Have you bought a car through an OÜ but forgotten to notify the vehicle register that it is used exclusively for work? Or are you paying compensation for business journeys in a personal car without keeping a mileage log?
Mistakes like these can cost a company more than €150 a month. If they are discovered years later, you may also have to correct earlier tax returns and pay late-payment interest.
We look at five common mistakes in company-car accounting in Estonia: their consequences, how much they can cost and how to put them right.
For the examples, we use a passenger car under five years old, with a power output of 110 kW and a price of €30,000 excluding VAT.
1. Failing to notify the authorities that the car is used exclusively for work
What happens. The owner buys a car through the company and uses it only for business journeys, but does not notify the Estonian Transport Administration, Transpordiamet.
The consequences. If the register does not contain the relevant entry, the Estonian Tax and Customs Board (EMTA) treats the company as allowing private use of the car. This gives rise to a fringe benefit, or erisoodustus: a personal advantage provided to an employee or management board member at the company’s expense. The company must pay income tax and social tax on that benefit each month.
For a car under five years old with a power output of 110 kW, the monthly taxable value of the benefit is 110 kW × €1.96 = €215.60. The income tax and social tax payable on that value total €152.03 a month. Over three years, this comes to €5,473.08, excluding late-payment interest.
How to avoid it. If the company car really is used exclusively for work, submit a notification through the Transport Administration’s electronic service or at a service bureau. The notification applies only to passenger cars in category M1. It is not required for vans in category N1.
Notification alone is not enough: the company must be able to show that the car is not actually used for private journeys.
2. Declaring exclusive business use without being able to substantiate it
What happens. The vehicle register states that the car is used exclusively for work. However, the OÜ has no registered employees, the owner receives neither a salary nor management board remuneration, and the documents do not explain who drives the car or why.
The consequences. EMTA can compare vehicle-register information with the employment register, TÖR, and TSD income and social tax returns. Its guidance explicitly states that business journeys presuppose that someone works in the company.
The absence of a salary does not, on its own, prove a breach. However, if the company cannot explain who uses its car and for which business tasks, the tax authority may ask questions.
How to avoid it. Make sure the documents show who uses the car, on what basis and for which business purposes. If exclusive business use cannot be substantiated, discuss with your accountant whether that arrangement is appropriate for the company.
3. Deducting all the VAT while also using the company car privately
What happens. The company buys a car and deducts 100% of the input VAT because it has declared exclusive business use. However, the owner also uses it for personal journeys, such as shopping or taking children to school.
Travel between home and work is generally treated as private use too. There are two exceptions: public transport cannot cover the journey within a reasonable time or at a reasonable cost, or an employee working under an employment contract lives at least 50 km from the workplace.
The consequences. The mistake affects two taxes at once.
VAT. If private use begins within the first two years after purchase, the two-year rule limits the deduction on acquisition to 50%. The company corrects its VAT return, KMD, for the month of purchase. In our example:
- the car costs €30,000 excluding VAT;
- VAT at 24% is €7,200;
- the company deducted €7,200 on purchase;
- after correction, the deduction is €3,600, meaning that €3,600 must be repaid.
Fringe benefit tax. If private use of the company car is allowed, income tax and social tax are payable on the benefit. For a 110 kW car, this totals €152.03 a month.
In our example, the company must repay €3,600 of previously deducted VAT and also pay €152.03 a month for making the car available for private use.
How to avoid it. If the car is needed for both business and private journeys, formalise the mixed-use arrangement: remove the exclusive-business-use entry from the register and declare the fringe benefit.
If the car is only for work, the register entry alone is not enough. The tax authority expects the company to have decided how business use will operate, informed employees of the rules and monitored actual use. Internal rules, a mileage log and an electronic GPS log can help demonstrate this.
4. Paying personal-car compensation without a mileage log
What happens. The owner makes business journeys in a personal car, and the company pays €550 in compensation every month. Nobody keeps a mileage log.
The consequences. Personal-car compensation can be tax-free only within the limits and where the conditions are met. In 2026, the limits are:
- up to €0.50 per kilometre of business travel;
- no more than €550 a month per person.
Without a mileage log, the compensation loses its tax-free treatment. In EMTA’s example, a €550 payment without a log is expressly classified as employment income. Social tax alone, at 33%, would therefore be €181.50 a month, or €2,178 a year. Income tax is also withheld, and other mandatory payments may apply depending on the type of payment.
How to avoid it. Tax-free compensation requires three documents:
- A written company decision identifying the recipient, amount and period.
- A copy of a document confirming the right to use the car, such as its registration certificate or a lease agreement.
- A business mileage log identifying the driver and the car’s registration number, the date and purpose of each journey, and the odometer readings before and after it.
€550 is a maximum, not a fixed payment for owning a car. Compensation is calculated from documented business journeys.
5. Paying mileage compensation and covering fuel separately
What happens. The owner receives compensation for business journeys in a personal car, while the company also pays for fuel, insurance or repairs for the same car.
The consequences. Mileage compensation already covers the costs of using the personal car, except parking. EMTA therefore treats additional payments for those costs as a taxable fringe benefit.
For example, the company pays €100 a month for fuel for the owner’s personal car:
| Tax | Amount |
|---|---|
| Income tax: €100 × 22/78 | €28.21 |
| Social tax: (€100 + €28.21) × 33% | €42.31 |
| Total tax | €70.52 |
As a result, €100 of fuel costs the company €170.52.
How to avoid it. If the company pays mileage compensation, do not also pay for fuel, insurance and repairs for the personal car without accounting for fringe benefit tax. Parking during business journeys can be reimbursed separately without tax.
When travelling on a business trip in a personal car, expenses can be reimbursed against receipts. Read more in “Expenses on a business trip — how to properly compensate”.
What to do if a mistake has already been made
EMTA can generally assess additional tax within a three-year period, or five years where tax was intentionally left unpaid. Late-payment interest is 0.06% a day, so waiting for a tax audit can be costly.
- Identify when the mistake began. For example, establish the first month in which the company car was used privately or the period during which compensation was paid without a mileage log.
- Check the documents and returns. The mistake may affect the vehicle register, TSD and KMD returns, company decisions and mileage records.
- Correct the returns. Fringe benefits are reported in Annex 4 to TSD; a VAT correction under the two-year rule is made in the KMD for the month of purchase.
- Pay the tax and interest. e-MTA will calculate the interest.
- Put future accounting in order. Check the car’s use arrangement, notifications, documents and compensation procedures.
If an accountant in Estonia handles your accounts, start with them: they can review previous months’ returns and identify which ones are affected.
How an accountant in Estonia can check company-car accounting
Car-accounting mistakes can affect several records at once: the vehicle register, tax returns, company decisions and mileage logs. If they contradict one another, the company may have to pay additional tax.
Finance PRO has provided accounting services in Estonia since 1998. We can check whether your documents match how the car is actually used, calculate the tax consequences and prepare corrections.
Not sure whether your OÜ’s car is accounted for correctly? We can review the records and explain what needs correcting. The initial assessment of your situation is free.
Phone: +372 5366 6674
Email: info@fpro.ee
Read more about our accounting services in Estonia.
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Rates and limits are stated as at 4 November 2026. This article is for information only and does not replace individual tax advice.
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