the correct tax treatment of company cars. By the end of this article, employers should have a clearer understanding of how to manage the tax implications of providing company cars for both business and personal use.
As a rule imposed by the current Romanian tax legislation (Law no. 227/2015 regarding the Tax Code), the expenses related to the use of the company car for personal purposes are considered benefits in kind. Thus, these expenses are considered 100% taxable for the employee.
Specifically, according to the provisions of Article 76, paragraph (3) of the Romanian Tax Code, taxable benefits, in cash or in kind, received in connection with a salary activity, also include the use of any company goods. These can include a vehicle of any type from the business assets or rented from a third party, for personal purposes, except for commuting from home to work and back.
From the above, we deduce that the personal use of company cars is considered a taxable benefit as per the company car tax rules, except for the use of the car for commuting to and from work.
Let’s take for example an employee who receives a car from the company (his employer) that he can use for commuting to work. More precisely, the company car does not remain at the company’s premises after working hours, but is used by the employee to commute to the office daily.
In such a case, the exception mentioned above practically establishes that this use of the company car by the employee for commuting is considered a non-taxable benefit. However, other personal uses (such as use on weekends, vacations, etc.) are considered taxable benefits in kind and are taxed according to the general rule applicable to any salary reporting.
At this point we can draw the following conclusion regarding company car tax rules:
Now that we have clarified the general taxation rule, let’s further explore if there are specific exceptions, what they are, and how they should be interpreted in practice under the company car tax rules.
As additional exception to the company car tax rules described above, the Romanian Tax Code provides the following at Article 76, paragraph (4): “The following are not taxable benefits, in terms of income tax: benefits in the form of personal use of vehicles for which expenses are deductible at a rate of 50% for the purpose of calculating the company’s profit tax.”
Thus, although the general rule establishes the taxation of personal use of a company car (except for commuting), the above cited provisions introduce another significant exemption.
As mentioned by the tax law, this exemption from taxation as a salary benefit applies only in the situation where the expenses related to the use of the vehicle are treated as deductible at a rate of 50% for the purpose of calculating the company’s profit tax.
Specifically, if the company applies the rule of 50% deduction of vehicle-related expenses for calculating the corporate tax (i.e., the employer cannot deduct all expenses for the purpose of corporate tax), the law permits the exemption from taxation as salary income for the personal use of that vehicle by the employee (if applicable).
However, it is noteworthy that the above paragraph expressly mentions the benefit under the form of “personal use of vehicles”. Therefore, the conclusion would be that only personal use is exempt from taxation, not the related expenses. Hence, expenses such as fuel costs or similar should be considered taxable benefits in kind for the employee under the company car tax rules.
Considering all the above, we can now draw the conclusion under the company car tax rules:
Considering all the above, we can now draw the conclusion under the company car tax rules:
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