Private Use of a Company Vehicle 2026

Why does the state tax a company car as a benefit?

Many executives and business owners still see a company car as a given. They buy a vehicle "on the company," take advantage of the VAT deduction, and then regularly use it for family shopping trips or holidays. From the perspective of the state and the Financial Administration, however, such conduct without proper taxation is completely illegal.

If a company provides you with an asset for private use, you are saving your own money. You don't have to buy a car, pay for its insurance, depreciation, or expensive servicing. It is precisely this financial saving of yours that the state perceives as a hidden form of salary. In tax terminology, this is called taxable non-monetary income.

This non-monetary income is fictitiously added to your gross salary or executive remuneration. So, although you don't receive any extra money in your account, the state will strictly collect a 15% income tax on this added amount. Unfortunately, this benefit is also fully subject to health and social security contributions. In practice, it is advisable to consult with our Prague-based experts in tax law about the setup of benefits and their taxation.

Ultimately, this means that a luxury company car will actually take a rather noticeable chunk out of your net pay each month. It is therefore extremely important that you correctly calculate how much this benefit will actually cost you before you buy the car, especially in the context of the current rates.

Rules and tax rates for 2026 in detail

While in the past a single rate applied to all cars, the new legislation under Czech legislation significantly favours environmentally friendly vehicles. The tax calculation is always based on the original purchase price of the vehicle. And be careful, for income tax purposes, you must always include VAT in this price, even if you are a VAT payer and have deducted the VAT from the car. We also discuss similar practical impacts of changes in company benefits in our news article Taxation of premium company cars: How to deal with legal limits and correctly claim operating costs.

The basic rate for conventional vehicles with an internal combustion engine (petrol and diesel) is 1% of the vehicle's purchase price per month. So, if you buy an executive diesel car for one million crowns including VAT, an amount of CZK 10,000 will be added to your gross salary each month.

For low-emission vehicles, which mainly include plug-in hybrids meeting strict emission limits, a half rate of 0.5% applies. The last, most dynamic category is zero-emission vehicles. This includes pure electric cars and hydrogen-powered cars. For these, the taxation has been reduced to just 0.25% of the purchase price.

The law also sets a minimum threshold for the tax payment. Even if you were to lend an employee a used Felicia worth twenty thousand crowns for private purposes, you must add at least CZK 1,000 per month to their gross salary. This limit is very often and unnecessarily forgotten in accounting practice.

Impact on your wallet: A practical comparison of diesel and electric cars

Let's illustrate the theory with a concrete and tangible example. Imagine you are a successful executive choosing a new SUV worth CZK 1,000,000 including VAT. You have two options: either go for a traditional two-litre turbodiesel or choose a purely electric version of the same model.

If you choose the diesel car, you fall under the 1% rate. Your payroll accountant will fictitiously add CZK 10,000 to your gross remuneration each month. From this amount, you as the executive will pay 15% income tax (CZK 1,500) and contributions for social security and health insurance (CZK 1,160). If you are dealing with the remuneration of statutory bodies and related contributions in a broader context, our news article Concurrence of Functions and Remuneration of Statutory Bodies: How to Set Up Management Contracts to Safely Withstand Scrutiny from the Financial Administration and the District Social Security Administration may also be useful. Thus, you will actually lose CZK 2,660 from your net salary per month because of the car.

At the same time, you must not forget about the company. From this added CZK 10,000, the company must also pay the state so-called employer's insurance contributions (approximately CZK 3,380 per month). A diesel car worth one million will thus cost the company and the executive approximately CZK 72,000 per year in invisible taxes and levies.

Now let's look at an electric car for the same CZK 1,000,000 incl. VAT. The rate is only 0.25%. Only CZK 2,500 per month will be added to your gross salary. Your personal decrease in net salary after paying tax and contributions will be a marginal CZK 665 per month. That sounds much better.

From an HR and corporate remuneration perspective, the purchase of electric cars will therefore become a huge tax advantage in 2026. Companies can offer managers more luxurious cars without burdening them with absurdly high payroll deductions. The experts at the ARROWS law firm will be happy to help you with a complete review of your benefit programs (consultation@arws.cz).

Pitfalls of operating leases and purchase prices

Many companies today do not buy cars as assets but lease them through popular operating leases. From an accounting and operational point of view, this is great; you pay a fixed monthly invoice and don't have to worry about anything else. For the calculation of the tax benefit, however, this represents an unpleasant administrative trap.

Executives and payroll accountants very often and mistakenly believe that if a company car on an operating lease is also used for private purposes, the 1% (or less) is calculated from the monthly lease payment itself. This is a gross error that can result in fatal additional tax assessments.

The law states that even for leased vehicles, the calculation is based on the original entry price of the vehicle including VAT, for which the vehicle was acquired by the original owner, i.e., the leasing company. The leasing company usually bought the car with a massive fleet discount, but you cannot read this exact amount from the monthly invoice.

This forces the company to request precise confirmation of the vehicle's entry price from the leasing company. You must then pass this amount on to your payroll accountant so that they can calculate the benefit correctly from it. If you only put a percentage of the lease payment on your payslip, you are setting yourself up for a huge problem.

During a tax audit, officials will immediately discover that the benefit has been grossly undervalued for years. This is followed by a retroactive assessment of income taxes and insurance contributions, and of course, a hefty penalty for the company. At ARROWS, we therefore recommend always carefully checking the documents from leasing companies before handing the vehicle over to an employee.

Shared vehicles and switching cars during the month

It is quite common in companies for one vehicle not to be used by just one manager, but to be shared by several employees. So-called company pool cars represent a specific and rather complex discipline in terms of benefit taxation. If more than one person takes such a car home for the weekend, you need to be alert.

As we have already mentioned, if one car is used by several employees in a given calendar month for private purposes as well, the non-monetary income is applied in full to each of them. The law does not take into account that Mr. Novák only drove it for one weekend and Mr. Dvořák for the rest of the month.

The situation is even more complicated when one employee uses several different company cars for private journeys during the month. In that case, the corresponding percentage of the car with the highest purchase price is added to their salary. The payroll department must therefore have a perfect overview of who has the keys.

The company's perspective: VAT, fuel, and home charging

When a company buys a car and knows that an executive will also be driving it home on weekends, it runs into a fundamental problem with the Value Added Tax Act. The state will not allow you to deduct the full 21% VAT from the car when you use the asset partly for a non-economic, i.e., private, activity.

The company basically has two options. The first is a pro-rata reduction of VAT at the time of purchase. If you know that you will drive 80% for the company and 20% privately, you will only deduct VAT from the state at the 80% rate when you buy the car. The second option is to deduct the full VAT, but then remit output VAT to the state monthly for the service provided to the employee.

Another huge chapter is fuel. The company can only claim as tax-deductible expenses the fuel that was demonstrably consumed during company business trips. Private weekend trips to the cottage and commutes to work must under no circumstances be paid for by the company.

Ideally, the employee should refuel for private journeys themselves at their own expense. In practice, however, this is often handled by the driver paying for everything with a company fuel card, and the company then uncompromisingly deducts the share of private diesel costs from their monthly pay based on the logbook.

With electric cars, a modern problem arises with home charging. If an employee charges the company car at night at home from their personal grid, the company can legally reimburse them for these costs as tax-deductible expenses. However, it must use the official average electricity prices set by decree, or provide the actual price list of the energy supplier.

Vehicle Use Agreement and the risks of verbal promises

Handing over the keys to a new vehicle to an employee should never be done on the basis of an informal verbal agreement. The absence of a quality written contract is a huge risk for the company, especially in the event of a traffic accident, theft, or damage to the interior. You must always have a signed handover protocol.

The cornerstone is a detailed Agreement on the Use of a Company Vehicle. This must clearly define who is allowed to drive the car (whether family members are included), how deductibles for collision insurance will be handled, and how private kilometres will be settled.

It is precisely vaguely defined deductions for private fuel or an employee's unwillingness to pay speeding tickets from speed cameras that are a frequent subject of labour law disputes. The lawyers at the ARROWS law firm (consultation@arws.cz) will prepare bulletproof documentation for you that will protect the company's assets and prevent unnecessary conflicts with employees.

The Logbook: A Dangerous Target for Tax Audits

The alpha and omega of all automotive accounting. Even though you don't need to know the exact number of kilometres driven to tax a manager at the 1% rate (the tax is on the fact that they have the car available), for the company, the logbook is an absolute necessity. Without it, you cannot defend the VAT deduction or the fuel consumed.

The company must have it in black and white which journeys were business and which were private. For many years, many entrepreneurs have been falsifying the logbook or retroactively creating it in Excel on the weekend before a tax audit arrives. However, this approach is absolute suicide in 2026.

The Financial Administration now has extremely powerful analytical tools. Officials have direct access to the databases of technical inspection stations (STK), where they can see the real odometer reading. They require documentation of service records from car repair shops, which carefully record the mileage at every oil change.

Moreover, in cases of suspicion, the authorities commonly use records from toll gates and motorway cameras. If your handwritten logbook claims the car was in Ostrava on Tuesday, but a camera recorded it passing through a gate on the D1 motorway towards Prague with your wife at the wheel, the audit will immediately tear you apart.

The most suitable solution today is to install a quality GPS unit directly in the vehicle. The system automatically generates a logbook with perfect accuracy, and the employee simply switches the type of journey with a button. The lawyers at ARROWS (consultation@arws.cz) will be happy to help you with the legal framework for GPS tracking in relation to privacy protection (GDPR).

Advantageous purchase of a company car by an employee

After a certain period of time, typically four or five years, companies often replace their older vehicles. For the employee who has been driving the car the whole time, the option to purchase it for private ownership is a very attractive benefit. But here too lies a harsh tax risk.

If a company sells a decommissioned car to its employee for a so-called "friendly" or residual book value, which is significantly lower than the market value of a similar car at a used car dealership, a problem arises. This difference between the market price and the purchase price is again considered taxable non-monetary income for the employee.

For the sale to pass a tax audit unscathed, you must have the sale price securely justified. The ideal solution is a current expert valuation or at least a carefully documented price survey from comparative advertising portals on the day of the sale. Only in this way can you prove that you did not unlawfully and untaxably enrich the employee.

Final Summary

Providing a company car for private use requires precise knowledge of tax laws. Handing over the keys to an employee without proper contracts and an accurate payroll calculation very often results in huge additional tax assessments from the state.

The rules for 2026 clearly show that the state is massively incentivising companies to renew their vehicle fleets. Choosing plug-in hybrids (0.5%) or even zero-emission electric cars (0.25%) can save a significant portion of the car user's personal finances compared to conventional internal combustion engines.

However, do not forget that the work does not end with the taxation of non-monetary income. The company's accounting must perfectly reflect the ratio of business to private trips in the logbooks, fairly divide fuel costs, and carefully handle changes in VAT.

If you are not sure whether your current internal practices comply with the latest trends and case law, do not risk unnecessary penalties. Contact the tax and legal specialists at the ARROWS law firm (consultation@arws.cz), who will set safe boundaries for all your company vehicles.