Tax Spotlight on Electric and Hybrid Vehicles

Are Electric Vehicles an Investment Booster?

The “Act for an Immediate Tax Investment Programme to Strengthen Germany as a Business Location” (Gesetz für ein steuerliches Investitionssofortprogramm zur Stärkung des Wirtschaftsstandorts Deutschland), of 14 July 2025 raised the list price threshold for electric vehicles to EUR 100,000. Another key benefit for employers: according to § 7 (2a) of the German Income Tax Act (EStG) electric vehicles purchased from 1 July 2025 onwards can be depreciated at 75% in the first year. But what should be considered? 

1. Hybrid or Electric Vehicle? 

 For correct tax treatment, it is essential to differentiate between the eligible vehicle types:

Hybrid vehicles (e.g. plug-in hybrids) combine an electric motor with a combustion engine (petrol/diesel) to enable more efficient and environmentally friendly driving.

Electric vehicles are fully battery-powered and rely solely on an electric motor. Their batteries must be charged externally. This category also includes fuel cell-powered vehicles.

2. Reduced Taxable Base

 The wage tax incentive for alternatively powered vehicles is generally based on the gross domestic list price at the time of first registration, including VAT, optional equipment, and battery system costs. This amount is rounded down to the nearest EUR 100. In general, private use of a company car is taxed at 1% of the gross list price per month (§ 6 (1) No. 4 Sentence 2 of the German Income Tax Act (EStG). 

For hybrid vehicles, the taxable base is reduced to 0.5% and to 0.25% for fully electric vehicles (§ 6 (1) No. 4 Sentence 2 of the German Income Tax Act (EStG).  This reduction also applies to journeys between home and the first place of work, as well as for family home journeys in the case of double household maintenance (§ 6 (1) No. 4 Sentence 2 and Sentence 3 of the German Income Tax Act (EStG).

Note: These valuation rules do not apply for VAT purposes.

3. Special Conditions for Electric Vehicles

The 0.25% method only applies if the vehicle emits zero CO₂ per kilometre and the domestic gross list price does not exceed the following thresholds (according to § 6 (1) No. 4 Sentence 2 No. 3 and Sentence 3 No. 3 of the German Income Tax Act (EStG) in conjunction with § 52 (12) of the German Income Tax Act (EStG))

• EUR 100,000 for purchases on or after 1 July 2025
• EUR 70,000 for purchases between 1 January 2024 and 30 June 2025
• EUR 60,000 for purchases before 31 December 2023

4. Special Conditions for Hybrid Vehicles 

If an electric vehicle does not meet the above requirements, or if it is a hybrid vehicle, the 0.5% rule may still apply under certain conditions (§ 6 (1) Sentence 2 No. 4-5 and Sentence 3 No. 4 and 5 of the German Income Tax Act (EStG)). 

The vehicle must either

emit no more than 50 g CO₂ per kilometre

or

have a minimum electric range of

• at least 60 kilometres if purchased by 31 December 2024 (§ 6 (1) Sentence 2 No. 4 (b) and Sentence 3 No. 4 (b) of the German Income Tax Act (EStG)
• at least 80 kilometres if purchased on or after 1 January 2025 (§ 6 (1) Sentence 2 No. 5 (b) and Sentence 3 No. 5 (b) of the German Income Tax Act (EStG))

These requirements are independent of each other: if the emission limit is met, the vehicle qualifies; if not, the range requirement alone is sufficient.

Important: The decisive factor for eligibility is the delivery date, not the order date. This means that stricter requirements also apply to vehicles ordered in 2024 but delivered in 2025.

5. Depreciation for Electric Vehicles

Another key element of the legislative change is the declining-balance depreciation for fully electric vehicles acquired between 1 July 2025 and 1 January 2028 (§ 7 (2a) of the German Income Tax Act (EStG)).  Depreciation is allocated over six years as follows:

• 75% in the year of acquisition (regardless of the date of purchase within the year)
• 10% in the first following year
• 5% in the second following year
• 5% in the third following year
• 3% in the fourth following year 
•  2% in the fifth following year

Planned relief measures regarding the reimbursement of expenses for charging electric vehicles.

Are you already making use of the option to reimburse electricity costs incurred by employees for charging electric or hybrid company cars free of tax and social security contributions? The German tax authorities have announced significant reliefs to this process, with further details expected in autumn 2025.

1. Lump-sum Reimbursement of Expenses (Current Regulation)

To simplify the process, the Federal Ministry of Finance (BMF)  had already established flat-rate monthly reimbursement amounts in its letter dated 29 September 2020 (BStBl. I, p. 972), which can be reimbursed free of tax and social security contributions. These depend on whether the employee can also charge the vehicle at the employer’s premises.

With charging option at the employer’s premises:

1. Electric vehicles: EUR 30/month
2. Hybrid vehicles: EUR 15/month

Without charging option at the employer’s premises:

1. Electric vehicles: EUR 70/month

2. Hybrid vehicles: EUR 35/month

The “additional charging option” exists only if the employee is entitled to use the employer’s charging infrastructure. 

Planned Clarification: Charging Infrastructure Operated via Service Providers The Federal Ministry of Finance (BMF) is expected to clarify that the tax exemption under § 3 No. 46 of the German Income Tax Act (EStG) for electric charging will also apply when the charging infrastructure is operated by a third-party service provider, e.g. on the employer’s premises. This would extend the scope of tax-free benefits beyond employer-owned installations. It is anticipated that the BMF will issue a clear and positive statement on this matter in autumn 2025.

2. Further Planned reliefs for Documented Reimbursement of expenses 

It is also expected that the Federal Ministry of Finance (BMF) will issue a statement in autumn 2025 regarding the individual documentation of electricity consumption.

Employees will be allowed to verify the amount of electricity used to charge an electric or hybrid company car by means of a separate electricity meter—either stationary or mobile. This meter does not have to comply with calibration regulations (e.g., a wallbox-integrated or vehicle-integrated meter is sufficient). For the calculation of monthly electricity costs, the electricity tariff of the employee’s private household is to be used as the basis, and any basic charge (Grundpreis) may be allocated proportionally. This approach will also apply if the electricity used for charging is self-generated, for example via a private photovoltaic (PV) system. In the case of dynamic electricity tariffs, the average monthly kWh price is to be used.

To further simplify the process, employers will in future be able to use the average electricity price for private households published every six months by the Federal Statistical Office (Statistisches Bundesamt). The relevant figure will be the total average electricity price (including taxes, levies, and surcharges) for households with an annual consumption between 5,000 and 15,000 kWh, as published for the first half of the previous year, rounded down to the nearest full cent.

These regulations are based on the planned administrative guidance and are expected to be clarified in detail by the BMF in autumn 2025.

Planned Increase in the Commuting Allowance (§ 9 (1) Sentence 3 of the German Income tax Act (EStG)  

On 4 September 2025, the Federal Ministry of Finance (BMF) published the draft legislation for the 2025 Tax Amendment Act (Steueränderungsgesetz), announcing new tax relief measures for commuters. Shortly thereafter, on 10 September 2025, the Federal Cabinet adopted the official government draft.

With this regulation, the legislature aims to permanently secure tax relief for long-distance commuters by increasing the commuting allowance to EUR 0.38 per kilometre. To ensure equal treatment, this increased rate is intended to apply to all taxpayers from the very first kilometre.  The new regulation is also set to apply to taxpayers who maintain a second household for professional reasons. These changes are scheduled to take effect from the 2026 tax year.

We will keep you informed about further developments in the legislative process.

Conclusion

The new wage tax regulations for the use of electric vehicles make the acquisition and use of such vehicles increasingly attractive.

It remains to be seen if and when the Federal Ministry of Finance will officially announce the planned reliefs regarding the fixed refund of electricity costs. It is reasonable to assume that the lump sum refund of electricity costs model will continue to be the simpler and less bureaucratic solution, especially in cases of moderate costs. In contrast, the documented refund model offers greater accuracy and may be worthwhile if the actual electricity consumption or price significantly exceeds the fixed amounts.

If you have any questions, please feel free to contact us at any time.