Law firm specialising in employment law
and social security law.
Law firm specialising in employment law
and social security law.
In France, many employers provide their employees with company cars. By 2023, 1.2 million company cars had been granted to employees.
This is a highly advantageous scheme for both employers and employees, but it represents a deadweight loss that the government would like to reduce, as recently announced for 2024.
Let's take a closer look at this scheme and the new developments to come.
A company car is a vehicle provided by the company to an employee for both business and personal use.
The success of this scheme is due to the associated social and tax benefits.
For the employee, the advantage is significant. They save on the purchase of a vehicle and the associated maintenance costs. In return, the vehicle is valued at a monthly rate, which will serve as the basis for calculating the contributions to be paid. However, the current scale is so low that, even when declared, the company car remains a significant benefit for an employee. The portion subject to social security contributions and income tax therefore remains very much in the minority.
For the employer, granting a benefit in kind such as a company car rather than paying the employee in cash also enables a favourable social and tax regime to be applied. Firstly, the purchase price of the car can be written off and deducted from the tax base, thereby reducing the amount used to calculate corporation tax. Secondly, due to the relatively low rate of the benefit assessment scale, the amount of employer's contributions based on the value of the company car (after application of the scale) remains very advantageous compared with what would have to be paid in the event of payment of an equivalent salary supplement to the employee, which would be subject to contributions in full.
The system for valuing the company car is set out in the decree of 10 December 2002, which lays down the rules for valuing benefits in kind.
This decree stipulates that the vehicle may be purchased or leased by the employer.The employer also decides whether or not to cover the employee's fuel costs.The employer can choose whether to assess the benefit on the basis of a lump sum or the actual costs incurred.This choice may be changed at the end of the financial year, depending on what the employer considers to be the most favourable.
The method of assessment and the amount vary according to these choices.
The following table summarises the different valuation rules:
| Flat-rate valuation | Actual valuation | |
|---|---|---|
| Purchased vehicle | Fuel costs paid by the employee | |
| 9% of the purchase price (incl. VAT) for a vehicle up to 5 years old |
Expenses taken into account : Depreciation of the purchase price of the vehicle including VAT : 20% per year for a vehicle up to 5 years old 10% per year for a vehicle over 5 years old
Valuation : Expenditure above x kilometres driven per year for private use / Total kilometres driven per year |
|
| 6% of the purchase price (incl. VAT) for a vehicle over 5 years old | ||
| Fuel costs borne by the employer | ||
Either 9% of the total cost of the purchase including tax for a vehicle 5 years old or less and actual fuel costs incurred for private use
Or 12% of the total cost of the purchase including VAT |
Add fuel costs for private use paid for by the employer | |
|
Either 6% of the purchase price (incl. VAT) for a vehicle over 5 years old and actual fuel costs incurred for private use Or 9% of the purchase price including tax |
||
| Rented vehicle | Fuel costs paid by the employee | |
| 30% of the cost of rent (all-inclusive: maintenance, insurance) up to a ceiling |
Expenses taken into account : Total cost (including tax) of hire, insurance and maintenance.
Evaluation : Expenditure above x kilometres driven per year for private use / Total kilometres driven per year |
|
| Fuel costs borne by the employer | ||
|
30% of the cost of rent (all-inclusive: maintenance, insurance) up to a ceiling
Or
40% of the cost of rent (all-inclusive: maintenance, insurance) up to a ceiling and professional and personal fuel costs up to a ceiling |
Addition of fuel costs for private use paid by the employer | |
The company car, as its name suggests, is seen as necessary for the performance of the employee's duties, with personal use of the vehicle considered to be in the minority. This is the context in which the scheme was introduced.
In recent years, car use has evolved and become a means of optimising costs; it is now, more often than not, an integral part of the remuneration package of employees whose duties do not necessarily involve travel. This practice is clearly the result of the fact that it is preferable to set up a benefit in kind with a company car rather than pay a higher salary.
This was deplored in a study published on 21 October 2024 by the organisation Transport & Environnement, which indicated that around 20% of company cars are now so-called ‘statutory’ cars.
The phenomenon of the ‘brown niche’ is also highlighted by the organisation Transport & Environnement: according to it, the proportion of personal use of the vehicle is very largely underestimated and results in a significant loss of revenue for the social security system due to the reduction in social security contributions and for the State due to the reduction in income and corporation tax.
In this context, the government has announced a reform of the decree of 10 December 2002 establishing the rules for assessing the benefit in kind.This assessment should be revised upwards only for internal combustion vehicles, as the scheme for electric vehicles is not currently covered.
Note
A ministerial order can be amended at any time by the government without going through the legislative process. This explains why this reform has not been included in the Social Security Finance Bill or the Finance Bill for 2025.
To date, it is planned that when the vehicle is purchased by the employer and the employer does not pay the fuel costs for the employee's personal use, the lump-sum valuation will be 18% of the purchase cost including tax, compared with 9% currently for vehicles less than 5 years old. If, on the other hand, the employer pays for the fuel costs, the flat-rate assessment will be increased from 12% to 24% of the purchase cost (including tax).
The same applies when the vehicle is leased by the employer. Where fuel costs are not covered, the lump-sum assessment will be 50% of the total cost of rental, subject to a ceiling, compared with 30% at present. If the employer pays the fuel costs, the flat-rate assessment will be increased from 40% to 60% of the total cost of the rents, subject to a ceiling.
This reform would represent a considerable gain in the benefits in kind provided by companies, bringing in up to €4 billion for the government.
The secondary objective of this reform could also be to revive the car market by encouraging companies to turn to electrification of their fleets, since electric vehicles will not be affected by the increase in the rate.
In France, only 11% of new company vehicles are electric, compared with 35% in Belgium, for example, even though regulations require a transition from 2024. The Mobility Orientation Act of 24 December 2019 requires that 20% of the fleet of a company with more than 100 vehicles be electric from 2024, then 40% from 1 January 2027, rising to 70% by 2030.
According to information to date, and if the figures currently envisaged are maintained, the benefit-in-kind scheme for company cars would remain attractive for both companies and employees. The anticipated increase would still be less than the overall cost of a personal vehicle for the employee and the payment of additional salary for the employer.
Companies will need to remain vigilant to update their arrangements once the reform takes effect.
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