Know the taxation rules for fri bil.

From July 1, 2021, new rules for the taxation of fri bil were introduced. Learn more about the new rules and what they entail, and how they affect you.

Here’s how to find the value for the taxable basis:

• If the car is under 3 years old at the time of purchase, the taxable basis is calculated based on the new car price. This includes delivery costs, VAT, and factory-installed equipment.
• If the car turns 3 years old during the period, you should apply the 75% rule (75% of the new car price) – however, a minimum of 160,000 DKK.
• If the car is over 3 years old at the start of the period, the trade price is used – however, a minimum of 160,000 DKK.

The taxable basis for a company car

If an employee has fri bil as part of their employment contract, and the car is used for private purposes, the employee must pay tax on the value of that benefit. The calculation of the company car benefit is independent of the extent of private use.

With the new taxation rules, you must annually recalculate the value of the car using the new rates as of January 1st each year until 2025. Currently, there are two different rates, but from 2025 onwards, there will be a single rate of 22.5%.

In the future, the purchase price will be less weighted in the taxable basis, and the environmental supplement will be weighted more. Employers will need to add an environmental supplement when calculating the taxable value. Specifically, the environmental supplement gradually increases to 600% from July 1, 2021, until 2025. These new rules also apply to employees with fri bil purchased before July 1, 2021.

Note that if the employee is taxed on the company car benefit, they are not entitled to receive mileage deductions, which employees typically receive when driving their own cars.

Summary of the phase-in of the rates

Here’s the phase-in of the rates for calculating the value of fri bil benefit after July 1, 2021. Remember that from 2022 onwards, there will be an annual change on January 1st.

See legal text. The calculation of the taxable value of the car can be found under §16, paragraph 4.

Taxable value

It means that the taxable portion of a car’s new car value under 300,000 DKK will be reduced by 0.5% until 2025. Conversely, the rate for a car’s new car value over 300,000 DKK will also increase by 0.5%, so the rates in 2025 are equalized to 22.5%.

Environmental supplement

The percentage rate for calculating the environmental supplement in 2022 is 350%. This rate will be increased annually for all company cars, so the rate in 2023 will be 450%, in 2024 it will be 600%, and from 2025 onwards, the rate will increase to 700%.

That means specifically that if you have a company car where an annual ownership tax of, for example, 2,000 DKK is paid, the environmental supplement and the taxable value of fri bil will increase by 11,000 DKK (from 3,000 DKK in 2020 to 14,000 DKK in 2025). In addition to this, there will also be a continuous increase in the ownership tax itself.

Charging stations

In addition to the taxable value and environmental supplement, there is one last rule you need to be aware of regarding the company car benefit. However, this rule only applies to company cars that are electric or plug-in hybrids.

Here, the taxation of charging stations is completely abolished. This means that the value of an employer-paid charging station (including installation costs) no longer contributes as an additional factor in the calculation basis for the company car benefit.

Furthermore, it is legally stipulated that the charging station can be transferred to the employee’s private ownership or transferred tax-free if a company car is no longer provided and there has been taxation of a free electric or plug-in hybrid car for a continuous period of at least six months.

How to calculate the value of fri bil

Whether it’s worth it for employees to have a company car depends entirely on how much the employee drives. If the employee drives less than 20,000 km per year, they have the option to receive tax-free driving allowance. If the employee drives over 20,000 km per year, they have the option to receive mileage reimbursement for the number of kilometers driven. However, this often requires an individual calculation and a specific assessment of the need for a company car.

When you calculate the car’s value, there is a difference between whether it is a new car, whether the car is more than three years old, or whether it is a leased car.

If the car is no more than three years old, you must calculate the value based on the car’s actual purchase price including registration tax, VAT, costs for number plates, delivery costs and all normal factory-fitted equipment.

From 1 January 2022, the employee will therefore be taxed on 24% of the car’s value on the part below DKK 300,000, and 21% on the part above DKK 300,000. However, at least 24% of DKK 160,000. When the car is three years, the tax base is reduced to 75% of the purchase price.

If you buy a company car that is more than three years old, you must use the trade price to calculate the price of the free company car. However, you must always calculate the value of the free car at DKK 160,000 as a minimum.

If you lease a car, you will be informed of the tax basis by the leasing company for calculating the free car.

Get help recalculating the taxation of a free car

Do you need help getting an annual recalculated employee’s free company car? Or if you are still in doubt as to what it means to you, you can always contact one of our experienced business advisers and get advice.