Using company cars for personal purposes significantly benefits employees but also introduces specific tax obligations for employers. This article explains the legal regulations and methods for calculating benefits in kind, including income tax implications and employer responsibilities.
This article is aimed at employers and employees who use company cars for personal use, helping them better understand their obligations and rights.
Benefits in Kind
Croatian tax legislation considers using a company car for personal use as a benefit in kind. We regulate this benefit under the Income Tax Act and related regulations.
We add the value of the benefit in kind to the base for calculating income tax and contributions. Employers must calculate, withhold, and remit income tax and contributions and report them to the Tax Administration using the JOPPD form. Employers must maintain accurate and timely records and reports to avoid penalties.
Income Tax
Article 22 of the Income Tax Regulation explains how to determine the benefit’s value based on the service’s market value, including VAT. We can calculate this value in one of three ways:
- 1% of the vehicle’s purchase value per month.
- 20% of the monthly lease payment is for operational or long-term rentals.
- €0.50 per kilometer driven for personal Use.
Benefit in Kind – 1% of the Purchase Price
To calculate the benefit in kind as 1% of the vehicle’s purchase value, if the vehicle’s invoice amount is €102,000 (sales price €80,000 + VAT €20,000 + other costs €2,000), the taxable base for personal use becomes €126,000 (€82,000 + VAT €20,000).
Benefit in Kind – 20% of Lease Payment
If a company receives an invoice for a monthly operational lease of €350 (including VAT), this amount serves as the base for determining the benefit in kind. We fully include the VAT even though only 50% of the input tax is recognized. Thus, the value of the benefit in kind is 20% of €350 = €70.
Benefit in Kind – Based on Actual Use
When calculating the benefit in kind based on actual use, the employer must record the mileage driven for personal purposes. We determine the base for calculating the benefit in kind by multiplying the total mileage driven for personal use by €0.50.
Consequences of Non-Compliance
Improperly recording and calculating company car use for personal use can lead to significant penalties for employers. The Tax Authorities conducts audits, may retroactively calculate income tax, and may impose fines for non-compliance.
Specific Situations
Benefits Not Considered Salary
For instance, Ivana Horvat from Zagreb, OIB: 20184756281, can use a Ford Fiesta for personal usage during her maternity and parental leave from August 1, 2024, to August 1, 2025. The rental value is €400 per month plus VAT €100, totaling €500. We convert this amount to a gross value as a benefit in Kind.
Since providing a car for personal use does not qualify as monthly salary compensation, we treat it as a material right under Article 90a of the Labor Act, not as salary. We report this benefit under code 0001/0021 in the JOPPD form.
Remote Work and Flexible Arrangements
The new Regulation covers situations where employees use company cars while working from home or under flexible work arrangements. Employers must accurately record working hours and vehicle use in these cases.
Dispute Resolution
The employer must provide proof in disputes related to working hours and the use of company cars. Employers must supply accurate, updated records to demonstrate proper working hours and vehicle use management.
Record-Keeping and Reporting
Employers must keep records of company car use and report them in the JOPPD form. We report benefits in kind that are not considered salary under code 0001 in field 6.2 of the JOPPD form. Employers should adjust the contribution base if the total salary and benefits in kind exceeds €1,300.
Conclusion
Using company cars for personal use requires careful tax calculation to avoid penalties and ensure compliance with regulations. Employers must maintain detailed records and ensure accurate reporting of all benefits in kind to guarantee correct tax and contribution calculations.
For detailed information and guidance, visit our website or contact our expert team.
Source: RRIF article “Tax Treatment of Using Company Cars for Personal Purposes”
