How will the taxation of company cars change in 2025?

Measures to gradually reduce the tax advantages for vehicles with combustion engines were introduced in 2022 and reinforced in July 2023. The next (and perhaps last?) reinforcing measure could take place on 1 January 2026: from this point on, the purchase or leasing of a company car with CO₂ emissions will no longer be tax deductible.

At Arval, we closely follow European corporate mobility trends through our Arval Mobility Observatory Barometer. This shows that there is generally still some reluctance to buy or lease electric cars, especially due to the high purchase price.

However, when we consider the cost of purchase or leasing, in addition the maintenance and consumption costs and taxes as part of a total cost of ownership (or TCO) analysis, it turns out that in the long term many electric cars are cheaper than fuel-powered cars. Choosing an electric car is therefore not only more environmentally friendly, but also a financially sound and cost-saving investment.

Several mechanisms are working against fossil fuel cars and thus making them less attractive: the tax deduction is systematically being reduced while the CO₂ tax, or solidarity contribution, is increasing. In addition, fossil fuel cars have a higher benefit in kind than cars without CO₂ emissions, which has a cost impact for both the employee and the employer.

The tax deduction in detail

The tax deductibility depends on when the car was purchased:

1. Only fossil fuel vehicles purchased before 1 July 2023 will retain the tax deduction according to the existing formula.
2. For vehicles purchased between 1 July 2023 and 31 December 2025, the deduction will be further reduced year on year:
   • The maximum deduction is 75% in 2025, 50% in 2026 and 25% in 2027. In 2028 the deduction will lapse altogether.
3. Electric vehicles purchased before 1 January 2027 remain fully deductible. If you buy a new electric vehicle after that date, the deductibility will also gradually decrease:
   • The deduction will be 95% in 2027, 90% in 2028, 82.5% in 2029, 75% in 2030 and 67.5% in 2031.

In addition to the maximum tax deduction, there was also a minimum deduction. In 2024, it was 50% (or 40% for vehicles with emissions of 200g/km or more). However, this regulation will cease on 1 January 2025, with the result that high-emission vehicles (such as diesel cars with emissions of 240g/km or more, or petrol cars with emissions above 253g/km) will no longer be deductible at all from that date.

Increase in CO₂ tax

A second mechanism to make company car fleets greener is to increase the solidarity contribution (or CO₂ tax) for fuel-powered cars. This is done by systematically increasing the (non-indexed) minimum contribution each year. Since 1 July 2023, the CO₂ tax has been multiplied by an increasing factor of 2.25. In 2025, this factor will stand at 2.75. In 2026, it will further increase to 4. From 2027, this multiplier will be as high as 5.5.

Extension to tax on legal entities

Until now, the limited tax deductibility for expenses only applied to corporate income tax. From 2026, this restriction will be extended to organisations subject to tax on legal entities. As a result, foundations and non-profit organisations will also face additional taxes on the costs of vehicles allocated to their staff members. The tax rate in this regard will amount to 25% (corporate income tax rate).

Euro 6e-bis standard for plug-in hybrids

A final change at European level that will have an impact is that from 1 January 2025, the Euro 6e-bis standard will come into effect for newly homologated plug-in hybrid models. This standard means that the new plug-in hybrids will be tested more rigorously in order to obtain a more realistic (and in many cases higher) representation of their CO₂ emissions. In addition, a 'utility factor' is applied to these CO₂ emissions, based on how much you can actually drive the hybrid vehicle on electric.

As our current taxation and CO₂ contribution are based on the CO₂ emissions, these new test standards will make plug-in hybrids even less attractive as company cars.

We therefore conclude that, now more than ever, it is worth opting for an electric car when leasing or buying a company car, as it is much more economical over the full-service life of the vehicle.