“Most companies don’t even realize they’re accounting for these costs incorrectly, and that can lead to significant tax risks,” warns Zsolt Nyári, managing partner at K-X Consulting and a certified tax expert.
In Hungary, the private use of company-owned vehicles is currently a tax-free fringe benefit for employees. This includes not only the car itself but also fuel costs and motorway toll stickers. In other words, an employee can take the company car for a weekend getaway to Lake Balaton without triggering a tax bill for themselves or their employer. These private use costs are fully deductible for corporate tax purposes.
However, it’s a common practice for businesses to impose a cap on private use, often with a set limit, such as 500 km per month. If an employee exceeds that, they must reimburse the company for the extra kilometers. This is where things often go wrong.
“When companies ask employees to pay for this extra private use, they frequently just treat it as a reimbursement, without realizing that, from a VAT perspective, they’re actually providing a taxable service,” explains Nyári.
“Legally, they should be issuing an invoice to the employee for the private use, including VAT, and paying that to the authorities. If they fail to do that, they could end up with a significant VAT liability and face fines for not issuing the correct invoices.”
These VAT headaches extend beyond personal use. When an employee damages a company car, and the company passes on the insurance deductible, either partially or entirely, that can create VAT issues as well. Many firms mistakenly treat this payment as compensation and skip charging VAT. But European Court of Justice case law is clear: these payments are considered services and are subject to VAT and invoicing requirements. The stakes get even higher if the company doesn’t own the car but leases it from another business and has to pay the deductible themselves. Fuel accounting can also be a significant source of confusion.
“Selling fuel to employees is technically a licensed activity in Hungary, so if a company invoices an employee for fuel, they have to consider whether they need a special fuel-trading license,” Nyári points out. “There’s also the question of whether the VAT on the fuel purchase can be deducted in that case. If the company uses a fuel card, the situation gets even more tangled.”
The growing popularity of electric vehicles only makes these VAT issues more complex. Increasingly, companies not only provide electric cars to employees but also pay to install charging stations at their homes.
“When it comes to the VAT consequences, company policies about home charging stations are critical,” Nyári says. “What happens if the employee leaves the company? Will the company uninstall the charger, regardless of the cost? Will they sell it to the employee or simply give it to them for free and then handle the tax implications? If companies don’t plan for these scenarios, they could be in for a nasty surprise.”
Another emerging question is how to handle reimbursements for home charging. How much and at what price can an employer pay back an employee for the electricity they use? Should they use an average cost? And what if the employee has solar panels? What can they claim as a legitimate expense in that case?
The complications don’t stop there. Nyári highlights another scenario: “What happens if employees or clients charge their personal electric vehicles at the company’s charging station? If that’s free, it’s effectively income for them.
But how do you account for it from a tax perspective? What VAT do you charge, and at what price? Can you base it on the company’s actual costs for providing the charging, or do you have to look for a market price to avoid tax issues?” These questions can quickly snowball, and the correct answers usually depend on the specific situation.
It’s clear that dealing with VAT for company cars is a high-stakes area, especially when it involves mixed-use or personal benefits. It’s not just companies that provide cars to employees that encounter problems; even firms that lease vehicles to other businesses often make mistakes here. Frequently, companies lack clear internal rules or documentation for how company cars are used, which only adds to the tax risk.
“Poor practices can also put a company’s ability to deduct VAT at risk,” Nyári stresses. He warns that getting these issues wrong isn’t just a matter of administrative headaches.
“There are real financial consequences if the tax authority finds errors. That’s why it’s so important to take a close look at your current processes, identify the gray areas, and clear them up as soon as possible. That way, you can ensure that there are no lingering risks tied to company car use,” Nyári concludes.
This article was first published in the Budapest Business Journal print issue of June 16, 2025.
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