Which is better for the owner of an OÜ: buying a car through the company or using a personal car for business journeys? The choice affects how much VAT can be deducted, which taxes are payable and whether business mileage can be reimbursed tax-free.
We compare three options using a car costing €30,000 excluding VAT. We show the calculations, explain the documents needed and highlight what to consider before choosing.
We also explain what to check with your accountant to avoid overpaying tax.
Three ways to use a car for business
The owner of an OÜ can choose one of three options:
- A company car used only for business. Private journeys are prohibited, but the company can deduct 100% of input VAT if the conditions are met.
- A company car used for business and private journeys. The company usually deducts 50% of VAT and pays fringe benefit taxes on private use.
- A personal car used for business journeys. The car remains yours, while the company reimburses documented business journeys tax-free within the statutory limit.
For tax purposes, it matters not only who owns the car but also how it is used. This determines the VAT deduction, the taxes payable and the evidence needed to support the expenses.
Option 1. A company car used only for business
If a passenger car is used exclusively for activities subject to VAT, the company may deduct 100% of input VAT on its purchase and running costs. No private-use fringe benefit arises because private journeys are not permitted.
Example. A company buys a car for €30,000 plus 24% VAT. The total price is €37,200. If all conditions for a full deduction are met, the company deducts €7,200 of input VAT. VAT on fuel, repairs and other car expenses is also fully deductible.
A mandatory condition is a record with the Transport Administration that the car is used only for business. The company must also be able to demonstrate that no private journeys are made. The following can help:
- internal rules on using the car
- journey records showing dates, routes and business purposes. An electronic GPS log makes it easier to provide evidence but does not replace compliance with the rules
- documents showing why the car is needed for the company’s activities
- information about where the car is kept outside working hours
The Estonian Tax and Customs Board (EMTA) assesses how the car is actually used. For example, if it is parked at the owner’s home at weekends and no journey records are kept, it will be harder to demonstrate that there is no private use.
Your accountant therefore needs not only to deduct VAT correctly but also to ensure that the company can support a full deduction with evidence. Otherwise, the deduction may be reassessed during a tax inspection.
Do journeys between home and the office count as business journeys?
Not always. EMTA allows such journeys without fringe benefit tax if public transport cannot be used without unreasonable expenditure of time or money. Another exception applies where an employee under an employment contract lives at least 50 km from work. In other cases, journeys between home and the office are usually treated as private journeys.
If you plan to use a company car only for business, discuss with your accountant in advance whether your journeys meet these exceptions.
Option 2. A company car used for business and private journeys
If a company car may also be used privately, the VAT deduction on its purchase and running costs is usually limited to 50%. The company must also pay taxes on private use. In Estonia, this is a taxable fringe benefit (erisoodustus): a benefit provided by the company to an employee or management board member. The value of the benefit depends on the car’s engine power and age:
- €1.96 per kilowatt per month for a car less than five years old
- €1.47 per kilowatt per month for a car more than five years old
The number of kilometres driven privately does not matter. If private use is permitted, the tax is calculated regardless of the actual mileage.
Example. A company buys a 110 kW car that is less than five years old.
| Calculation | Amount |
|---|---|
| Benefit value: 110 kW × €1.96 | €215.60 |
| Income tax: €215.60 × 22/78 | €60.81 |
| Social tax: (€215.60 + €60.81) × 33% | €91.22 |
| Company taxes per month | €152.03 |
| Company taxes per year | €1,824.36 |
The accountant calculates the fringe benefit taxes and reports them in the monthly TSD declaration. It must be submitted by the 10th of the following month.
Now compare VAT on the purchase. If the car costs €30,000 excluding VAT, the company can usually deduct €3,600 rather than €7,200 when the car has mixed use. That is €3,600 less than for exclusively business use. Monthly fringe benefit taxes are payable in addition to this difference.
Before buying a car through the company, calculate both amounts: the VAT deduction and the taxes payable on private use. Your accountant can help you take these costs into account before the purchase rather than after the first tax return.
Option 3. A personal car with reimbursement for business journeys
If you own the car or have a lawful right to use it, the company can reimburse business journeys tax-free. The tax-free limit is €0.50 per kilometre, up to €550 per month for each person receiving compensation.
Employees and management board members can receive this compensation. An OÜ owner therefore qualifies if they are a board member and use a personal car for business journeys. The car must not be owned or possessed by the company.
Payment requires a written decision by the employer and records of business journeys. The documents record the date, route, purpose, distance and odometer readings.
How much can you receive?
| Monthly business mileage | Compensation |
|---|---|
| 300 km | €150 |
| 600 km | €300 |
| 900 km | €450 |
| 1,100 km | €550 |
| 1,500 km | €550 |
Even if business mileage exceeds 1,100 km, tax-free compensation is capped at €550 per month. Any amount above the limit is taxed as a fringe benefit and declared by the company in Annex 4 of the TSD.
A mileage compensation example
Example. You use your personal car for work and drive 600 km on OÜ business during the month. The company can pay you €300 without income or social tax if the journeys are documented.
Compensation is payable only for actual business journeys. It does not replace salary or dividends and cannot simply be paid as additional income to the company owner.
Mileage compensation already covers normal car costs, including fuel, insurance and repairs. If the company pays these separately, the payments are generally taxable as fringe benefits. Parking during business journeys is an exception and can be reimbursed separately.
If you use your personal car for a business trip, the company can separately reimburse documented additional expenses directly related to the trip, excluding repairs and maintenance. We explain the paperwork in “Business trip expenses: how to reimburse them correctly”.
The accountant reports the compensation paid in the annual INF 14 declaration, which the company submits by 1 February of the following year.
Which option should you choose?
If the car is needed exclusively for business, consider buying it through the company. If the conditions are met, 100% of VAT can be deducted and no private-use fringe benefit tax is payable. The company must, however, be able to demonstrate that the car is not used privately.
If you plan to use the car for both business and private journeys, compare buying it through the OÜ with using your own car. In the first case, the company usually deducts only half the VAT and pays monthly fringe benefit taxes. In the second, it reimburses documented business journeys within the statutory limit.
If you already have a personal car, calculate your business mileage and the compensation you could receive. You may not need to buy a company car at all.
The best option depends on more than taxes: the car’s price, running costs and frequency of business use also matter. Before buying, ask your accountant to calculate the company’s costs under each option so that you can choose an appropriate arrangement.
Accounting mistakes can be expensive. For example, a company might deduct all the VAT even though the owner uses the car for family journeys.
What to check before buying a car
Before buying a car through the company, take these three steps.
- Calculate business mileage. Review how many kilometres you travelled for business over the last three months: to customers, suppliers or work sites. If you already have a personal car, calculate potential compensation at €0.50 per kilometre.
- Decide whether private journeys will be allowed. If you also plan to use the car in your free time, account for the VAT deduction limit and fringe benefit taxes. Restrict the car to business use only if you can demonstrate that no private journeys are made.
- Compare the costs with your accountant. Ask them to calculate VAT on the purchase, monthly taxes, running costs and annual vehicle tax. A future sale should also be considered.
How Finance PRO can help with car accounting
Buying a car through the company affects more than the initial cost. The VAT deduction, car expenses and any private use must also be accounted for and reported correctly.
Finance PRO has provided accounting services in Estonia since 1998. We help compare ways to use the car, calculate taxes, check documents and organise the accounting. Each accountant’s work is checked by a second specialist, while a coordinator monitors reporting deadlines.
Planning to buy a company car? We can calculate the tax consequences in advance. Does the car already belong to your OÜ? We can check whether expenses and taxes are recorded correctly.
Start with a free express accounting review.
Phone: +372 5366 6674
Email: info@fpro.ee
Learn more on our accounting services in Estonia page.
Read also
Taxation of non-business expenses
Estonian vehicle tax from 2027
Rates and limits are stated as at 2 November 2026. This article is for information only and does not replace advice. Your circumstances may differ — please contact us.
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