The cash-for-car system (in force since January 1, 2018) allows employees to convert their company car into a financial allowance with a favourable tax and social security treatment. The amount of the allowance that employees are entitled to, as compensation for handing in their company car, is equal to a certain percentage of the value of the car (around 20%). The cash-for-car system therefore only allows a choice between the enjoyment of a company car or a certain pay raise.
The new system of the mobility budget, established by the Act of 29 February 2019, intends to give more freedom of choice to the employee. The employee can choose to exchange his company car for a mobility budget, that is equal to the annual gross employer’s cost of their company car. This budget gives employees three possible alternative mobility solutions:
- a more environmentally friendly car (electric or hybrid car or a vehicle with low CO2 emissions), subject to the same tax and social security treatment as a regular company car;
- alternative and sustainable modes of transportation, entirely exempt from taxes and the cost of which is fully deductible for the employer; and
- the remaining balance of the budget can be paid out in a cash amount, which is subject to regular social contributions, but exempt from taxes.
An environmentally friendly company car means that this car is an electric car or has a maximum CO emission of 95 g and meets at least the air pollutant emission standard applicable to new vehicles or a later standard. The budget that remains after the spending on an environmentally friendly company car, can then be spent by the employee in option 2 and/or 3.
Alternative and sustainable modes of transportation concern a whole range of alternative and sustainable modes of transport, including public transport, bicycles, shared forms of transport like shared cars and electronic scooters (through apps), etc. In this context, certain housing costs relating to a move to a house or apartment located near the normal place of employment are also equated with a sustainable way of moving.
The remaining balance of the mobility budget can be paid out to the employee in cash. A specific social security contribution of 38.07% is due. In this way, the third option (payment in cash) is discouraged in favour of the second option, which is entirely exempt from taxes.
Employees can request to make use of the mobility budget, but the employer is entitled to refuse this, by example if the company car is key for the function of the employee. The cash-for-car system has not been a big success. However, the mobility budget is expected to be a more attractive solution for employees and employers.