Company bicycles: Austrian Ministry of Finance (BMF) and Austrian Health Insurance Fund (ÖGK) provide additional information on company bicycles as popular employee benefits
Company bicycles have become increasingly popular. This is largely due to their positive impact on the climate and tax benefits. In this article, we will look into the tax treatment of lease instalments for employers and employees, as well as the option for takeover after the end of the lease term.
Current lease instalments for the employer
Basically, employees are not subject to any restrictions as to the choice of the company bicycle, they may choose e-bikes, racing bikes, mountain bikes, gravel bikes, etc. The employer concludes the leasing contract as lessee, and therefore has the right to input VAT deduction regarding the lease instalments. According to the information provided by the BMF, this also applies when the employee uses the company bicycle exclusively for private purposes because such a transfer of use to the employee qualifies as a taxable transaction. According to the Regulation on the Values of Benefits In Kind (Sachbezugswerteverordnung), however, the benefit in kind is to be recognised at a value of zero, which is why de facto, no value added tax or tax for private consumption is charged. It is not necessary to keep journey logbooks for evidence.
Conversion of salary for employees
The most favourable solution for the employee is to pass on the net lease instalments as a conversion of salary. No benefit in kind is to be recognised for transfers of use. It is advisable to settle in the employment contract whether the salary conversion reduces solely the monthly salary payments and special payments (vacation bonus and Christmas bonus) remain unchanged. As a consequence, the annual sixth (“Jahressechstel”) might be exceeded. The reduction of the monthly salary payments reduces the contribution base for social security contributions (according to information provided by ÖGK). The passing on of lease instalments must not result in a reduction of the salary after conversion to an amount below minimum wage according to collective bargaining agreements. It is therefore advisable to define a maximum purchase price for employees to ensure that the lease instalments are not too high. On the employer side, the salary conversion results in a reduction of non-wage labour costs.
As a result, the employee will profit from the tax-free use of the bike (passed-on lease instalments are deducted from the gross wage) and the subsequent option for takeover. In general, the level of salary conversion is independent from the lease instalment amounts and may be agreed upon freely. Tax benefits will apply even if no costs or only parts of the costs are passed on.
Option for takeover after the end of the lease term
After the end of the lease term, the employee usually is offered the opportunity to acquire the bicycle at a residual value, which is to be compared to a reference value. There are currently two accepted reference values:
- Taxable book value (minus 20%) for a period of use of 5 years. Example: Takeover after 4 years: 20% residual value – 20% deduction: 16% of the original purchase price
- Terminal value: Manufacturer’s/Wholesaler’s SRP (rounded down to a full EUR 100) incl. VAT, less 20% per year of use
If the residual value is below the reference value, this benefit qualifies as a benefit in kind subject to wage tax and to VAT.
If the employee purchases the bicycle at the residual value corresponding to the reference value, this transaction is subject to VAT in any case, but not to wage tax. First, the employer purchases the bike from the lessor with input VAT deducted and sells the bike to the employee charging VAT.
Conclusion
To sum up, in principle no additional costs arise for the employer, and the employees get to profit from an attractive employee benefit offering tax advantages.
Authors: Alexander Koll, Bernhard Frei, Peter Draxler
