Buying or leasing a company car - here is a short decision guideFirst of all, you should make yourself clear what the tax side of purchasing and leasing looks like:
When purchasing a company car (financed by credit), you can deduct the following items as business expenses:
The purchase price - but not immediately in the year of purchase, but spread over 6 years of useful life (according to the depreciation table). Example: If you buy a car in June for 19,000 €, you can claim 3,000 € each as operating expenses for linear depreciation from year 1 to year 5 inclusive.
The interest, if you financed the purchase price by credit. (You cannot claim the repayment instalments as tax-deductible).
The current operating costs. (petrol, repairs etc.)
If you are leasing a company car, you can claim these items:
The special lease payment, which you pay at the start of the lease, if applicable. You can claim this special payment in full immediately - without the depreciation over several years.
- The current monthly leasing instalments.
- The current operating costs. (petrol, repairs etc.)
Tax advantage through immediately deductible special leasing payment for company cars
Tip: The immediately deductible special leasing payment can be the decisive tax advantage that can make leasing more interesting in individual cases.
Example:
At the end of the year, you are looking for a way to quickly squeeze the profit so that the tax at the end of the year is not so high. You also need a new company car.
So your solution is: You lease a new car and agree on the highest possible special leasing payment of up to 30%.
Because special payments of up to 30 % can be immediately deducted as operating expenses in your income surplus calculation (BFH, 5.5.1994, ref. VI R 100/93). So you quickly conclude a leasing contract in December 2020 for a €30,000 new car and pay a 30% special payment upon startup.
Result: € 9,000 immediate operating expenses.
For comparison: If you bought the car in December, you could (with linear depreciation) claim only one-twelfth of the annual depreciation: 30,000 € ÷ 6 years ÷ 12 months = 416 €. In this case, therefore, the leasing payment brings great advantages. When the tax office does not regard you as the lessee, but as the owner of the company car
But be careful: There is a danger in this tax-saving idea if you do not pay close attention to the contract details: The tax office classifies you as the lessee as the actual owner of the vehicle. Then you risk the leasing contract being treated like an instalment purchase for tax purposes.
The consequence: You have to depreciate the leased asset and divide the leasing instalments and special payments into interest and repayment. Only the interest portion can then be deducted as business expenses. And that can be expensive. The following constellation is particularly critical: If the basic rental period is less than 40 % or more than 90 % of the usual useful life, you as the lessee will be allocated the leased asset as your property from the outset.
So please pay attention to these limits when drafting a leasing contract!
FAQs
Buying a car vs leasing
If you have the money or you don't mind taking out a loan, and you don't want to import a vehicle from abroad, buying a car is a good way to go. However, if you don't care about owning the car and you have a smaller budget, you may want to consider leasing as it's generally cheaper overall.
What is the 1% rule for company cars in Germany? ›
If you also use your company car for private journeys, then you can apply the 1 percent rule for taxation. To this end, private journeys are taxed monthly at a flat rate of one percent of the gross list price of the company car in Germany at the time of initial registration.
What is more beneficial leasing or buying a car? ›
If you lease one car after another, monthly payments go on forever. By contrast, the longer you keep a vehicle after the loan is paid off, the more value you get out of it. Over the long term, the cheapest way to drive is to buy a car and keep it until it's uneconomical to repair.
Why do companies lease cars instead of buying? ›
Buying a car for business means you might have to spend a large amount of money for a down payment. This could be the right choice for your business if you have the money. But if you're low on funds or don't want to own a vehicle, you may want to lease your business vehicle because you'll spend less money upfront.
Can I lease a car in Germany as a foreigner? ›
The good news is that there are leasing companies in Germany who are specialized in assisting foreign professionals with financing their vehicles. To move forward, you will need to provide them with the following documents: Valid residency permit (covering the lease period) 2 payslips.
Are German cars worth buying? ›
German cars tend to hold their resale value well, but it will always depend on various factors such as mileage, age, condition (inside and out), and desirability. A BMW 5-series will be more desirable than a Toyota Corolla and will consequently hold its value better.
How do company cars work in Germany? ›
Often an employer provides an employee, during the course of his/her employment, a company car that he/she may also drive for personal use. This payment-in-kind has a material value and, as part of his/her remuneration, is thus subject to taxation and social security contributions.
What percentage of Germans are car owners? ›
77 percent of households owned at least one car in 2021 - not far off the figure for 2011, which was 77,89 percent. The reason for the growth in car density can therefore be explained by the increasing number of households that have two or more vehicles.
What percentage of people own a car in Germany? ›
Germany: 85%
It's no surprise that Volkswagen leads the new-car market in its home country, given that it's the biggest-selling carmaker in all of Europe.
What are 5 disadvantages of leasing? ›
Disadvantages
- Lease increases. Many leases are set up to allow annual rent increases, while others often increase costs when your lease expires and needs to be renewed.
- Lease renewal ends – change of business location. ...
- No equity in building. ...
- Little control. ...
- Less space for growth.
You will need to pay taxes, title fees, licensing fees, dealer documentation fees and prep charges at the lease signing — and, sometimes, you will need to pay a down payment to top it all off. The lease may also come with an acquisition fee or a drive-off fee. This can add up to thousands of dollars.
Will car leases go down in 2024? ›
In 2024, lease returns are expected to rise then fall. Experian predicts, “retail leasing returns will rise to 1.1 million in the second quarter of 2024, but then fall to only 640,000 by the end of that year.” So, if you're hoping to buy a pre-owned car in 2024, look around April to early summer for the best selection.
Is it better to lease or buy a car for business tax write off? ›
The argument for buying a car for business depends on how long a lease on a car is and often you plan on keeping the car. Buying can be a better option if you want to keep the vehicle for longer than three or four years. You can claim tax benefits, including depreciation, and your overall costs are lower.
What are 3 cons of leasing a car? ›
The main disadvantage of leasing a car is that you never own it. You don't build equity in the vehicle as you make lease payments. Lease terms can be anywhere from two to five years. A lease can be ended early, though early termination typically involves a cancellation fee.
What percentage of people lease cars instead of buying? ›
Over one-fifth of new vehicles in the United States were leased in 2023, with the rest being sold outright. The percentage found in the third quarter of 2021 was even higher, with 26 percent of new vehicles in the U.S being leased that year.
Do people lease cars in Germany? ›
In Germany, car leasing is a popular choice, but FINN's car subscription offers an even better alternative. Enjoy the freedom and flexibility of a subscription without any long-term commitments and unexpected additional costs, while your desired vehicle is conveniently delivered to your doorstep.
Can I buy a car and pay monthly in Germany? ›
Installment loan: This is the classical way of financing. You decide on how much of the down payment you want to pay and a period during which you will pay of the whole price of the car. The rates usually include an interest. The term of the loan is often between 12 and 48 months.
Is it a good idea to rent a car in Germany? ›
Renting cars in Germany is fun, by comparison!
The other thing is that German rental cars are typically actually nice, and not exorbitantly priced for what you're getting (at least compared to the United States). In my experience, Sixt has the best selection of cars in the country.
How much does it cost to lease a Porsche in Germany? ›
Porsche leasing
from € 903 /mo.
