I'm getting a bit confused by the various literature I am reading about German Taxes on driving a company car. I know its 1% of the vehicles list price per month. Is this treated as extra monthly income, which attracts a higher income tax burden.

Or is it a flat tax that is deducted at the rate of 1% of the vehicles value each month?

Just to be clear - I'm after the algorithm (formula) for calculation, rather than the absolute answer for a given vehicle.


It is considered additional income, so the 1% is added to your other income, and then the tax is normally calculated.

You can imagine it as getting a raise in that amount, paying your taxes on the higher salary, and then making the virtual 'payment' in the original height to the car dealership.

The net effect of this is a slightly increased tax rate on all your existing income, plus the full increased tax rate of the 1%. Your net salary (paycheck) will be accordingly lower.

It is still most of the time a good deal, as you have a car at hand for very low price. Only if it would have otherwise driven a very cheap car, and don't value the upgrade at all, it might be borderline negative.

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