Company cars and income tax in 2020: be prepared!

As from January 1, 2020 there will be some important changes regarding the taxation of company cars.  Both the calculation of the tax deductible percentage for corporate tax purposes as well as the calculation of the benefit in kind for hybrid cars are amended.

Tax deductible percentage

Until the end of 2019, the tax deduction is determined on the basis of the CO2 emission of the car taking into account the kind of fuel, leading to a tax deduction between 50% and 120%. 

As from January 1, 2020, the tax deduction will be calculated according to the following formula:

Basis of 120 - (50% of (CO2 emission x correction percentage)) = deductible percentage

The correction percentages are 95% for a car on gasoline and 90% for a car on CNG if the fiscal HP stays under 12.   The deduction percentage cannot fall below 40%, nor can it exceed 100%. The favourable 120% deduction for electric cars expires. 

The new formula will also apply on the fuel costs where they were tax deductible for 75% before. 

Below are some examples of what will change:

In order not to unnecessarily complicate the preparation of the corporate income tax return, we strongly advise to create a separate account for car costs per license plate.  The fuel costs can also be booked on this account.  Interest payments can continue to be recorded on a 65 account.  

In respect of the fuel costs it is important to allocate each fuel card or refuelling to a specific car.  

Benefit in kind hybrid cars

First let’s consider the concept of hybrid or fake-hybrid.  

A plug-in hybrid is considered to be a hybrid for tax purposes if the CO2 emission is a maximum of 50 grams and the battery capacity exceeds 0.5 KWH per 100 kg. The bigger the battery, the better. With this rule, all large and heavier cars almost certainly fall into the fake hybrid category. A full hybrid, one without a plug, is always a tax hybrid. This rule applies to all hybrid cars that were purchased after 1/1/2018.

Until now, the CO2 emission stated on the registration certificate is used to calculate the benefit in kind. This is the NEDC value for the vehicle including the hybrid module. In almost all cases, this was a low value with a favourable benefit in kind.  From 2020, however, it will be necessary to verify whether or not the hybrid is fake. With a fake hybrid we have to use the CO2 value of a similar fuel engine without the hybrid module. If this is not available, we must multiply the CO2 emission by 2.5.

NEDC, NEDC 2.0 and WLTP CO2 emission standards

The CO2 emission has been expressed in a NEDC value for a long time. This was a theoretical value which came under pressure after the Diesel gate because it was not realistic enough. 

From September 1, 2018, a new WLTP standard was introduced that would be more truthful. Because cars from before this date have no WLTP emissions, a NEDC 2.0 has been created to make older cars more compatible with the WLTP standard.  In practice, the WLTP standard is in almost all cases higher than the NEDC standard.

Both the Flemish government and the Federal government have confirmed that the NEDC standard will be applied up to and including 2020. From 2021, the WLTP emissions will have to be used in taxation, although it is not yet clear whether this rule applies suddenly to all cars or only to those registered after 1/1/2021.