Many GmbH shareholders purchase a company car through their GmbH, which is sometimes also available for private trips. Income tax law takes these private trips into account as monetary benefits that the GmbH grants in addition to the general manager’s salary. So does a company car always require taxation at shareholder level? Well, we know of an alternative with which you do not pay tax, but end up even better financially. The trick here is that as a GmbH shareholder you buy a company car privately and then leave it to your own GmbH via a rental (or lease).

1. Rental of a company car by GmbH shareholders – Introduction

Most GmbH shareholder managing directors use a company car through their company – both for business and private trips. Often enough, these are cars of upscale price ranges, which should also reflect a certain company success. Corporate success is generally equated with solid business relationships, so that someone who drives up with a high-quality company car is considered reliable and trustworthy.

So there are good reasons for entrepreneurs to use a company car corresponding to the business and social environment. And since the GmbH can set the operating costs for the car in its tax return to reduce taxes, you also have a tax advantage on your own side.

But wait, that's a little premature. After all, the legislator knows all too well that entrepreneurs like to use their company car for private trips. There should be no tax deductions for such purposes. Otherwise, employees could also insist that their private trips also have a positive effect on the taxation of their income. However, costs for private living are logically excluded from the approach for any taxes, otherwise it would be a state subsidy.

So now the conclusion could already be that a company car offers advantages, but also leads to taxation. At this well-prepared point, we now offer a much more interesting alternative. So please allow us to give you an example of how you can give your own company an advantage with your dream car and also benefit from it privately.

2. Company cars for GmbH shareholders: which is your dream car?

Before we get into the matter, however, we want to charge your interest a little at the pump or wallbox of your imagination. We ask you which car would you like to drive? To support our further project, it is best to choose a car with a new price between EUR 100,000 and EUR 200,000. Is it a Porsche, a Mercedes-Benz, a BMW, an Audi? Or maybe they love more Italian models, a Ferrari, Maserati or Lamborghini? And for the slightly cooler taste that radiates understatement, maybe a Jaguar, Range Rover, Aston Martin or a Bentley would be available. Who knows, maybe even one or the other among our readers thinks about a lavishly equipped Volvo, which impresses with its noble Scandinavian design.

No matter which model you choose in this choice, one aspect should definitely be considered. Your dream car should be a purchase that, if at all, will only show a small loss in value in the first years of use. Ideally, the value of the car even increases. Because we would like to use a possible increase in value, but more on that later.

In order to illustrate our calculation example clearly, we set ourselves a purchase price of EUR 180,000. In our example, we have the legitimate hope that the value of the car will increase by a good EUR 20,000 within six years. But even with a moderate loss in value, the advantage of our design model should clearly come to light.

3. Our design: company car rental by GmbH shareholders

3.1. Objectives of our design

The primary goal of our design is that a GmbH shareholder-managing director should not pay tax on the use of the company car. Nevertheless, he or she should be provided with a high-quality company car that also fulfills representative functions. At the same time, however, the GmbH should also bear all operating costs. Another secondary goal is that the future sale of the car is also tax-free. If the sale brings even more money than the acquisition cost, the better.

3.2. Our approach

In order to fulfill all these points, we have to say goodbye to the classic purchase of the company car by a purchase initiated by the GmbH. Although this is a prerequisite for taxing the operating costs, this also means that the GmbH shareholder must pay taxes for private use. Therefore, instead of the GmbH, their shareholder buys the car. So he's using private funds to do that. This sounds like a disadvantage at first, because the acquisition does not create any relation to the operating assets of the GmbH. We now manufacture it via a lease agreement between GmbH shareholder and his GmbH, which we would like to call the rental of the company car. The GmbH thus assumes both the insurance costs and the ongoing operating costs for the company car. At the same time, the GmbH shareholder can also use the company car for private purposes, after all, it belongs to him.

In order to distinguish this partial private use from official use for tax purposes, a journey logbook should be kept over a representative period of at least three months. This evidence thus demonstrates the estimated share of costs incurred at private level. Logically, they should not be taken into account in the calculation of operating costs.

3.3. Tax aspects of renting a company car to your own GmbH

If, however, one decides that the rental of the company car by the GmbH shareholder serves exclusively operational purposes, the GmbH can of course deduct the entire operating expenses from the taxable profit. Then as a GmbH shareholder-managing director you drive the dream car purely on duty and still have fun.

The fantastic thing is that the GmbH shareholder also receives rental fees for it by renting the company car. Parallel to the deduction of operating costs at the level of the GmbH, the GmbH shareholder can also make the depreciation of the acquisition costs. For a high-quality car, the depreciation over the general service life of six years is logically relatively high. This means that the income tax on rental income should be at best low. For a GmbH shareholder, this design is therefore quite advantageous.

4. Bonus after renting the company car to the GmbH

4.1. Why the private sale of the company car is tax-free

Now let’s get to the sunny prospects that await us when the company car, after being written off, is now for sale. Because despite the depreciation, the company car still has a considerable residual value. Either this is only slightly below the new price or even above. If the GmbH had bought the company car, it would have to pay taxes on the residual value over the entire period of use after the depreciation. But through the private purchase of our GmbH shareholder, the company car is in the private assets instead of in the operating assets of the GmbH. Here, the taxation when selling the car takes place other rules.

In income tax law, the profit from the sale of everyday goods is always tax-free (§ 23 (1) sentence 1 number 2 sentence 2 EStG). There is therefore neither a blocking period nor any other restriction. Of course, a car is always considered an object of everyday use. In addition, there is no risk for a company car that the rental by the GmbH shareholder triggers a division of operations. After all, a car is not a necessary operating asset. Those who do not have or can or want to use a car can still travel with other means of transport.

4.2. Sale of the company car after rental

So our GmbH shareholder now sells the car under ideal conditions after six years for EUR 200,000. He generates a profit of EUR 20,000 through the sale alone. If he has received EUR 30,250 per year for the rental of the company car to his GmbH in previous years, but at the same time was also allowed to apply EUR 30,000 in depreciation, EUR 250 remains taxable per year. But even this surplus is spared by the income tax. Section 22(3) second sentence of the EStG provides for an exemption of EUR 256 for rental income. With EUR 250, we are below this threshold, so that this amount also remains tax-free.

By renting and selling the company car, our GmbH shareholder can thus achieve a total tax-free income of EUR 201,500. And this, even though the car initially cost him only EUR 180,000. We did not take into account the tax advantages of deducting operating expenses at the GmbH level. They are added again, but depend on their actual height. However, we did not want to make any assumptions for this, because the use should vary very individually.

5. Rental of a company car by a GmbH shareholder – Conclusion

So our design serves several purposes. On the one hand, it makes it possible to dispense with the otherwise usual private removal via the flat-rate 1% rule or the complicated journey log method. So there is no tax for our GmbH shareholder managing director. Nevertheless, an exclusive car is available to him as a company car. Even if he drives it purely on duty, he benefits from this luxury. Sure, that means that he probably also buys a car for private use, but that is often not a real obstacle. Then you drive privately just another dream car. Why should you be happy with just one if you can have two?

However, our design model achieves the greatest advantage with the rental and sale. Both are practically tax-free. This way you can finance the next dream car.

If you want to point out that even among the dream cars manufactured today, there may be few that gain in value right after their purchase, we refer to classic cars and other cars that were designated as classics at an early stage. There are many models whose value will continue to increase in the future. Have fun choosing your dream car!