Efficient vehicles for personal income tax purposes
In employee pay slips, it is relatively common to find that a portion of the compensation is paid in kind, such as, for example, through the assignment of vehicles to employees for their personal use. In this regard, the Personal Income Tax (“IRPF”) Law establishes that the valuation of that assignment of vehicles shall be 20% per annum of the acquisition cost of the vehicle for the employer (including the taxes charged on the acquisition) or, where the vehicle is not owned by the employer, of the vehicle’s market value, as if it were new.
Now, starting in year 2015, the Law has established a reduction of up to 30% in that value in the case of vehicles considered energy-efficient. In particular, according to the new wording of the IRPF Regulations, the valuation of the compensation in kind, as mentioned in the preceding paragraph, will be reduced by:
- 15%, in the case of vehicles which meet the limits on Euro 6 emissions established in Annex I of Regulation (EC) no. 715/2007 of the European Parliament and of the Council, of 20 June 2007, whose official emissions of CO2 do not exceed 120 g/km and whose market value as if it were new, before taxes, does not exceed €25,000;
- 20% where, in addition, the vehicles are hybrid or powered by internal combustion engines that can use alternative fossil fuels (autogas and natural gas), provided that the market value of the vehicle, as if it were new, before taxes, does not exceed €35,000;
- 30%, in the case of electric vehicles running on batteries or with extended autonomy, or hybrid electric vehicles that can be plugged in and with a minimum autonomy of 15 km, where the market value of the vehicle, as if it were new, before taxes, does not exceed €40,000.
This measure is interesting because it can enable reducing the employee’s IRPF charge on the compensation in cash and in kind received, and reduce the labor costs of companies that do not charge the employee for the prepayment to be made to the tax authorities for the compensation in kind paid by the company.
Esther Vidal Falcó
Garrigues Labor Department