Company Car or Personal Car: Which Option Really Pays Off?

When managing a company car, the preliminary decision concerns the tax regime most consistent with the actual use of the vehicle. The same vehicle may in fact be treated very differently depending on whether it is used exclusively for the business, also used for private purposes, assigned to an employee or a director, or kept within the personal sphere. Given the particular rigidity of the Italian rules in this area, an ill-considered choice often leads to pursuing a benefit that, in practice, proves to be marginal.

Cars used exclusively for business

The most favourable regime is reserved for vehicles used exclusively for business purposes, i.e. those without which the business could not be carried on, such as the cars of rental companies and driving schools, as well as vehicles intended for public use, such as taxis. For these vehicles, costs are fully deductible, with no value limits, and VAT is fully recoverable. This is, however, a narrow category: the Italian Revenue Agency, for instance, does not regard a car used by a commercial business for customer visits as being used exclusively for business purposes.

Company cars for mixed use

All other cars registered in the name of the business, which represent the majority of cases, fall under the limited deductibility regime that applies to vehicles used both for the business and privately. For the purchase cost, the deduction is determined in two stages: first, the price of the vehicle is relevant for tax purposes only up to EUR 18,075.99, even where the actual cost is higher; second, only 20% of that amount is deductible. As a result, regardless of the price paid, the total deduction relating to the purchase cannot exceed EUR 3,615.20, spread over the depreciation period. Running costs, such as fuel, maintenance and insurance, are not subject to any cap but remain deductible at the same rate of 20%, while VAT is recoverable at 40%. A more favourable regime applies to sales agents and commercial representatives, who deduct 80% of costs up to a limit of EUR 25,822.84 and recover VAT in full.

Cars assigned to employees

The situation changes where the car is assigned for mixed use to an employee for most of the tax period. In this case, the business deducts 70% of all costs incurred, without applying the EUR 18,075.99 limit, so that even a high-value vehicle is deductible to a significant extent. In return for this advantage, private use constitutes income in kind for the employee (the so-called fringe benefit), determined on a flat-rate basis by reference to the ACI tables and a percentage that varies according to the type of fuel: 10% for electric vehicles, 20% for plug-in hybrids and 50% for all others. The employee is subject to IRPEF (personal income tax) and social security contributions on this amount, while the company pays the employer’s share of contributions. From 2026, the Omnibus Decree has also introduced a 50% increase from the sixth year following registration and a 5% increase where optional extras not included in the ACI tables are present, changes already discussed in a previous article; for vehicles assigned between 2020 and 2025, however, the previous criterion based on CO2 emissions continues to apply on a transitional basis.

Cars assigned to directors

The 70% deduction is reserved for vehicles granted to employees and therefore does not apply where a car is assigned for mixed use to a director. If the director does not hold a VAT number, the fringe benefit is determined according to the same criteria as for employees, while the vehicle costs must be split into two components. The portion corresponding to the fringe benefit, taxed in the hands of the director, constitutes remuneration for the company and is fully deductible; the remaining portion follows the ordinary rules for company cars, with 20% deductibility and the EUR 18,075.99 limit on the purchase cost. The assignment must be supported by a formal act, normally a resolution of the shareholders’ meeting or of the board of directors.

Personal cars with mileage reimbursement

Where the vehicle remains personally owned, the alternative is mileage reimbursement, which may be granted to employees, collaborators and directors who use their own vehicle for business trips outside the municipality where the business is based. The reimbursement is calculated by multiplying the kilometres travelled by the cost per kilometre set out in the ACI tables for the model used; it does not constitute income for the recipient and is deductible for the business. A limit applies only to higher-powered vehicles, since the deduction is allowed up to the cost of a car of 17 fiscal horsepower (20 if diesel), fiscal horsepower being the power rating determined on the basis of engine displacement and shown on the vehicle registration certificate. Each business trip must, however, be documented with the date, destination, purpose and kilometres travelled, failing which the reimbursement is treated as taxable income; moreover, this instrument cannot be used by the owner of a sole proprietorship.

Purchase, leasing or rental

Once the tax regime has been identified, the method of acquiring the vehicle must be determined. With a purchase, the company deducts the cost through depreciation at 25% per year, without incurring financing costs but with an immediate impact on liquidity. Leasing, by contrast, allows periodic instalments to be paid, often preceded by a larger initial instalment, with an option to purchase at the end of the term: the instalments are deductible at the same percentages, but the deduction must be spread over a period of no less than four years and the EUR 18,075.99 limit applies to the cost incurred by the leasing company. Finally, long-term rental, which normally includes maintenance and insurance, is subject to an annual limit of EUR 3,615.20 on the rental fee, unless the vehicle is used exclusively for business purposes or assigned to an employee. In all three cases, therefore, the difference is more financial than tax-related.

Which solution to choose

There is no solution that is valid in all circumstances, but some general guidance can be offered. For a car also used privately by the owner or the shareholders, properly documented mileage reimbursement often proves more efficient than registering the vehicle in the name of the business, while assigning the car to employees is appropriate when the vehicle forms a genuine part of the remuneration policy, particularly if it is electric or a plug-in hybrid. In any event, the assessment should not be based on the amount of deductible costs, but on the actual cost of the vehicle net of taxes, bearing in mind that a deduction of EUR 1,000 results in an IRES (corporate income tax) saving of only EUR 240 for a company.