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Corporate advertising on private cars – When do employees (not) have to pay tax on the money they receive?

If employers pay employees to advertise on their private cars then they do not necessarily have to pay tax on the payments they receive. The crucial factor is whether or not the payments received have to be classed as remuneration or as the employees’ other income.

If there is no separate agreement for the car advertising between the working parties then the local tax office will allocate an employee’s advertising revenues to the existing employment relationship. The payments then have to be taxed as remuneration and the social insurance contributions must be paid accordingly.

In order to avoid this additional burden and to enable employees to receive the advertising revenues tax-free, the employer and employee have to conclude a rental agreement relating solely to car advertising. The agreement has to describe the benefits of the advertising for the employer, e.g., provisions such as parking the car in a way for the advertising to be effective, a minimum number of kilometres driven per year or excluding other advertising partners for the car. A small sticker with the company logo is not sufficient in this case – clearly visible advertising placed over a large area is recommended. Furthermore, the terms of the agreement have to comply with the arm’s length principle and thus be consistent with the standard conditions on the free advertising market.

If as a result of the “advertising agreement” this activity is separated from the employment relationship then the advertising revenues have to be allocated to the employee’s other income, which remains tax-free up to a maximum amount of € 255.

Please note: If this tax exemption limit is exceeded then the entire revenues have to be fully taxed and not just the amount in excess of the tax exemption limit.

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