Car taxes 2021: Overview of changes

Get an overview of the new taxation rules that were passed on February 9th, 2021, which will have an impact on you as a driver of a company vehicle.

The new political bill on car taxes was passed on February 9th, 2021. The majority of the changes in the car taxation rules will be effective from this year and in effect for the next five years. The Government’s objective is to increase the number of green cars on the Danish roads. Therefore, many of the new rules aim to motivate more people to choose electric cars and plug-in hybrid cars over conventional diesel and petrol cars as well as non-chargeable hybrid cars.

Below is an overview of the new rules, which will have an impact on you as a driver of a company vehicle.

  1. The car’s CO2 emissions will form a basis for the registration tax and thereby the technical market value of the car, which in turn affects the taxation base.
  2. From 2025, the taxation base will be calculated as 22.5 % of the car’s total value, but this will be enforced gradually from July 1st, 2021.
  3. Between 2022 and 2026, the motor vehicle tax will gradually increase, and the environmental fee will rise to 250 % from July 1st, 2021, after which it will continuously increase further until 2025. Therefore, the car’s CO2 emissions will henceforward have a significant impact on the car’s - and thereby the driver’s - taxation base.
  4. Taxation of employer-funded electric vehicle charging stations at the employee’s private address will be waived from July 1st, 2021, and a temporary battery deduction will be introduced.
  5. The 2020 rule regarding adjustment of the taxation base upon recalculation of the registration tax is still in effect in 2021.
  6. The 2020 tax deduction on electric cars and plug-in hybrid cars will not be continued in 2021.
  7. A tax exemption on electric cars up to DKK 488,000 will be enacted.
  8. The maximum tax for vans over 3 tons will be lowered.
  9. Deductible VAT will be adjusted due to the adjustment of the registration tax.

Each bullet point is elaborated below.

Get an overview of all the applicable rules for taxation, VAT, and ownership tax here.

 

1. CO2 emissions as a basis for the registration tax

Henceforward, the calculation of a car’s registration tax will be based on the car’s CO2 emissions to a greater extent than before. An increase in the registration tax will have an impact on the technical market value of the car, which in turn will affect the taxation base for the car and thus for its driver. The cars will be divided into three categories based on their CO2 emissions: 1) electric cars, 2) plug-in-hybrid cars, and 3) conventional cars. Moreover, a further deduction on electric and plug-in-hybrid cars will be implemented, and the tax on cars within these two categories will be enforced gradually.

These registration rules will apply to cars that are registered on December 18th, 2020, or thereafter. For now, however, all cars are still registered according to the former rules. The taxation base is not presumed to be recalculated until June 1st, 2021, when Motorstyrelsen has had the chance to adjust its systems. This means that the taxation base for new cars that have been or will be delivered between December 18th, 2020, and June 1st, 2021, will be adjusted retrospectively based on the new calculation of the taxes.

Example: The technical market value of a Mercedes E-Class plug-in-hybrid will drop approximately DKK 130,000. Thus, for at driver of this type of car, the company car tax will decrease by around DKK 15,000 yearly.

2. Change in the calculation of taxation base

Currently, the taxation base for a new company car is calculated as 25 % of the car’s value up to DKK 300,000 and 20 % of the value over DKK 300,000. The environmental fee is subsequently added to this.

During the next five years, this calculation method will be phased out gradually, and the change at DKK 300,000 will no longer exist. Starting from 2025, the taxation base will be calculated as 22.5 % of the entire technical market value of the car. This will apply to all company cars and as a result, drivers of company cars with a value up to DKK 600,000 will be paying less in taxes, while drivers of company cars with a value of more than DKK 600,000 will be paying more in taxes.

In the interim period between 2021 and 2025, the phase-out will be implemented by decreasing the 25 % by 0.5 percentage points, while increasing the 20 % by 0.5 percentage points each year starting from July 1st, 2021. This will apply regardless of the registration date of the company car, which means that the taxation bases for all company cars at all companies will have to be adjusted each year until 2025.

Example: For a company car with a technical market value of DKK 400,000, the taxation base of DKK 5,000 will fall from 2025, i.e. a yearly reduction in taxes at up to DKK 2,800.

Who ensures that the taxation base is updated?

NF Fleet will continuously ensure that the taxation base of your company car is correct and visible in My NF Fleet.

The taxation base for all cars, incl. active contracts, will change around the following dates: 01.07.2021, 01.01.2022, 01.01.2023, 01.01.2024, and 01.01.2025. Therefore, please be extra aware of this around these dates.

3. Increase of motor vehicle tax and environmental fee

From 2022 to 2026, the motor vehicle tax will increase:

  • 2022: The motor vehicle tax is increased by 3.0 %.
  • 2023-2025: The motor vehicle tax is increased by 6.5 % every year, i.e., in 2023, 2024, and 2025.
  • 2026: The motor vehicle tax is increased by 10.0 %.

The green tax for motor vehicles registered in July 2021 or thereafter, will be calculated according to a new scale that - similar to the registration tax - will be based on the car’s CO2 emissions.

Furthermore, the current countervailing charge for diesel cars will be increased by DKK 300 (approximately 20 %) on average from 2021.

Until now, the environmental fee for the taxation base of company cars has been calculated as 150 % of the yearly motor vehicle tax. From July 1st, 2021, the environmental fee will increase to 250 % and will thereafter gradually rise to 700 % in 2025. This will apply to all cars regardless of registration date. As this only applies from July 1st, 2021, it can be included when the taxation base for the cars is adjusted (cf. heading 2).

The increase in both motor vehicle tax and environmental fee will have a more significant impact on the taxation base for all cars in the future, but particularly for diesel cars.

Example: Currently, the environmental fee of a Mercedes C-Class is DKK 4,860 (150 % of the yearly motor vehicle tax at DKK 3,240). In 2026, the environmental fee will increase to DKK 34,000, which single-handedly results in an increase of up to DKK 16,500 in yearly taxes.

Electric car example: Currently, the environmental fee of a Tesla Model 3 is DKK 990 (150 % of the yearly motor vehicle tax at DKK 660). In 2026, the environmental fee will increase to DKK 6,300, which results in an increase of up to DKK 3,000 in yearly taxes.

4. Taxation of electric vehicle charging stations and temporary battery deduction

Previously, the value of employer-funded electric vehicle charging stations at the employee’s private address was included in the taxation base for company cars. From July 1st, 2021, this is no longer the case. This means that a driver of a company car will no longer be taxed for having an employer-funded charging station at home. This also applies to existing company cars and charging stations. When a driver has been taxed on the company car for a minimum of six months, the charging station can be transferred to the employee tax free and without any fees.

However, it must be noted that the employer-funded charging station on the private address may only be used to charge the company car. This means that it is not allowed to charge the employee’s private electric or plug-in-hybrid car on the employer-funded charging station for free unless it is defined as an employee benefit.

Moreover, a temporary battery deduction at up to DKK 1,700 per kWh will be introduced (though only up to 45 kWh). This applies to all electric cars and plug-in-hybrid cars until and including 2022. If you are driving a hybrid car that cannot be charged, you will not receive a battery deduction, and thus, the registration tax will be calculated similarly to petrol and diesel cars.

5. Recalculation of the registration tax

In 2020, the Government introduced a rule that required an adjustment of the taxation base of leased company cars delivered on February 1st, 2020, or later, upon recalculation of the registration tax. This rule still applies in 2021. As a consequence, companies with larger car fleets may on a monthly basis have cars that need their taxation base adjusted.

6. Tax deduction on green vehicles from 2020

From April 1st, 2020, a special tax deduction of DKK 40,000 was enforced on both electric and plug-in-hybrid cars, which meant a monthly deduction of up to DKK 3,333 in gross taxes, regardless of registration date. This tax deduction will not be continued in 2021, which has been in affect since January’s pay slip.

7. Taxation on electric cars

Until now, electric cars have been tax exempted if their technical market value was under DKK 400,000. This value has now increased to DKK 488,000. This means that it is possible to choose a more expensive electric car while still avoiding the registration tax.

8. Taxation on vans

The maximum tax for vans over 3 tons will be decreased from DKK 56,800 to DKK 47,000, as the ceiling henceforward will be calculated after the CO2 fee and basic deduction.

9. Regulation of deductible VAT

As a result of the transitional arrangement for the new car taxation, the deductible VAT will be incorrect during the period of transition (cf. heading 1). This is because the taxes in the DMR will be calculated according to the former rules until June 1st, 2021. The new rules are expected to be implemented into the DMR on June 1st, 2021, which is when Motorstyrelsen will presumably be ready to manage the taxes according to the new rules. After June 1st, 2021, Motorstyrelsen will calculate the difference in the registration tax, which will also result in regulation of the deductible VAT.

Which consequences do the new taxation rules have for you?

First and foremost, the changes in car taxes entail that drivers of electric and plug-in-hybrid company cars are catered for. With NF Fleet Electric we have made it easy for you to choose an electric car or a plug-in-hybrid car as your next company car. We are ready with our personal advice and guidance as to which green car is the best suit for you, taking both your needs and the new taxation rules into consideration.

If your company car is a conventional petrol or diesel car, you will experience a tax increase of between DKK 5,000 and DKK 13,000. If your next company car belongs to this category, we naturally also offer our advice on the best choice of diesel or petrol car for you and your finances.

All of our cars have already been recalculated according to the above. We are ready with advice and expertise to ensure that you are taken good care of and feel safe. If you have any questions or need counseling, you are more than welcome to contact your advisors at NF Fleet.

 

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