Understanding Company Cars in Germany: All you need to know

At Remote, we partner with you as the Employer of Record (EoR) for your team in Germany. While we don't directly provide company cars or manage vehicle leases, we offer straightforward ways for you to extend this valuable benefit to your employees. Here's how:

In this article:

• Understanding Company Car Options with Remote
• Option A: Offering a Car Allowance
• Option B: Reimbursing Vehicle Expenses
• Important Information About German Taxes (and why the "1% rule" doesn't apply here)
• For Clients: Setting Up Car Benefits in Remote
• For Employees: Submitting Your Expense Claims
• Frequently Asked Questions

Understanding Company Car Options with Remote

As your EoR in Germany, Remote handles payroll and compliance. We don't directly offer company cars, fuel cards, or vehicle leases. However, if you'd like to provide a car benefit to your German employees, you can easily do so through one of the following two options:

Option A: Offering a Car Allowance - A Regular Payment for Vehicle Costs

A car allowance is a fixed amount added to your employee's regular monthly salary to help cover their vehicle expenses.

• Your Employee Chooses Their Vehicle: They lease, rent, or purchase a car in their own name.
• You Set Up a Simple Monthly Allowance: In Remote, you'll go to the "Pay items" section, then "Allowances," and select "Recurring monthly." You can enter the total amount you want to provide, or have Remote calculate the gross amount needed to ensure your employee receives a specific net amount ("gross-up"). 
• Allowance Included in Regular Pay: This allowance is treated as part of their regular salary in Germany, so it's subject to income tax and social security contributions (both employee and employer portions), which Remote automatically handles.

Option B: Reimbursing Vehicle Expenses - Covering Actual Lease or Rental Costs

Instead of a fixed allowance, your employee can submit their actual monthly lease or rental costs for reimbursement.

• Employee Pays and Keeps Records: Your employee pays their monthly vehicle lease or rental invoice and keeps a copy of the receipt.
• Employee Submits an Expense Claim: They log into Remote, go to "Expenses," click "Add expense," and upload the receipt. They'll choose "General expense" and enter the amount.
• Your Approval Ensures Timely Payment: You (or a designated manager) will approve the expense before the payroll deadline.
• Reimbursement Included in Salary: Remote will include the reimbursement in their regular salary payment. In Germany, these types of reimbursements are considered a taxable benefit, so they are subject to income tax and social security, just like regular pay.

Important Information About German Taxes (and why the "1% rule" doesn't apply here)

You might have heard about the "1% rule" in Germany. This rule applies when an employer directly provides a company car for an employee's private use. In that scenario, 1% of the car's list price is added to the employee's taxable income each month (plus a small additional amount for commuting).

However, because with both Option A (allowance) and Option B (reimbursement), your employee holds the lease or rental agreement directly, the 1% rule does not apply. Instead, the actual cash allowance or the reimbursed amount is simply treated as part of their regular employment income for tax purposes.

For Clients: Setting Up Car Benefits in Remote

1. Your Employee Manages the Vehicle: Ensure your employee has arranged their vehicle lease, rental, or purchase in their own name.
2. Setting Up a Recurring Allowance (Option A):
   • Go to the "Pay items" tab in Remote.
   • Select "Allowances."
   • Click "Add allowance."
   • Choose "Recurring monthly."
   • Enter either the gross allowance amount or the desired net amount (and select "gross-up" if needed).
3. Approving Expense Reimbursements (Option B):
   • Ensure your employees are aware of the expense submission process (see the "For Employees" section below).
   • Regularly review and approve expense claims in the "Expenses" section of Remote before the payroll cut-off date.

For Employees: Submitting Your Expense Claims (Option B)

1. Log in to your Remote account and navigate to the "Expenses" section.
2. Click on "Add expense" and select "General expense."
3. Upload a clear copy (PDF or photo) of your monthly lease or rental invoice.
4. Enter the total (gross) amount in EUR and select the correct month for the expense.
5. Click "Submit." You can track the status of your claim ("Pending," "Approved," "Paid") on the same page.

Frequently Asked Questions

• Can we reimburse mileage instead of lease payments? Yes, you can use the "Mileage claim" option under "Expenses." In Germany, the tax-free rate for business trips is currently €0.30 per kilometer; any amount exceeding this is taxable.
• Can we "gross-up" an expense reimbursement? No, the "gross-up" option is only available for fixed allowances. Expense reimbursements are processed for the actual amount submitted.
• Does Remote provide insurance for the vehicle? No, vehicle insurance remains the responsibility of the employee. The monthly allowance or reimbursement can be set to cover insurance costs if you choose.
• Will the car allowance affect statutory benefits? Yes, because a car allowance is considered part of regular pay, it will increase the employee's taxable base for social security contributions, including pension, health, unemployment, and long-term care insurance.

We hope this clarifies how you can provide car benefits to your employees in Germany through Remote. If you have any further questions, please don't hesitate to reach out to our support team.