Electric vehicles and (electric) bicycles - BMF circular letter dated 7 February 2022

To promote climate-friendly mobility, the provision of electric vehicles and (electric) bicycles to employees is subject to preferential wage tax treatment: the 1 % rule may be used to calculate the non-cash benefit, whereby only half or a quarter of the manufacturer's recommended retail price is to be used under certain conditions. In a circular letter dated 7 February 2022, the German Federal Ministry of Finance (BMF) rejects this preferential treatment for VAT purposes, regulates further details of the VAT, and amends the VAT application decree accordingly.

Differentiation between vehicles and bicycles

In its circular letter, the BMF makes a distinction between vehicles and bicycles. The term “bicycles” includes non-motorised models and bicycles with electric motors that are not subject to any licence plate, insurance, or driver’s licence requirements. S-pedelecs are therefore considered to be vehicles, just like electric cars or hybrid cars. 


The BMF clarifies the issue by stating that the personal use of an electric vehicle or hybrid vehicle fully assigned to the company is to be treated in the same way as that of other vehicles. Accordingly, if the vehicle was entitled to input VAT deduction, VAT must be paid on a benefit in kind with the value assessed based on the expenses but may also be determined on a flat-rate basis using the 1 % rule.  The value determined in this way is a net amount. 

Bicycles - personal use by the entrepreneur

To simplify things, the 1 % method may also be used for the personal use of bicycles assigned to the company.  Another VAT-compliant method may also be chosen, but the logbook method is ruled out because the bicycle has no tachometer. A deduction of 20 % may be made here for expenses not charged with input VAT. The value determined in this way is a net amount.

Compared to the monthly leasing rates, the lump sums calculated in this way are generally much more favourable because the leasing rates for bicycles are usually based on a short period of use and are therefore quite high on a monthly basis. 

Bicycles - provision to employees

If an employer provides its staff with a bicycle (also) for personal use, the current administrative opinion is that this is not a free transfer of value, but rather a transaction similar to a barter transaction in which the employee performs their work partly for the cash salary and partly for the provision of use. The BMF has not yet considered the fact that, according to the ECJ ruling in the "QM" case, this should only apply to the case of a quantified salary waiver (see below). The value of the transfer of use is assessed based on the value of the pro-rata work performance, which in turn is measured according to the value of the transfer of use. To simplify things, this can be calculated using the 1 % rule for bicycles, which is based on the recommended retail price - rounded down to the nearest full 100 euros. A flat-rate deduction of 20 % for expenses not charged with input VAT is not permitted. The amount thus determined is a gross value from which the VAT must be deducted. If the bicycle’s value is less than 500 euros, the VAT taxpayer can refrain from taxing this.

No transfer of wage tax benefits

Unlike in the case of payroll wage, the recommended retail price may not be halved or quartered to determine the assessment basis for VAT. The BMF here uses the ECJ case law as an argument, which states that flat rates must be in reasonable proportion to the extent of personal use and thus satisfy the principle of proportionality. If only half or a quarter of the actual value were applied, the entrepreneur would be given preferential treatment that does not correspond to the actual circumstances.

Entrepreneurs thus have to perform two different calculations for wage tax and VAT - with a correspondingly high administrative effort.

Principles from the ECJ "QM" ruling not yet taken into account

The circular letter of February 7, 2022 did not consider the possible effects of the ECJ ruling of January 20, 2021 in the "QM" case (C-288/19). In its ruling, the ECJ did not consider the free transfer of a vehicle to be a rental. You can find more details here on our website. There may be a further circular letter on this topic once the discussions between the supreme tax authorities of the federal states have been concluded.

(Dated: 17 March 2022)