The State Secretary for Finance stated in a decision has approved the method for determining the residual value of a “leased bicycle”.
Leased bike
The term “lease bike” refers to a bicycle provided by the employer to the employee. This means that the employer remains the owner of the bicycle and the employee is permitted to use it. The employer does not have to lease the bicycle; they may also have purchased it.
For the past few years, a tax inclusion scheme has applied to company-provided bicycles. The employee’s private use is set at 7% of the recommended retail price (including VAT) of the bicycle. This amount is added to the employee’s salary, on which income tax is payable.
The employer may designate the amount of the additional tax liability for the discretionary allowance under the work-related expenses scheme. In that case, the employee is not liable for payroll tax. The employer is liable, but only to the extent that the total of the allowances and benefits in kind designated for the discretionary allowance exceeds the discretionary allowance itself.
Taking over a bike
If the employee wishes to purchase the employer’s bicycle, there are two options:
- the employee pays the employer the value of the bicycle;
- The value of the bicycle is included in the employee’s salary and is subject to income tax (unless the employer designates this amount for the discretionary allowance under the work-related expenses scheme).
This approval means that the value of the bicycle may be determined taking into account an annual depreciation of 20%. After five years, the value will be zero and the employee may take over the bicycle from the employer free of charge.
Employees who have been provided with a bicycle by their employer are not eligible for the tax-free allowance of €0.19 per kilometre (from 2023: €0.21 per kilometre) for commuting. This is because, by providing the bicycle, the employer is facilitating the commute (in which case it is considered “transport provided by the employer”).
Example
Suppose an employer provides an employee with a brand-new bicycle, which the employer purchases for €2,500 (including VAT). The employer does not allocate the imputed income to the discretionary allowance under the work-related expenses scheme. After five years, the employer gifts the bicycle to the employee.
The employee has therefore paid income tax for 5 years on 7% of €2,500, i.e. on €875 (5 × €175). If the employee is liable for the highest rate (49.5%), this will cost them €433.
The employer pays €2,500 for the bicycle and is entitled to deduct €130 in VAT (under the BUA, the following may be deducted: 21% VAT on €749). On balance, the employer’s cost amounts to €2,370. The VAT deduction is subject to the condition that the employee does not receive a travel allowance or any other form of transport from the employer on more than 50% of the days on which he or she travels to work.