When an employer provides a company car to an employee or business owner, Israeli tax law treats the personal benefit as taxable income. This taxable benefit is calculated under the "Usage Value" (Shvi Shiymush) formula.

While having a company vehicle appears to be a luxurious perk, improper calculation can heavily reduce net take-home salary due to substantial Income Tax, Bituach Leumi, and Health Tax deductions added to payslips on Form 106.

1. Key Principles of Car Usage Value Taxation

The standard usage value is calculated at 2.48% per month of the vehicle's official list price when new (adjusted for inflation). For a vehicle with a list price of 150,000 ILS when new, the monthly taxable benefit added to Form 106 is 3,720 ILS.

Depending on the employee's marginal tax bracket (31%, 35%, or 47%) and Bituach Leumi rates (12%), this taxable benefit reduces net monthly salary by 1,500 to 2,500 ILS (or up to 15,000 ILS over 12 months).

2. Electric & Hybrid Car Tax Discounts 2026

To encourage green energy transition, the Tax Authority grants monthly usage value reductions for environmentally friendly vehicles:

  • 100% Electric Vehicles (EV): Monthly usage value reduction of 1,200 ILS from taxable base.
  • Plug-in Hybrid (PHEV): Monthly usage value reduction of 1,000 ILS.
  • Standard Hybrid: Monthly usage value reduction of 500 ILS.

3. Controlling Shareholder Tax Traps

For controlling shareholders of Ltd companies, taking a company vehicle requires careful analysis: while vehicle maintenance and operating expenses are recognized by the company, the high usage value added to personal salary can substantially decrease net income and increase personal Bituach Leumi liabilities.

At Bernstein & Co., we perform corporate fleet tax planning to optimize executive vehicle choices and reduce tax overheads.