How to deduct car costs from tax when using a private car for work and business

How to deduct car costs from tax when using a private car for work and business

This blog discusses how to deduct car costs from tax when using a private car for work and business.

Relevant tax rates for 2024 when driving to and from work in your private car

Relevant tax rates for 2024 when driving in your private car on behalf of your business

How to determine if you are eligible for deducting car costs in tax?

We look at two types of car costs when considering tax in Denmark:

1: Driving to and from work in a private car;

2: Driving on behalf of a business in a private car.

The car costs are calculated using standard rates the Danish Tax Agency decides.

Depending on your situation, calculated car costs are either reimbursed from the business as a tax-free reimbursement, used to lower your personal taxable income or added as a cost to your business to lower business profits.

Driving from home to work in a private car

To determine if you can deduct your car costs when driving from your home to your work from your personal taxable income, you need to calculate the total kilometres you drive daily from your home to your work.

No tax deduction is given if this roundtrip distance is 24 kilometres or less.

You must exceed 24 kilometres roundtrip per day to get a tax deduction – in other words, the distance from your home to your work must be more than 12 kilometres one-way.

If your roundtrip distance is more than 24 kilometres, then the tax deduction is 2,23 DKK (2024) per kilometre for the 25th and up to 120 kilometres.

If you exceed 120 kilometres daily, the tax deduction drops to 1,12 DKK (2024) per kilometre for each kilometre driven above the first 120 kilometres.

What if you drive twice daily to work?

If you drive twice daily from your home to work, you may be eligible for a double tax deduction.

This double tax deduction may be relevant to those who f.ex. own a restaurant, and drive in the morning to open the restaurant and again in the evening to close the restaurant.

Example of how to calculate the tax deduction

A person drives 40 kilometres from his home to his business and home.

It gives a total of 80 kilometres round-trip per day.

For the first 24 kilometres, no tax deduction is given.

So from the 80 kilometres, we remove the 24 kilometres which are not tax-deductible = 80 kilometres – 24 kilometres = 56 kilometres

He gets 2,23 DKK per kilometre (2024) in tax deduction, so his total deduction per day is 56 kilometres * 2,23 DKK = 124,88 DKK per day in tax deduction.

Then simply multiply with actual days driving to and from work.

This amount is to be declared on the annual personal income tax return.

Driving on behalf of a business in a private car

If you drive on behalf of your business in your private car, you can get reimbursed per kilometre you drive.

It is a requirement, that all costs for the car is carried by yourself and not the business.

Also, you should keep a detailed log of your driving.

When you work as an employee for an ApS, the reimbursement is added as a tax-free reimbursement to your salary.

If you are a sole proprietor, and use the personal tax scheme, the reimbursement is added as a tax-deductible cost in your business, thus lowering the business profits using the same rates.

If you are a sole proprietor and use the business tax scheme, without having the private car shown in the business accounts, the reimbursement can likewise be made as a tax-free reimbursement as long as you document the driving.

The rate in 2024 is 3,79 DKK per kilometre from 1-20.000 kilometres annually and 2,23 DKK from each kilometre exceeding the 20.000-kilometre threshold.

How to include business-related car costs from a private car as a business cost

If you use the personal tax scheme, your private car costs relating to business usage are added as a cost of the business.

This cost lowers the profit of your business and, as a result, the tax of the business profit.

Simply provide a list of kilometres driven on behalf of the business to your accountant, who will then calculate and add the cost to the business costs.

You can use an app to keep track of kilometres driven

One way to document the number of days and kilometres driven to and from work is to download an app to your phone that tracks your driving.

This will enable you to show the Danish Tax Agency how many days you travelled from home to work.

You can also write a log on paper, but an app on your phone can be more convenient.

These 2 apps are popular in Denmark:

Link to app “Kørebog” (1) in the App Store

Link to app “Kørebog” (2) in the App Store

The “60-day rule”

Also, you should consider the “60-day rule” which can give you some additional tax benefits;

This rule state, that the first 60 days in any 12-month period, where you drive to your business, is considered driving on behalf of your business.

So, during these 60 days you can apply the rates for driving on behalf of your business, which is higher than the rate for driving between your home and your business.

This rule however, also lowers the tax benefit in the following situation;

Driving to a customer is generally considered driving on behalf of your business, and the high rate for reimbursement of car costs applies.

But, if you drive more than 60 days during a 12-months period to the same client, you no longer can apply the high rate for driving on behalf of your business, instead, you must apply the same rate as when driving from your home to your business.

The “60-day rule” can be reset, when you drive to a new customer for 60 days

If you, after driving to a new customer for 60 days, return to driving to the previous customer, where you already applied the 60-day rule in the past, you will be able to apply 60 more days with the higher reimbursement rate to this previous customer.

Do you drive in a car owned by your company?

If you drive in a company owned car, where the company is paying for all the car related costs, you cannot claim any tax deductions for business use of the car on your personal income tax return.

(This blog was updated last time: 1.4.2024)

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