Are you self-employed and considering buying a car? You probably have lots of questions. What’s the smartest choice: leasing or buying? Is it best to opt for a hybrid? Or are you better off with a fully electric vehicle or a second-hand car? And is a company car actually advantageous when it comes to taxes? This article will guide you.
- General deductibility of company cars
- Deductibility of an electric car
- Deductibility of a hybrid car
- Deductibility of a combustion engine car
- What about buying second-hand, leasing, or car sharing?
- Deductibility of VAT
- Depreciation of a company car
Is buying a car tax-deductible for self-employed individuals?
In recent years, buying a company car has become less advantageous. Since 2020, the tax deductibility of a car is determined by its CO2 emissions. This percentage also determines the deductibility of other costs associated with a car, such as:
- Repairs and maintenance
- The interest paid on a car loan
- Car accessories
- Insurance
- Vehicle registration tax
- Fuel or electricity for charging
How do you calculate the tax deductibility of a car?
To find out what percentage of car expenses is tax-deductible, we need to apply a formula. The tax deductibility depends on the type of car and its CO2 emissions.
The formula looks like this:
120% – (0.5% x [coefficient] x CO2)
Where the coefficient is:
| Diesel | 1 |
| Petrol, LPG, biofuel, electric | 0.95 |
| Compressed natural gas | 0.90 |
The CO2 is the CO2 emission of your car, which can be consulted here.
The level of deductibility for company cars (i.e. owned by a company) is the same as for cars purchased by sole traders. There is also no difference between self-employed individuals in a primary or secondary occupation.
⚠️ Although deductibility depends on the type of car and the purchase date, it’s important to remember that the percentage of professional use also plays a role.
For instance, a self-employed individual in a secondary occupation will use the car less for business purposes than one in a primary occupation. Suppose you calculate a tax deductibility of 80%, but you use the car 40% of the time for private purposes; then the overall deductibility would be 48% (60% of 80%).
🔌 Electric cars
If you purchased an electric car before 1 January 2020, the deduction was up to 120%. This means the car was fully tax-deductible, and you even got a sort of ‘tax discount’ on top. But those days are over.
As of 1 January 2023, the maximum deduction percentage for an electric car has been reduced to 100%. Still not bad, though. The same applies to electric bikes. But beware, because this percentage will gradually decrease in the future.
Depreciation of electric cars
In most cases, you depreciate the purchase of your new electric car over 5 years, at 20% per year. Electric cars purchased or ordered before 2027 remain fully tax-deductible at 100% throughout the depreciation period. This means you can still claim 100% tax deduction on an electric car until 2027 – provided your professional use matches up 😉
For electric cars purchased or ordered from 1 January 2027, the maximum tax deductibility will look like this:
2027: 95%
2028: 90%
2029: 82.5%
2030: 75%
2031: 67.5%
The depreciation percentage does not decrease, unlike for non-electric cars. If you buy an electric car in 2028 and depreciate it over 5 years, then the maximum tax deductibility remains 90% throughout that period. The percentage does not decrease over the years.
⚡️ Hybrid cars
If you purchased a hybrid car after 2018 and before 1 July 2023, nothing changes in terms of deductibility. In this case, the tax deductibility of your hybrid car is determined according to the formula based on the car’s CO2 emissions:
120% – (0.5% x 0.95 x CO2)
For example, if you, as a self-employed individual, bought a hybrid car with emissions of 50 g/km, then the tax deductibility amounts to 95%.
⚠️ Note that fuel for hybrid cars is only deductible up to a maximum of 50%!
⚠️ However, the maximum deductibility does decrease over time. From 1 January 2025, the maximum deductibility of your hybrid car will only be 75%, even if your car was, for example, 95% tax-deductible in 2023 and 2024. The formula helps you determine the tax deductibility, but the 75% ceiling must be respected from 1 January 2025. The maximum deductibility will also continue to decrease after 2025.
For hybrid cars purchased between 1 July 2023 and 1 January 2025, the tax deductibility is also calculated according to the above formula. During this period, the maximum deductibility is 100%, and the minimum deductibility is 50%. But even in this case, from 1 January 2025, the tax deductibility will be limited to a maximum of 75%. This percentage will be further reduced in 2026 (50%), 2027 (25%), and 2028 (0%).
Example
You buy a hybrid car at the beginning of 2024 with a tax deductibility (calculated according to the CO2 emissions formula) of 80%. You depreciate your car over 5 years, at 20% per year. The depreciation then looks like this:
- The first depreciation in 2024 is at 80%
- The second depreciation in 2025 is at 75%
- The third depreciation in 2026 is at 50%
- The fourth depreciation in 2027 is at 25%
- The last depreciation in 2028 is at 0% -> no deduction possible anymore
⛽️ Cars with a combustion engine: diesel, petrol, or LPG
The ‘classic’ cars with a combustion engine, running on fuels like diesel, petrol, or LPG, are becoming increasingly less interesting. The deductibility is calculated in the same way as for hybrid cars, namely using the CO2 emissions formula:
120% – (0.5% x [coefficient] x CO2)
Where the coefficient is:
| Diesel | 1 |
| Petrol | 0.95 |
| Compressed natural gas | 0.90 |
⚠️ For cars with a combustion engine purchased or ordered from 1 July 2023, the maximum deductibility will be limited to only 75% in 2025, to 50% in 2026, to 25% in 2027, and to 0% in 2028, even if your car and its costs were tax-deductible at 80% in 2023 and 2024.
The tax deductibility of cars purchased between 1 July 2023 and 1 January 2025 is also calculated according to the CO2 emissions formula. During this period, the maximum deductibility is 100%, and the minimum deductibility is 50%. From January 1, 2025, the tax deductibility will be a maximum of 75% and a minimum of 0%. But beware, because this percentage will be further reduced in 2026 (50%), 2027 (25%), and 2028 (0%).
Example
You buy a petrol car early in 2024 with a tax deductibility (calculated according to the CO2 emissions formula) of 70%. Assuming you depreciate your car over 5 years, at 20% per year, then it looks like this:
The first depreciation in 2024 is at 70%
The second depreciation in 2025 is at 70%
The third depreciation in 2026 is at 50%
The fourth depreciation in 2027 is at 25%
The last depreciation in 2028 is at 0% -> no deduction possible anymore
What about buying second-hand, car sharing, or leasing?
The deductibility of your second-hand car (and all associated costs) is calculated using the same formula as above. The same principles also apply to leasing and car sharing as a self-employed individual.
Leasing or buying a company car: which is more advantageous?
As a self-employed individual, you can either lease or buy a car. Buying is the most cost-effective option: you immediately become the owner. However, you have less financial breathing space than with leasing.
When you buy a car, you also have to pay the VAT upfront, whereas you only recover up to half of it over time. With leasing, the VAT payment is spread out: a portion is charged with each invoice.
Accounting for leasing
Depending on the type of leasing you choose, there are accounting differences:
- Financial leasing with possible purchase: the car appears on your balance sheet, and you must depreciate it annually.
- Operational leasing: the car is not an investment; you process the monthly invoices as expenses.
How much VAT can you deduct from your car (expenses)?
The VAT you pay on the purchase of your company car and other car expenses is also partially deductible, up to a maximum of 50%. This applies even if you use your car exclusively for professional purposes. If you also use your car for private outings, then you lower that 50% to a percentage that reflects the personal share.
How does this work exactly?
- Calculate what percentage of your car expenses you can deduct according to the formula above.
- Adjust the deduction percentage further if you use your car partly for private purposes.
- Deduct the VAT from your costs at up to 50%; make sure your share of private use is reflected in this.
- Spread the purchase price of your car through annual depreciation over the presumed usage period.
Example
You buy a second-hand car with your sole proprietorship at the beginning of 2024.
- The purchase amount, including non-deductible VAT, is €7,000.
- You use your car 50% of the time for your business.
- The formula based on CO2 emissions gives a deductibility of 65%.
- The car will likely last 4 years, so you depreciate 1/4 per year.
Taking into account the reduced tax deductibility over the following years, the depreciation in this example looks like this:
In 2024: €1,750 x 65% x 50%
In 2025: €1,750 x 65% x 50%
In 2026: €1,750 x 50% x 50%
In 2027: €1,750 x 25% x 50%
You thus depreciate a total of €1,793.75 from your car, spread over 4 years.
Why must I depreciate my company car over several years?
You cannot deduct the total purchase price of your new (or second-hand) car all at once; you spread the purchase price over the number of years you think your car will last. The value also includes the VAT you could not deduct.
💡Learn more about depreciating costs
What if you also use your company car for private purposes?
Sole proprietorships
As a self-employed individual in a sole proprietorship, the car is your property. It’s possible to deduct the business portion for tax purposes, but if you use your car for private purposes, it’s up to you to be honest about it.
An example:
You buy a car that is up to 75% tax-deductible. You use this car 60% of the time for professional purposes, and 40% of the time privately. So, if the car is up to 75% tax-deductible, you can deduct 60% of that amount for business use.
60% (professional use) x 75% (tax-deductible percentage) = 45%
Benefit in kind for corporations
If you also use your company car to go to the sports club, pick up your children from school, or visit your sick grandmother, and you have a company, then that private use is a benefit in kind (VAA / ATN): a benefit in nature that is taxed by the tax authorities.
That VAA / ATN does not apply if you have a sole proprietorship.
Commuting
The tax authorities consider commuting as a private trip, which at first glance is not deductible. You can enter it in your personal income tax as private expenses. Generally, it’s best to opt for the standard cost deduction of €0.15 per kilometre.
What supporting documents do you need?
Whether you buy or lease a company car, an official invoice is always better: this way, you can also partially deduct the VAT. If you only submit a receipt, then the costs only count against your personal income tax.
Is buying a car as a self-employed individual a good idea?
If you definitely need a car for your business journeys, then a company car is a good idea for your sole proprietorship. Are other transportation options also an option? Then definitely consider whether you can rely on those; some options are even more tax-advantageous.
Also interesting:
Is buying a (electric) company bike tax-advantageous for self-employed individuals?
FAQ: Frequently asked questions about buying a car as a self-employed individual
Every self-employed individual, whether you have a sole proprietorship or are a company director, can in principle buy a car for their business. Whether this is tax-advantageous and to what extent the car is deductible depends heavily on the type of car (new, second-hand, hybrid, electric, diesel, etc.).
Electric cars and cars running on hydrogen are 100% deductible because they emit 0 grams of CO2. Hybrid cars also have a high deductibility, but the deductibility will decrease in the coming years. An electric car is therefore the most tax-advantageous choice at the moment.
You usually depreciate your car over 5 years, at 20% per year. The tax-deductible amount depends on the type of company car.
