Five ways to save labour costs by electric charging – Green Mobility for employers (part 3)

Why should companies implement a Green Mobility strategy? 

In this series, we aim to explain the tax implications of green mobility in the context of sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). Companies that are required to create a sustainability report face the challenge of not only taking on ecological and social responsibility but also presenting this in a transparent manner. Specifically, employers affected by the CSRD are obligated to measure and report the CO₂ emissions of their employees, as these are classified as significant Scope 3 greenhouse gas emissions according to the European Sustainability Reporting Standards E1-6. The ESRS provide detailed guidelines for the implementation of the CSRD. While meeting legal requirements is essential, a well-crafted sustainability strategy offers far-reaching advantages. It strengthens the employer’s brand, enhances employee retention and positions the company as an attractive and forward-thinking workplace. Moreover, the targeted integration of green mobility solutions can lead to significant tax and social security benefits.

As a general principle, mobility allowances - whether provided as benefits in kind or monetary contributions - are typically subject to income tax, Value Added Tax (VAT) and social security contributions. However, in the realm of sustainable mobility, numerous preferential treatments are available. We are going to demonstrate how companies can not only contribute to the reduction of CO₂ emissions through specific initiatives but also optimise their fiscal burden while fostering a modern, environmentally conscious work environment.

In the first two articles in this series, we highlighted the tax advantages of an electric company cars – whether provided to individual employees (company car, employee discount) or to all employees (car sharing). (Hybrid) electric cars are known to consume electricity (more precisely, they convert electrical energy into mechanical energy). There are also a total of five different tax and social security benefits associated with charging these vehicles, which we will discuss below.

Electric charging

The first four options arise from the tax exemptions under Sec. 3 no. 46 of the Income Tax Act (EStG), and flat-rate allowances under Sec. 40 para. 2 sent. 1 no. 6 EStG. The BMF letter dated 29 September 2020 [IV C 5 - S 2334/19/10009 :004] ("BMF letter") is also relevant in practice. These standards are flanked by the voucher regulation in Sec. 8 para. 2 sent. 11 EStG. All these options must be granted in addition to the wages already owed in order to claim income tax advantages. It is important to take this into account when drafting agreements with employees, as a salary waiver or salary conversion would be detrimental.

Charging device at work (see nos. 6–17 of the BMF letter)

Firstly, employers have the option of providing employees with free or discounted charging facilities on company premises, which are exempt from income tax. This regulation is based on Sec. 3 no. 46 EStG, and will apply until at least the end of 2030. For vehicles taxed using the 1% method, income tax exemption is already provided for in Sec. 8 para. 2 sent. 2 EStG, meaning that this will remain in place after 2030. The same applies to social security contributions. It should be noted that the law does not specify any limits on the amount. Employees can therefore use their private cars as much as they want, or as much as their employer allows, without incurring wage tax or social security contributions.

A distinction must be made with regard to VAT:

• For employees who have a company car at their disposal, charging is not subject to additional VAT.
• For other employees, the charging option always constitutes a VATable supply: 
  • Discounted charging constitutes a normal supply in accordance with Sec. 3 para. 1 of the Value Added Tax Act (UStG), which is calculated based of the actual remuneration paid. However, in this case, the purchase price / cost price of the electricity pursuant to Sec. 10 para. 5 no. 1, para. 4 sent. 1 no. 1 UStG represents the lower limit (the so-called minimum assessment basis).
  • In the case of free charging, the tax authorities assume, in any case, that if there is a provision in the employment contract (which is recommended for labour law reasons), this constitutes a barter-like transaction in accordance with Sec. 3 para. 12 sent. 2 UStG. This is to be measured on the basis of the proportionate work performed (cf. order of the Bavarian State Tax Office (LfSt) of 17 March 2021 – S 2234.2.1-122/2 St36 marginal no. 4 based on A 15.23 para. 9 sent. 2 VAT Application Decree (UStAE). Following the principles applicable to the provision of cars, this would be the total employer expenditure, cf. A 15.23 para. 10 sent. 4 and 5 UStAE. However, this view is controversial due to the ECJ ruling of 20 January 2021, case C-288/19. Consequently, the purchase price or cost price is also decisive here due to the minimum assessment basis.

Since the employer generates taxable output supply with the charging facility, they are generally entitled to full input VAT deduction.

Temporary provision of a company charging device (see nos. 18–21 of the BMF letter)

Alternatively, the employer can provide an employee with a company charging device free of charge or at a reduced price for temporary private use (mostly at their private residence). However, the device remains the property of the employer. Sec. 3 no. 46 EStG also exempts this from income tax and social security contributions, but only in relation to the transfer of use. The electricity consumed (by the employee via a company charging device) is not covered by the tax exemption.

The VAT treatment is similar to that of the charging device at work. The only difference is that providing a discount to employees without a company car is classified as a service under Sec. 3 para. 9 UStG. This means that the net acquisition costs of the charging device, spread over five years, must also be included in the minimum assessment basis pursuant to Sec. 10 para. 5 no. 2, para. 4 sent. 1 no. 2 UStG, provided that these costs amount to at least €500. In this case, the employer is also entitled to deduct input VAT.

Reimbursement of electricity costs for company cars (see nos. 22–26 of the BMF letter)

For employees who are permitted to use a company car, the question arises as to what happens to the electricity costs they pay out of their own pocket. This mainly affects individuals who have a charging device at home (either their own or provided by their employer) or who charge the vehicle elsewhere at their own expense. The starting point is the principle that the employer must cover all costs associated with the company car. If an employee pays electricity costs for the vehicle, these are generally deducted from the taxable benefit for the provision of the motor vehicle (see the ruling of the German Federal Court of Finance of 30 November 2016 – VI R 2/15) for the respective month by way of offsetting. This reduces wage tax and social security contributions accordingly. These costs must be accurately determined and documented. This can be particularly challenging if the employee's private charging device does not have its own electricity meter.

A significantly higher saving effect can be achieved if the employer reimburses the employee's expenses free of tax and social security contributions in accordance with Sec. 3 no. 50 EStG. In this case, the employer would also need to determine the exact amount of the costs. However, in the BMF letter, the Federal Ministry of Finance has stated that employers can reimburse employees with monthly lump sums until 31 December 2030. The amount repaid depends on the type of vehicle and whether the employer has an additional charging device, such as an electricity tank card.

These are maximum amounts, so employers can also reimburse less. Higher costs can be reimbursed with proof, but this should be checked on a case-by-case basis as the flat rates are comparatively low. By way of comparison, for an electric vehicle with an electricity consumption of 20 kWh per 100 kilometres (without an additional charging device at the employer's premises) and an electricity price of €0.40/kWh, the €70 limit would be reached with a monthly mileage of just 875 kilometres. This includes all kilometres travelled, i.e. private journeys too.

If the employer does not refund expenses, but instead sets them off against the costs, the VAT base does not change. This is because costs paid by the employee form part of remuneration in barter-like transactions, as defined in Sec. 3 para. 12 sent. 2 UStG. If the employer reimburses expenses instead, the question of input VAT deduction arises. According to Sec. 15 para. 1 sent. 1 no. 1 sent. 2 UStG, this generally requires an invoice issued to the employer. From 2028 at the latest, this invoice must be electronic. However, as electricity charging transactions generally involve amounts of up to €250, the service recipient does not need to be specified under Sec. 33 of the German VAT Implementation Regulation (UStDV), meaning that the e-invoicing requirement will not apply from 2028 onwards. Ideally, therefore, the invoice document should not name either the employer or the service recipient.

Transfer of ownership of a charging device or subsidy (see nos. 27–31 of the BMF letter)

Another option for charging devices is to either transfer ownership of a charging device directly to the employee or subsidise the costs. 

Overall, there are four different options here:

In this case, the resulting wage is taxed at a flat rate of 25%, rather than at the personal tax rate, in accordance with Sec. 40 para. 2 sent. 1 no. 6 EStG. The employer pays the flat-rate tax, which should be taken into account when making calculations. At first glance, a tax rate of 25% may seem to benefit only high-income employees. However, this is not the case: the advantage of flat-rate taxation lies in particular in the fact that, according to Sec. 1 para. 1 sent. 1 no. 2 of the Social Security Remuneration Regulation (SvEV), no social security contributions are payable. When wage tax, employee and employer contributions are added together, many employees face a tax burden in Germany of around 40-50%. Flat-rate taxation therefore results in significant overall savings, which, in an ideal scenario, can be shared between employers and employees. 

A special feature of use-related expenses is that they are not incurred only once. Therefore, the employer may pay flat-rate monthly allowances if the employee can prove their expenses for a representative period of three months.

The following is to be used as a guide when it comes to the four scenarios and VAT purposes:

• In the case of free transfer of ownership of the charging device, the employer must pay VAT on the free transfer of value in accordance with Sec. 3 para. 1b sent. 1 no. 2 UStG or they employer must not have claimed input VAT deductions from the beginning. This depends on whether it is certain at the time of receipt of the service that it will be passed on to the employee, cf. A 15.2b para. 2 sent. 6 UStAE.
• In the case of the transfer of ownership of the charging device at a reduced price, the employer is entitled to an input VAT deduction when the service is received. The onward delivery is taxable, taking into account the minimum assessment basis, see above.
• The subsidies have no effect on VAT.

Voucher scheme (electricity voucher for e-charging stations)

The last option arises from Sec. 8 para. 2 sent. 11 EStG, which we mentioned in our second article in the series on car sharing. Provided that the €50 non-cash benefit limit has not yet been reached, employers can provide their employees with vouchers for e-charging stations, in the same way that they provide vouchers for traditional fuel for combustion engines. These vouchers are exempt from wage tax, social security contributions and VAT, although the charging process is subject to VAT for the employee.

Please note that receiving vouchers for electric car charging stations reduces the flat rate reimbursement for electricity costs for company cars (nos. 22–26 of the BMF letter), see above.

Conclusions

The German legislator has created a cornucopia of benefits in the area of electric charging from which companies of all sizes can profit.

• On the one hand, the company charging station stands out because the benefits are unlimited. makes it particularly suitable for carpooling for all employees. Incidentally, for income tax purposes, a charging device can be depreciated on a straight-line basis over any period between six and ten years. With the investment booster that came into force on 1 July 2025, you can also currently opt for declining balance depreciation.
• The tax authorities accept this expense allowance, which can be combined with the provision of a company car in an effective and uncomplicated manner.
• In addition, transferring ownership of or providing a charging device is an efficient way of offering targeted incentives to individual employees.
• This is reinforced by the voucher scheme. 

While the VAT treatment can be complex, it can be managed through forward-looking contract design. Overall, the ability to offer charging benefits in addition to providing an electric vehicle is a significant advantage. In our next article, we will explain the tax incentives available for alternative modes of transport, such as bicycles, pedelecs and e-bikes.

Special thanks go to our research assistants Freeke Tasman and Lara Salomon, as well as our intern Clara Schoebel, for their valuable support in writing this article.

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The above information is for informational purposes only and does not constitute legal or tax advice.