The question on what is the use of company car tax treatment in Romania, and how should companies approach it in practice is a common one among employers. Especially among those who allow their employees to use the company cars not only for the purpose of performing their job, but also for personal purposes. In such cases, the tax treatment that should be applied to the use of company cars and the related expenses is different from those in which the employees use the cars strictly for the purpose of carrying out their day-to-day jobs.
In many cases however, employers either do not know the correct tax treatment that should be applied, or the situations in practice are so diverse and specific, that the legislation does not cover them all, thus leaving room for interpretations.
In this article we describe the situations in which the use of company vehicles is taxed as employee benefit, and how should the Romanian tax law provisions be applied in those situations.
When is the use of company car taxed?
As a general rule established by the Romanian tax legislation in force (i.e., Law no. 227/2015 on the Tax Code), the expenses related to the use of a company car for the personal purposes of the employee are deemed taxable benefit in kind. Thus, such expenses are considered 100% taxable for the employee, as salary assimilated income.
More specifically, according to the provisions of Article 76 para (3) of the Romanian Tax Code, taxable benefits, in cash or in kind, received in connection with an employment activity, include the use of any vehicle from the company’s patrimony or rented from a third party, for the personal purpose of the employee, except for the return trip from home to the office.
We conclude from the above the fact that any use of a company car for personal purposes is taxed as benefit in kind, except only for the use for commuting to work.
Let’s take the example of an employee who receives a company car, which he can also use for the purpose of traveling to work. Specifically, the company car does not stay at the company’s headquarters after the end of working hours, but is used by the employee to travel home and return to the office daily.
For such a situation, the above-mentioned exception practically tells us that this use of the car by the employee to travel back and forth from home to work is considered a non-taxable benefit for the employee. The use for other personal purposes (e.g., use during weekends, traveling on holidays, etc.) is considered taxable benefit in kind, and is taxed according to the general rule applicable to salary income.
A preliminary conclusion:
- the use of company car for personal purposes by the employee is a taxable benefit in kind;
- personal use is taxed as benefit assimilated to salary income;
- however, the use solely for the purpose of commuting from home to the office/place of work is exempt from taxation.
Now that we have clarified the general taxation rule, let’s see if there are any specific exceptions, which are these in practice, and how they should be interpreted.
The specific exception and its interpretation in practice
As additional exception to the tax rule described above, the Romanian Tax Code provides for the following under Article 76 para (4):
“The following income is not taxable within the meaning of income tax:
the benefits under the form of personal use of company cars, for which the expenses are deductible within a quota of 50% as per to the provisions of art. 25 para. (3) lit. l) and art. 68 para. (7) lit. k) of the Tax Code.”
Thus, although the general rule provides for the taxation of the personal use of a company car (except for use for commuting to work), the provision cited above adds an important exception.
As stated above, this exemption from taxation as salary benefit of the use of company car applies only if the expenses related to the use of the vehicle are treated as 50% deductible for the purpose of calculating the corporate income tax.
More precisely, where the Tax Code, through the provisions of art. 25 para. (3) lit. l) and art. 68 para. (7) lit. k), allows the company to deduct expenses related to the vehicle only up to 50% (i.e., the employer cannot deduct all expenses for the purpose of calculating company profit tax), it allows the exemption from taxation as salary income of the use of that vehicle, if the case.
However, we cannot fail to note that the above paragraph expressly mentions “personal use of company cars”. Therefore, the conclusion is that only the personal use is exempt from taxation, but not also the costs related to the use. Therefore, related expenses, such as fuel or similar expenses, should be considered taxable benefit in kind for the employee and taxed accordingly.
- the use of company car tax treatment when car is used for personal purposes: taxable benefit in kind for the employee;
- the tax treatment is the same as for the salary income (taxes due: 10% income tax, 25% pension fund contribution, 10% health insurance, and 2.25% employer labor insurance contribution);
- however, in the following situations this benefit is not taxable:
- when the company car is used for the purpose of commuting from home to the office/place of work;
- when the employer deducts the expenses related to the cars for the purpose of determining the profit tax only in a quota of 50%.
Therefore, by exclusion, the use of company car is taxable as salary advantage in the following situations:
- when company car is used for personal purposes, other than commuting from home to office, and only in the case of cars for which the employer fully deducts the related expenses for the purpose of determining the profit tax;
- expenses related to personal use (fuel, insurance, etc.) are taxable in all situations, except for travel between home and office.