Company Car Depreciation

Company car depreciation spreads the acquisition cost of a vehicle recorded as a company asset over its useful life, for both accounting and tax purposes. This mechanism reduces taxable income each year, but only within a tax cap that depends directly on the vehicle’s CO2 emissions. Useful life, calculation method, 2026 caps and special cases for electric or leased vehicles: this guide details the rules for depreciating a company car without an unpleasant tax surprise.

Company car depreciation: the essentials

• Reference period of 5 years for a new passenger car, with adjustments depending on vehicle type.
• Straight-line method mandatory for passenger cars, declining-balance method reserved for utility vehicles.
• Tax deduction cap ranging from 9,900 to 30,000 euros depending on CO2 emissions.
• Any amount above the cap must be added back to taxable income every year.
• No accounting depreciation for a vehicle under long-term rental or finance lease, replaced by lease payments booked as expenses.

2026 scale: depreciation caps by company vehicle

The French general tax code limits the tax-deductible share of a passenger car’s depreciation based on its CO2 emissions measured under the WLTP cycle. This cap applies to any vehicle acquired in 2026, whether bought outright or on credit.

When the acquisition price exceeds the corresponding cap, the excess portion becomes non-deductible depreciation: it must be added back to the company’s taxable income every year. A combustion vehicle bought for 30,000 euros and emitting 145 g/km of CO2, for instance, would be capped at 18,300 euros, with 11,700 euros to add back. Utility vehicles escape this scale entirely: their depreciation stays fully deductible whatever their emissions.

What is company car depreciation?

Once a vehicle is recorded as a company asset, it becomes a tangible fixed asset from an accounting standpoint. This means its acquisition cost cannot be deducted all at once: it must be spread over its estimated useful life, a schedule that reflects the vehicle’s progressive loss of value, whether from mechanical wear, technological obsolescence, or a lower resale value.

This spreading effect serves two purposes. On the accounting side, it lowers the vehicle’s net book value each year, in line with its actual economic value. On the tax side, each annual instalment is a deductible expense against taxable income, but only within the cap described above. This is why choosing a vehicle for the business, covered in more detail in this guide on how to choose a company car, cannot be separated from anticipating how it will be depreciated.

Tracking depreciation does not stop once the annual instalment is calculated. Each financial year, the company must update the vehicle’s net book value, which later serves as the reference for any taxable gain or loss on disposal. It is also worth regularly reviewing the vehicle’s actual use and the useful life assumed, especially whenever a change in tax rules shifts the applicable deduction thresholds.

What is the depreciation period for a company car?

The depreciation period is the length of time over which the vehicle’s acquisition value is spread and deducted. For a new passenger car, the reference period is 5 years, roughly matching its average economic useful life in professional use.

This period is not fixed, however, and should reflect the vehicle’s actual use:

• 4 years for some electric or mild-hybrid vehicles, less exposed to mechanical wear.
• 3 to 4 years for a used vehicle, already partly depreciated at the time of purchase.
• 6 to 8 years for a utility vehicle used intensively, or a heavy goods vehicle.

The chosen period should always be justifiable against the fleet renewal policy and the vehicle’s actual intensity of use, a point worth documenting from the outset to limit the risk of a tax adjustment.

Straight-line or declining-balance: which method to choose?

Two calculation methods exist for depreciating a company car, but their use is not a free choice: the vehicle type determines which method is allowed.

The straight-line method spreads the acquisition cost strictly evenly over the whole period chosen. It is the only method allowed for standard passenger cars. Over a 5-year period, the annual rate applied is therefore mechanically 20%.

The declining-balance method deducts a larger share of the cost in the early years, then a shrinking share applied to the remaining book value. This method is reserved for utility vehicles, vehicles used for collective transport, or certain professional equipment: it never applies to a passenger car, even when used for business purposes.

How do you calculate company car depreciation?

The calculation follows several steps. The starting point is the vehicle’s acquisition cost: the purchase price including or excluding tax depending on whether the company recovers VAT, plus registration and delivery fees, and non-deductible taxes such as the ecological penalty. This base is then used to apply the chosen method, followed by the tax cap based on the vehicle’s CO2 emissions.

On VAT specifically, the general rule remains non-recovery for a passenger car, so the depreciable base is calculated including tax. Exceptions exist for certain activities, such as driving schools or taxi and ride-hailing operators, as well as for utility vehicles, which allow VAT recovery and are therefore calculated excluding tax, lowering their taxable acquisition cost accordingly.

Example under the straight-line method

A company buys a passenger car for 25,000 euros, depreciated over 5 years. The deductible annual instalment is 25,000 / 5, or 5,000 euros per year, provided this amount stays within the cap applicable based on the vehicle’s CO2 emissions.

Example under the declining-balance method

For a utility vehicle acquired for 25,000 euros with a declining-balance rate of 25%, the first instalment is 6,250 euros (25% of 25,000 euros). In the second year, the rate applies to the remaining book value of 18,750 euros, giving an instalment of 4,687.50 euros, and so on until the vehicle is fully depreciated.

Electric vehicles, long-term rental or finance lease: special cases

Electric and hybrid vehicles

Fully electric vehicles benefit from the most favourable deduction cap, at 30,000 euros against 18,300 euros for a standard combustion vehicle emitting between 50 and 160 g/km. An additional advantage has existed since 2026: when the battery appears as a separate line item on the invoice, it can be depreciated separately, without being subject to the cap applied to the rest of the vehicle. This favourable tax treatment for low-emission vehicles comes alongside other notable changes for the business, including the calculation of the company car benefit in kind granted to employees who use one, whose rules have also changed in 2026.

Long-term rental and finance lease, a notional depreciation to know about

A vehicle under long-term rental or finance lease does not appear on the company’s balance sheet, since the company does not own it: no accounting depreciation is recorded at all. Lease payments are booked directly as deductible expenses, at their actual amount. A corrective mechanism exists nonetheless: if the lease reflects a vehicle priced above the applicable tax cap, a notional excess depreciation must be added back to taxable income, exactly as for a vehicle depreciated the standard way. This point is worth checking before signing a contract, an arbitration detailed in this guide on long-term car rental for business, particularly for high-end or high-emission vehicles.

Beyond depreciation alone, the tax treatment of a business vehicle fits into a broader cost calculation: the guide on how to reduce business transport costs details the other levers to combine, from the choice of financing to eco-driving, to control the fleet’s total cost of ownership.

Frequently asked questions