Taking advantage of tax benefits: e-bikes
Over the last few years, electric bicycles (e-bikes or ebikes) in particular have become increasingly popular alongside classic bicycles. At the beginning of 2015, there were still electric bikes in 1.5 million households. At the beginning of 2020, 4.3 million households in Germany already owned at least one electric bike. This means that the number of private households with e-bikes has almost tripled in the past five years. The use of (electric) bicycles can be advantageous for several reasons. In addition to environmental aspects, there may also be tax advantages to using (electric) bicycles compared to conventional motor vehicles.
Classification under German traffic law
An electric bicycle is treated the same as conventional bicycles, provided that it:
- is equipped with an electric pedal assistance (up to 25 km/h) with a nominal continuous power of no more than 0.25 kW, or
- has an independently accelerating so-called starting or pushing aid (up to 6 km/h).
If the electric bicycle does not meet these requirements, it must be classified as a motor vehicle under traffic law. In this case, benefits for electric motor vehicles may be applicable. This blog article provides an overview of the income tax as well as VAT treatment of (electric) bicycles, which are not motor vehicles under traffic law, as of the 2019 assessment period.
Use by employee
Cession to employee
The taxation of the transfer of a company bicycle to an employee for journeys between home and the first place of work or equivalent journeys as well as private journeys depends on the contractual arrangement.
The following can be considered as contractual models for the transfer of use:
- Wage increase (i.e. transfer as additional remuneration), or
- Salary conversion (e.g. if the employee waives part of the cash salary in return for the transfer), or
- special legal relationship (i.e. contract without dependence on employment relationship, exceptional case).
Taxation of wages
If the company bicycle is provided to the employee in addition to the wages owed anyway, this transaction will generally not result in taxable wages (fringe benefits) as of the 2019 assessment period. This benefit is limited in time and is applicable for the last time in the assessment period 2030.
The interpretation of the term “in addition to the wages owed” was the subject of several disputes before the German Federal Fiscal Court (Bundesfinanzhof, BFH). The BFH has ruled that the additionality criterion can be met in all contractual models described under “Provision of employees”, irrespective of whether the employee is entitled to the additional remuneration under employment law. The prerequisite, however, is that the additional remuneration is paid for a specific purpose in addition to the remuneration that is owed anyway. If, on the other hand, the additional payment is offset against the unchanged agreed wages, the criterion of “in addition to the wages owed in any case” is not met according to BFH case law. The legislator has now reacted to the change in case law with the Annual Tax Act 2020 and clarified for benefits from January 1, 2020 that salary conversions do not fulfill the additionality criterion.
If the criterion “in addition to the wages owed anyway” is not met in an individual case, the above-mentioned tax exemption is not applicable. In these cases, the time of the first transfer is decisive for determining the taxable remuneration in kind. In the event of a first-time transfer before 1.1.2019, the determination of the salary must be made accordingly. If the employer provides the employee with the company bicycle for the first time after Dec. 31, 2018 and before Jan. 1, 2031, the monthly average value of the private use (= remuneration in kind) shall be determined as 1% of the halved recommended retail price of the manufacturer, importer or wholesaler rounded down to full hundred euros in calendar year 2019 and as of Jan. 1, 2020, 1% of the quartered recommended retail price of the manufacturer, importer or wholesaler rounded down to full hundred euros at the time the bicycle is put into operation, including VAT.
VAT treatment of the provision of bicycles to employees is based on the general principles depending on the respective contractual arrangement. In cases of salary conversion or wage increase, the sales tax is to be determined on the basis of the total costs of the employer (including VAT). This value is a gross value from which VAT is to be deducted. If the bicycle is leased to the employee by way of a special legal relationship and the employee reimburses the employer for the leasing installments, the value-added tax is to be assessed on the basis of the remuneration paid by the employee.
Deduction of business expenses by employee
If an employee uses an (electric) bicycle provided by the employer for journeys between home and the first place of work, the employee may claim EUR 0.30 per full distance kilometer as income-related expenses for each working day, up to a maximum of EUR 4,500 per year.
The deduction of income-related expenses for travel between home and the first place of work is also possible if the provision of an e-bike has not resulted in any taxable income.
If the employee also uses the provided bicycle for external activities (= work-related journeys that are not journeys between home and the first place of work), no flat-rate determination of income-related expenses is possible. The background to this is that the current Federal Travel Expenses Act does not provide for a flat-rate mileage allowance. As a result, an income-related expense deduction for travel expenses for out-of-town activities is only possible if the employee provides evidence or credible proof of the costs incurred.
Charging at the employers’ premises
If the employee’s electric bicycles are charged free of charge or partially free of charge at the employer’s premises or those of an affiliated company, this generally results in taxable remuneration in kind. However, in deviation from this principle, these benefits granted by the employer do not constitute taxable wages according to the administrative opinion.
Allocation to business assets
If an e-bike is used for business purposes, it must be examined whether it can or must be allocated to private assets, to the so-called optional business assets or to the necessary business assets.
If an e-bike is used for business purposes to a degree of more than 10 %, but no more than 50 %, it can be allocated to private assets or to the optional business assets. The possible allocation to the optional business assets must be documented in an unambiguous manner by means of records prepared in a timely manner.
An e-bike must be allocated to business assets if the business use is more than 50 % (= necessary business assets).
Use for journey between home and business premises
If the e-bike is allocated to the necessary or optional business assets, the expenses incurred in connection with this asset constitute business expenses. If an entrepreneur also uses a business bicycle for journeys between home and business premises, the expenses incurred in this connection are already recognized as business expenses. An additional deduction of the commuting allowance is not possible.
Private use of a business (electric) bicycle constitutes a non-taxable transaction as of the 2019 assessment period. As a result, no taxable withdrawal of use that increases profit is to be determined. This benefit is limited in time and is applicable for the last time in the 2030 assessment period.
The use by the entrepreneur of a bicycle assigned to the business assets subject to VAT for private trips results in a so-called gratuitous transfer of value, provided that the entrepreneur was able to deduct the input tax amounts in full or in part from the acquisition costs. The VAT of the free transfer of value is to be determined on the basis of the expenses incurred with full or partial input tax deduction (including the acquisition costs).
Special depreciation on cargo e-bikes
Bicycles are depreciable, movable assets. If they are allocated to business assets, the acquisition costs can generally be claimed by way of straight-line depreciation, provided they are intended to serve the business permanently (= fixed assets).
For new electrically powered cargo bicycles acquired after December 31, 2019 and before January 1, 2031, a special depreciation in the amount of 50% of the acquisition costs is eligible in addition to the straight-line depreciation in the year of acquisition. The prerequisite is that these business assets are fixed assets and that the data required for depreciation are electronically transmitted to the tax authorities in accordance with officially prescribed data records.
This new special depreciation for electrically powered cargo bicycles will only come into force after the European Commission has determined whether the scheme constitutes aid that is compatible with the EU market or not.
Feel free to contact us.
Photo: Ali Galen Crout, Unsplash
Disclaimer: We assume no liability for the accuracy or completeness of the information. The information provided here does not constitute a recommendation for action.