€909

free benefit, €45,000 car, age group A

€729

usage benefit on the same car

−€170

full-electric reduction per month

€3,400

basic deduction from the retail price

The formula has two parts

The taxable value consists of a basic value and an operating-cost part. The basic value is a percentage of the car’s new retail price, which is the importer’s recommended price less €3,400, rounded down to full hundreds. For a €45,000 car the calculation base is therefore €41,600.

The percentage depends on the age group. Group A covers cars first registered in 2024–2026, group B those from 2021–2023, and group C anything older. The percentage is 1.5 in group A, 1.2 in B and 0.9 in C. On top of the basic value comes a fixed monthly operating-cost part, and that part differs between the free benefit and the usage benefit.

A car moves from one age group to the next every three years, so the same vehicle gets cheaper in tax terms twice over its life. When the group changes the basic value falls but the fixed monthly part rises — an older car consumes more, and the Tax Administration’s formula accounts for it.

Free benefit or usage benefit

With the free benefit the employer pays every cost of the car, fuel or charging included. With the usage benefit the employee pays for the energy. The difference in taxable value is exactly €180 a month in age group A, because the fixed part is €285 for the free benefit and €105 for the usage benefit.

At a 35 per cent withholding rate that €180 translates into €63 of difference in tax paid per month. So the usage benefit only wins if your own fuel or electricity bill stays under €63 a month. For a petrol car consuming seven litres per hundred kilometres at €1.75 a litre, that sum buys roughly 510 kilometres. Drive more than that and the free benefit is cheaper.

Electric-car reductions

A full-electric car’s taxable value is reduced by €170 a month. This zero-emission reduction applies to both the free and the usage benefit and runs to the end of 2029. From 2026 it no longer depends on the year the car was first registered, so an older electric car qualifies too.

The free benefit carries a second reduction aimed at operating costs: €120 a month for a full-electric car and €60 for a plug-in hybrid or a gas car. These do not apply to the usage benefit, because there the employee pays for the energy and the employer has no saving to deduct.

The gap between a full-electric car and a combustion one under the free benefit is €290 a month, or €3,480 of taxable income a year. At 35 per cent that is a little over a hundred euros a month in take-home pay — and that is the entire tax advantage of the electric car, not an estimate of it.

What the benefit looks like on a payslip

The taxable value is added to gross pay before withholding, but it is never paid out in cash. On a €3,000 salary with a €909 car benefit, withholding is calculated on €3,909 and the value of the benefit is then subtracted from the amount paid. Take-home pay falls by the withholding, not by the whole €909.

The same value also increases pension accrual and the basis for unemployment security, since both are calculated including benefits in kind. The car benefit is therefore not purely a cost: it is part of pay, and it builds a pension just as cash salary does.

When setting the income limit on a tax card, the car benefit has to be included. It is the most common reason a new company-car driver faces an unexpected back tax in the first year — the card was based on cash salary while taxable income grew by nearly eleven thousand euros a year.