From 1 January 2027, an important change will affect Dutch employers who provide employees with a company car. Petrol, diesel and hybrid passenger cars that are also used for commuting or private journeys will become subject to a new employer tax: the pseudo-final levy on fossil-fuelled passenger cars. The levy is 12% of the car’s list price each year. As a result, a fossil-fuelled company car could cost an employer thousands of euros more per year from 2027 onwards. But how exactly does the measure work? Is it effectively an additional benefit-in-kind charge? And what are the consequences for employers, employees and self-employed professionals?
From 1 January 2027, an employer will pay an additional tax when it makes a passenger car with CO₂ emissions available to an employee and that car is also used privately or for commuting. The measure does not apply only to petrol and diesel cars. Hybrid and plug-in hybrid cars are also included. Only fully zero-emission passenger cars, such as fully electric vehicles, fall outside the levy.
For cars up to and including 25 years old, the annual tax is 12% of the list price. For cars older than 25 years, the levy is calculated as 12% of the market value. An important difference from the regular Dutch company-car benefit-in-kind rules is that the 500-private-kilometre threshold does not apply to this levy. In addition, commuting is treated as private use for the purposes of the pseudo-final levy. An employee who uses a petrol company car only for business journeys and commuting can therefore still trigger the new employer levy.
Assume that in 2027 an employer provides an employee with a petrol car with a list price of €50,000. The pseudo-final levy is then 12% × €50,000 = €6,000 per year. That is an additional employer tax cost of €500 per month. For a car with a list price of €30,000, the levy is €3,600 per year, or €300 per month. For a €75,000 car, it rises to €9,000 per year, or €750 per month. These amounts are on top of the normal costs of the car, such as leasing, insurance, maintenance and fuel.
In economic terms, the new levy may feel like an extra company-car tax, but legally and fiscally it works very differently from the regular benefit-in-kind charge. The regular Dutch company-car benefit-in-kind charge is borne by the employee. Broadly speaking, an employee who has a company car available and drives more than 500 private kilometres per year has 22% of the car’s list price added to taxable pay. The employee then pays wage and income tax on that amount. For a car with a list price of €50,000, a 22% benefit-in-kind percentage therefore produces a taxable addition of €11,000 per year. This does not mean that the employee pays €11,000 in tax; rather, €11,000 is added to taxable income.
The new pseudo-final levy works differently. The 12% is actual tax payable by the employer. On the same €50,000 car, the employer would therefore pay €6,000 per year. The two regimes can also apply at the same time. The employee may face the regular benefit-in-kind charge while the employer simultaneously owes the pseudo-final levy. The employer may not pass the pseudo-final levy itself on to the employee.
The purpose of the measure is not primarily to raise additional tax revenue, but to influence employers’ choices. The Dutch government wants passenger cars provided by employers from 2027 onwards to be fully zero-emission wherever possible. The corporate car market plays an important role in this policy because company cars often enter the second-hand market after a few years. Faster electrification of the business fleet is therefore intended to accelerate the transition of the wider Dutch car fleet as well.
The government has explicitly acknowledged that, without this measure, the overall cost difference between fossil-fuelled and electric company cars may be relatively small. The pseudo-final levy is designed to alter that balance deliberately by making petrol, diesel and hybrid cars materially more expensive for employers than zero-emission alternatives. The levy is therefore best understood as a strong financial incentive for employers to move towards fully electric vehicles.
Employers with a company-car fleet or mobility policy should consider taking action well before 2027. The most straightforward option is to amend the company-car policy. An employer could, for example, require all new lease cars from 2027 onwards to be fully electric. This avoids the pseudo-final levy. It is also sensible to map existing lease contracts and vehicle replacement dates now. A transitional arrangement applies to cars that were already made available to employees before 1 January 2027. For those cars, the pseudo-final levy will not become due until 17 September 2030.
This may affect fleet planning. An employer that still intends to use fossil-fuelled cars for several years could, for example, assess whether bringing certain replacements forward to before 2027 makes commercial sense. The total lease cost and contract duration should, of course, be considered as part of that decision. Alternatives to the traditional company lease car may also become more attractive, including mobility budgets, mileage allowances for privately owned cars and combinations with public transport.
For employers, the key is to compare total mobility costs. A petrol car with an attractive monthly lease rate could become considerably more expensive than an electric vehicle once the 12% levy is included, even if the electric vehicle has a higher headline lease price.
For self-employed professionals, there is good news: the pseudo-final levy does not apply to sole traders and other self-employed individuals who are subject to Dutch income tax and do not employ themselves through a company. The reason is that the measure forms part of payroll taxation and is linked to the employer–employee relationship. A sole trader is not their own employee and is therefore outside the scope of this new employer levy.
A self-employed professional who treats a petrol, diesel or hybrid car as a business asset will therefore not suddenly face an additional 12% tax under this measure. The normal tax rules governing private use of a business car continue to apply. A self-employed person may therefore still be subject to the regular Dutch company-car benefit-in-kind adjustment.
The position is different for entrepreneurs who operate through a private limited company (bv). A director-major shareholder (dga) who is an employee of their own bv can fall within the pseudo-final levy because the bv is the employer and provides the car to the dga in their capacity as employee.
The new pseudo-final levy is far more than a minor adjustment to Dutch company-car taxation. A fossil-fuelled company car with a list price of €50,000 could cost an employer an additional €6,000 in tax each year from 2027. This will make petrol, diesel and hybrid cars significantly less attractive for employers to provide to employees.
Employers would therefore be wise to review their fleet, lease contracts and company-car policy well before 2027. From 2027, fully electric driving will not only be a lower-emission alternative; because of the new levy, it will in many cases also be the more financially attractive option. The levy does not apply to sole traders. Directors-major shareholders operating through a bv should, however, take care: where there is an employer–employee relationship, the new rules can apply to them as well.
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