As part of the ongoing efforts to encourage carbon-emission free transportation, new reforms have been introduced in the realm of company cars. These changes aim to incentivize the use of vehicles without CO2 emissions, ultimately phasing out the tax benefits for vehicles with combustion engines.

1. Overview of the Reforms

Beginning in 2026, all new vehicles must be carbon-emission free to retain their tax-deductible status for business expenses. This applies to all passenger cars, dual-use cars, minibuses, and light commercial vehicles, excluding those exclusively used for paid passenger transportation.

2. Applicable Vehicles and Costs.

Until December 31, 2025, certain vehicles and costs will remain exempt from business expense limitations:

• Vehicles exclusively used for cab services or rental services with a driver
• Vehicles used only for practical training in recognized driving schools
• Vehicles rented exclusively to third parties
• Costs passed on to third parties if explicitly and separately mentioned on invoices

3. Taxpayers Affected

All taxpayers who claim business expenses for the use or provision of an applicable vehicle are affected by these changes.

4. New Deduction Scheme for Zero-Emission Vehicles.

Starting January 1, 2026, business expenses for zero-emission vehicles purchased, leased, or rented will remain 100% tax-deductible. However, the deduction rate will gradually decrease, based on the year of acquisition:

• 2026: 100%
• 2027: 95%
• 2028: 90%
• 2029: 82.5%
• 2030: 75%
• 2031: 67.5%

5. Future of CO2 Emitting Vehicles

Vehicles with CO2 emissions higher than zero will no longer be tax-deductible from January 1, 2026. However, the existing deduction rules will remain in place for vehicles with combustion engines or hybrid vehicles purchased, leased, or rented before July 1, 2023.

For vehicles with CO2 emissions acquired between July 1, 2023, and December 31, 2025, the existing deduction rules will also apply temporarily. The maximum deduction rate will be capped at 75% starting in 2025, dropping to 50% in 2026, and 25% in 2027. From 2028 onwards, these costs will no longer be tax-deductible.

6. Commuting Expenses

Starting in 2026, the tax-deductible flat rate of €0.15 per kilometer for commuting expenses will only apply to zero-emission vehicles. This deduction will also remain applicable for vehicles with emissions covered by the transitional arrangements that partially maintain cost deductions.

The new reforms aim to gradually phase out the tax benefits associated with CO2-emitting vehicles, encouraging both individuals and companies to embrace a more sustainable and environmentally friendly mode of transportation.