If an employer provides to an employee a motor vehicle for private use, it is necessary to have some legal document establishing the employee’s right to use the company fleet vehicle for private purposes – such as a written agreement specifying the possibility to use the vehicle for private purposes too, free of charge. Employees are obliged to keep an accurate log book, recording in particular the following information: date of the journey, destination of the journey, number of kilometres travelled, odometer reading (i.e. including the private journeys). Such a log book will then reveal the number of kilometres travelled by the vehicle for private as well as work-related purposes.
Furthermore, it is necessary to specify whether the employee will or will not pay for the fuel used for private journeys.
1) All fuel costs are paid by the employer:
The employer reimburses the employee for the fuel costs based on the submitted receipts, or settles the aggregate fuel account by paying to the gas providers the amount calculated based on the total number of kilometres travelled (CCS cards etc.). The employer records the VAT base in full as an expense, and claims the deduction of input VAT in full. The price of fuel used for private purposes constitutes an employer’s expense which is not tax deductible. The company is obliged to pay the applied VAT pertaining to the fuel used for private purposes.
As regards the employee, this is a non-monetary benefit which is subject to the personal income tax. Each month the payroll accountant needs to increase the employee’s tax base as well as his/her social and health insurance calculation base by this amount. In case of journeys made for private purposes, the amount added to these bases must be increased by the proportionate part of VAT pertaining to the fuel used for private purposes.
2) Fuel costs are paid by the employee:
Upon the purchase of petrol for private use, as recorded in the log book, the employee pays the fuel costs himself/herself. If the employee purchases fuel for both private and work-related use at the same time (such as via the CCS card), at the end of each month the employee will report the costs of the fuel used for private purposes. The employer then directs the employee to pay for the fuel used for private purposes. (This transaction will be entered into the accounting books as a taxable income for example, and output VAT will be paid.) The employee may either pay the price of the fuel used for private purposes to the employer’s account, or it will be deducted by the employer (subject to the employee’s consent) from the employee’s net wages.
For the sake of completeness, we would like to point out the statutory obligations applicable to the use of company fleet vehicles for private purposes:
If an employer provides a motor vehicle to an employee free of charge for work-related as well as private use, it is considered as an income of the employee amounting to 1% of the vehicle entry price, however not less than CZK 1000 for each commenced calendar month when the vehicle is being provided. For tax purposes, the amount calculated as 1% of the vehicle entry price is added to the employee’s tax base and will be taxed together with the wages for the applicable months. If the entry price does not include VAT, it will be increased by the applicable VAT rate for the purposes of this provision.
If a company fleet vehicle – for which VAT deduction was claimed upon purchase – is not used only for business purposes but also for private use, it is necessary to adequately decrease the input VAT.