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Gábor Fajcsák

Tax benefits of electric company cars

Electric car related tax allowances also prompt companies to buy e-cars. There is no vehicle tax, registration tax, company car tax, and the purchase is also exempt from the duty on onerous transfer of property while car users can enjoy the benefits of having a green number plate.

The perception of electric cars is mixed nowadays. The undisputed benefits of electric passenger cars are well known: e-cars pollute the environment much less than internal-combustion engine driven vehicles and they are easier to maintain and repair than their traditional "competitors" due to the fewer number of parts that may break down. In addition, for a long time, the charging of e-cars was also free of charge at the public charging stations. However, these vehicles also have their disadvantages such as their higher price, the current capacity of the batteries necessary for driving electric engines and the limited range due to the low number of charging stations or the longer charging times. 

In recent years, an increasing number of employers decided to provide employees with company cars due to the narrowing down of the favourably-taxed benefits in kind which may be provided and recently also in order to reduce COVID-19 infections. Buying electric cars should, by all means, also be considered by companies from a tax perspective due to favourable Hungarian regulation (not only by individuals due to the special allowances coming with e-cars). 

Which vehicle considered an e-car?

Before describing specific tax allowances, first we have to specify exactly which types of cars fall in the category of electric vehicles. 

Hungarian regulation classifies as electric vehicles: 

  • the so-called plug-in hybrid cars which may be connected to the external network and have a larger battery than older type hybrid cars and are able to drive 25 kilometres on electric power; 
  • increased range hybrid cars which require fuel in addition to power for driving and which are able to drive up to 50 kilometres on electronic power; 
  • fully electric cars having only electronic engines and able to drive several hundreds of kilometres on a single charge. 

Pursuant to the relevant Hungarian legal regulation*, these vehicles qualify as eco-friendly cars and are eligible for using green number plates. The classification of the cars should also be considered as the tax allowances detailed below are only available for vehicles of the environmental category no. 5. 

Electric car related tax allowances

The following allowances relating to electric cars are also attractive for companies: 

  • Authority registered owners of e-cars are exempt from the obligation to pay vehicle tax. 
  • No registration tax is payable at the time of entry into service of electric cars. Note that older type hybrid cars mentioned above are not eligible for this benefit. The registration tax for entering an older hybrid passenger car into service is 76,000 forints. 
  • According to the Act on Duties in force, the sale and purchase of electric cars and the acquisition of property rights relating to such cars is also exempt from the obligation to pay duty on onerous transfer of property. 

In addition to the above, businesses also enjoy exemption from company car payment obligation in respect of the electric cars owned or leased by them. 

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VAT and corporate tax allowances for electric cars

No special rules relate to electric cars from a VAT perspective as the Hungarian VAT Act does not differentiate between vehicles based on their drive but classifies them only according to their customs tariff codes as passenger cars (customs tariff code 8703) or trucks (customs tariff code 8704). 

However, according to the rules of VAT deduction, the VAT on vehicle charging is deductible in the case of electric trucks. 

In terms of corporate tax, a further relief for businesses is that the tax allowance on investments and renovations serving energy efficiency may also be applied on the purchase of electric cars (Section 22/E of the Corporate Tax Act) provided that the relevant conditions are fulfilled. Companies must, however, pay attention to the fact that the tax allowance relating to investments and renovations serving energy efficiency may not be applied together with development tax allowance when purchasing an electric car. 

Although these are not the most substantial arguments for purchasing of an electric company car, in addition to the benefits detailed above, green number plate cars may also park free of charge at a number of locations and they may also enter certain protected zones. Businesses should consider all aspects and calculate the most favourable solution for the company before extending their vehicle fleet.

*Decree No. 6/1990 (IV. 12.) of the Minister for Transport, Communications and Construction
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