Private use of a company car: how to work out the VAT

What the private share is

If you buy a car for your business, you can usually deduct the input tax. Input tax is the VAT you paid yourself on the purchase. However, this deduction applies only to business use.

The law says: if a taxable person also uses goods, parts thereof or services outside their business activity, they must correct the input tax deduction in proportion to their use.[1] The law calls private use own use. Own use occurs in particular where the taxable person withdraws goods or services permanently or temporarily from their business, provided on procurement or contribution of the whole or of its components they have made an input tax deduction, and they use them outside their business activity, in particular for private purposes.[1]

If employees drive the car privately, the salary certificate decides. This is the document that states the salary for direct tax purposes. Supplies made by the employer to employees which must be declared in the salary certificate are deemed to be made with consideration. The tax must be calculated on the amount that is also applicable for direct taxes.[2] It does not matter whether the person is close to you. When applying paragraphs 2–4, it is irrelevant whether the persons concerned are closely related persons as stipulated under Article 3 letter h VAT Act.[2]

The flat rate: 0.9% per month

Instead of recording every trip, you can work out the private share using a flat rate. If the private share of a company vehicle is worked out using the flat rate, it is 0.9% per month (up to 31 December 2021: 0.8%) of the purchase price excluding VAT, but at least CHF 150.[4]

What matters is how you extract the tax from this amount. The assessment basis worked out in this way is deemed to include VAT.[4] The assessment basis is the amount on which the tax is calculated. The VAT is therefore already contained in it. This is why the ESTV (Swiss Federal Tax Administration) uses 8.1% of CHF 4'644 (108.1%) in its example.[4]

The CHF 150 minimum

For cheaper cars, a lower limit applies. The flat rate is always at least CHF 150 per month.[4]

Which purchase price counts

Not every car comes with an invoice showing VAT. For this case, the following applies: if no VAT was openly shown on the purchase documents (contract, invoice, receipt, etc.), for example because the vehicle was bought from a private individual, the amount stated on the documents is the relevant purchase price excluding VAT for working out the private share using the flat rate.[4]

Rented cars have their own rule. For vehicles rented in, the basis of calculation is the market value of the vehicle at the start of the rental. For leased vehicles, the ESTV specifies the cash purchase price.[4]

Passenger cars only

The flat rate does not suit every vehicle. The flat-rate method for the private share is permitted only for passenger cars. Passenger cars are light motor vehicles with a permissible total weight of up to 3'500 kg, designed to carry a maximum of 9 people including the driver.[4]

One sector has special rules. Garage owners and/or motor vehicle dealers must follow the explanations in the VAT Industry Info for the motor vehicle trade (MWST-Branchen-Info Motorfahrzeuggewerbe) for the sector-specific rules on accounting for the private share of company vehicles.[4]

When employees bear costs

If an employee pays for fuel, servicing and repairs herself, the private share falls. If an employee bears the running and maintenance costs of the company vehicle, the private share is worked out as follows: per month 0.9% (up to 31 December 2021: 0.8%) of the purchase price (cash purchase price for leased vehicles; no. 1.5.4) excluding VAT, less the flat amount of CHF 150 (no. 1.5.6). Note that the assessment basis must not fall below the minimum of CHF 150 per month.[4]

Contributions from staff

Sometimes an employee pays a fixed amount for private use. Contributions from staff towards the private use of a company vehicle reduce the value to be declared on the salary certificate and thus the taxable private share.[4] The contribution itself is not tax-free, however. The contributions are subject to VAT at the standard rate as consideration for renting out the vehicle.[4]

Accounting with the net tax rate

If you account using the net tax rate, a separate rule applies. The net tax rate is a rate that the ESTV authorises for your business. Supplies to closely related persons and employees must be reported at the authorised net tax rate applicable to the supply in question in accordance with Articles 84, 86 and 88. Here too, supplies that must be included in the salary certificate for direct tax purposes always constitute supplies for consideration.[2]

You can find more on both methods on the page about the VAT return.

Mind the current state of practice

The flat rate does not come from the law, but from the practice of the ESTV. The legal basis is the VAT Act (MWSTG) and the implementing VAT Ordinance (MWSTV). The information provided is to be understood as the ESTV’s explanations of the VAT Act and the VAT Ordinance.[4]

The page on which this article is based carries a note: the content of this section is not current and applies only to the period shown.[4] Check the latest version with the ESTV before you file your return. The principle of self-assessment applies.[4] This means you are yourself responsible for calculating and declaring the tax correctly.