The private use of a company car represents a non-cash income for an employee. It is included in the calculations of the employee income tax and contributions to the Social Security or Health Insurance Fund paid by an employer. The non-cash income is added to the employee’s income base before taxation at a rate of 1% of the vehicle price for eight consecutive calendar years. Similar subsidies have been identified in Austria, Belgium, Denmark, Germany, Italy, Luxembourg, and the Netherlands.
The objective of company car benefits in Slovakia is to provide opportunities for employers to increase or maintain employee retention and satisfaction by providing them with this benefit-in-kind. The employers can also claim purchase and operating costs of the vehicle as business expenses for tax purposes. The tax incentive is also favourable for employees because it allows them to use the company car for private use under good conditions compared to the costs of car ownership. It is estimated that only 31% of the total cost of company cars is taxed on the employees’ side. The budgetary impact of this favourable tax treatment was estimated to be EUR 111 million in 2012.
The subsidy also causes environmental impacts. The tax benefit has created incentives to purchase larger cars and drive further. Also, company cars are likely to be replaced sooner than private passenger vehicles. This leads to increased resource use, greenhouse gas emissions, air pollution and biodiversity loss. Company cars in Slovakia emits almost 5% more CO2 than other passenger vehicles in the country. Hence, the subsidy is estimated to add 66,000 tons of CO2 emissions.
In the last decade, several measures have been implemented by the government to incentivise companies and individuals to opt for low or zero-emission cars. A programme to support the purchase of electric vehicles for individuals, businesses, and government agencies was introduced by the Ministry of Economy in 2017. Cleaner transportation alternatives have also been subsidised by introducing a registration tax relief for electric and hybrid vehicles since January 2015. Further tax incentives such as favourable depreciation of electric cars have been effective since January 2020. The Environmental Strategy of the Slovak Republic until 2030 mentions the need for a future green fiscal reform. The future subsidy reform could strengthen the role of market-based environmental policy instruments, support only zero-emission cars or implement progressive taxation on fuel consumption or distance driven by company cars.
More information on the tax treatment for company cars provided for business and private use to employees and other candidates for reform in Slovakia and other Member States can be found in the country case studies and factsheets compilation.