Budget Day 2025: Tax update Automotive sector

The government is accelerating the transition to zero-emission mobility. From 1 January 2027, it will become financially unattractive for employers to provide employees with fossil fuel passenger cars (with CO₂ emissions) for private use.

To this end, the government is introducing a pseudo-final levy of 12% on the catalogue value of fossil fuel passenger cars. This levy is payable by the employer and cannot be recovered from the employee. The measure is designed as a standardized final levy in income tax and makes it financially unattractive to offer a non-emission-free car to employees. With this measure, the legislator expects a significant acceleration in the electrification of the business fleet.

Exceptions:

• Passenger cars that are used exclusively for business purposes (i.e. not available for private use) are exempt.
• Self-employed people without personnel (such as sole traders) are excluded from the scheme because they are not employers.
• Delivery vans and motorcycles are currently excluded from the pseudo-final levy, partly due to existing incentives and zero-emission zones.

For fossil fuel cars that were first made available before 1 January 2027, a transition period applies until 17 September 2030. After that date, the pseudo-final levy will also apply to these vehicles.

The government is gradually bringing the tax treatment of electric and fossil fuel passenger cars more into line. In the period from 2026 to 2028, the rate reduction in motor vehicle tax (MRB) for electric passenger cars will be increased from 25% to 30%. In 2029, the discount will be reduced to 25% again, after which it will be completely phased out on 1 January 2030. With this measure, the government is taxing larger electric and fossil fuel vehicles (categories D and E) equally. At the same time, it is reducing the tax differences for smaller and medium-sized vehicles (categories A to C).

This measure contributes to a more balanced promotion of electric driving, with the tax benefit for heavier electric vehicles being phased out, while lighter models receive temporary additional support.

On 1 January 2025, the five-year BPM (tax on passenger cars and motorcycles) exemption for zero-emission special passenger cars (such as camper vans and wheelchair transport) and zero-emission motorcycles expired. As a result, the government taxes these vehicles in the same way as their fossil fuel counterparts. The government wants to rectify these undesirable tax differences between zero-emission and fossil fuel vehicles. To correct this, the government is introducing a fixed rate of €667 for zero-emission special passenger cars, as is the case for 'regular' electric cars. For zero-emission motorcycles, it introduces a fixed rate of €200.

The government also proposes to extend the reduced rate until 2030 for all zero-emission special cars and motorcycles. This means that zero-emission cars will pay the same amount of BPM as zero-emission special cars. In summary, the following tax rates apply:

• Zero-emission cars: €667
• Zero-emission motorcycles: €200
• Diesel and petrol cars: based on CO₂ emissions

The government plans to implement changes to the BPM for passenger cars that run on petrol, diesel or gas from 2026 to 2028. These adjustments are intended to maintain tax revenues, as such cars are becoming increasingly fuel-efficient and the BPM is calculated on the basis of CO₂ emissions. As new cars emit less CO₂, the BPM for these vehicles will also decrease.

In order to maintain tax revenues, the government proposes to:

• Lower the CO₂ bracket limits, so that cars move into a higher tax bracket more quickly.
• Increase the BPM rate.
• Increase the diesel surcharge for cars and plug-in hybrid electric cars.

In 2025, a reduced additional tax liability percentage will still apply to fully electric cars. Employees pay 17% additional tax liability up to €30,000 of the catalogue value. For amounts above €30,000, the standard rate of 22% applies. For hydrogen cars and vehicles with integrated solar cells, 17% applies to the full catalogue value.

This tax benefit will expire on 1 January 2026. For all new zero-emission cars registered from that date onwards, the standard additional tax liability percentage of 22% will apply, as for cars with CO₂ emissions.

The reduced additional tax liability of 17% from 2025 will apply for a period of 60 months, calculated from the first day of the month after the date of first registration (registration and issue of number plates) of the car. For electric cars registered in 2025, this reduced percentage will therefore continue to apply until the end of 2030 at the latest.

As new conventional cars emit less CO₂ each year, BPM revenue would gradually decline without adjustment. To prevent this erosion of the tax base, BPM rates are tightened annually. The 2026 Tax Plan now also legally anchors this system of autonomous decarbonization.

The annual increase in the CO₂ base and the associated rate structure will be laid down in law. This will make the decarbonization of the BPM structural and predictable, and no longer dependent on annual policy adjustments. This offers greater legal certainty and transparency for market parties such as importers, leasing companies and car companies.