Which European countries pay the least and most car tax?

Taxes related to the purchase, registration and use of vehicles are a significant source of revenue for governments. Taxation is increasingly used to influence consumer behavior regarding energy and the environment, in particular the transition to net zero greenhouse gas emissions in recent years.

The level and structure of taxes, which may include value added tax (VAT), sales tax, excise duty and other charges and fees, when buying a new car can vary widely across Europe.

So how does VAT on passenger cars compare in Europe? How much tax do Europeans pay when they buy cars? How do car prices differ before and after tax on the continent? Euronews Business takes a look.

In 2022, VAT rates on car purchases varied between EU members from 17% in Luxembourg to 27% in Hungary, according to the European Automobile Manufacturers Association (ACEA).

In most EU countries, people pay 20% or 21% VAT when buying new cars. There are only six countries where the VAT rate is above 23%.

The VAT rate is not the main reason why car prices vary widely before and after tax across Europe. Other taxes, fees and bonuses largely cause this. Rather than simply comparing VAT rates, it is more useful to look at the price before tax and the final price which includes all taxes and fees.

Based on the Organization for Economic Co-operation and Development (OECD) consumption tax trends report for 2022, we can look at the prices of some typical electric, hybrid and internal combustion engine cars in four categories.

Category A specifications are: SUV/Hatchback electric engine, power 150 KW (204 hp), battery capacity 58 kWh, consumption 17 kWh/100km, weight 1730 kg, CO2 emissions 0 g/km, battery range over 400 km (e.g. Volkswagen ID3 implementation).

In 2022, the price of a Category A car was $33,000 (€31,339) before taxes in the simulation. When taxes were included, the price ranged from €26,938 in France to €59,168 in Turkey.

The final price is lower than the price before tax in France and Germany

The final price was lower than the pre-tax price in France (€26,938), Luxembourg (€27,732) and Germany (€31,295), reflecting the level of bonuses in these three countries. In France, people paid €4,400 less than the pre-tax price when they bought an A-category car, thanks to the ‘green bonus’.

At the top, Turkey is followed by Hungary (€39,801), Poland and Denmark (both €39,174).

People in Norway did not pay any taxes or fees according to the OECD report. People in the other two Scandinavian countries, Sweden and Iceland, pay less than €100 in tax.

Taxes were less than €3,000 in Lithuania, Greece, Slovenia and Switzerland when buying a Category A car priced at €33,339 before taxes.

Taxes for car with higher power and battery capacity

The power and battery capacity are higher Category B cars in the simulation. The specs are: Sedan electric engine, power 370 kW (496 hp), battery capacity 82 kWh, consumption 15 kWh/100km, weight 1830 kg, CO2 emissions 0 g/km, battery range over 400 km (example Tesla Model 3 Long Range Dual Motor) .

When priced at €52,232 (US$55,000) before taxes in the B category, the final price ranged from €52,009 in France to €98,163 in Turkey. A person in Turkey had to pay 46,831 euros in tax to buy this car.

In France and Luxembourg, the final price was lower than the pre-tax price as both governments promoted zero-emission vehicles (ZEVs).

Like category A, Norway does not charge any tax for category B cars, and people in Iceland pay less than €1,000 in tax in the simulation.

Apart from Turkey, people in Hungary, Ireland, Poland and Denmark paid more than €13,000 in tax for a category B car.

Taxes on hybrid cars

Category C specifications are: sedan hybrid electric/fuel engines, 1.8 liter petrol engine, power 121 kW (162 hp), unleaded petrol 95–98 RON, consumption 4.5 l/100 (combined) and electric 53 kW (71 hp) engine, 1.3 kWh battery capacity, 1,800 kg weight, 115 g/km CO2 emissions, less than 10 km battery range, 3 mg/km NOx emissions (example Toyota Corolla Hybrid LE).

The pre-tax price was €21,842 ($23,000) in the simulation. In this case, the final price, including all taxes, varies from 21,494 euros in Germany to 46,393 euros in Turkey.

Although the highest price was in Turkey, it was not an outlier in this modeling. Turkey is closely followed by Denmark (€45,633) and Norway (€45,062). In these three countries, the amount of the tax was greater than the pre-tax price. This means that the final price was more than twice the pre-tax price, indicating the level of taxation.

People in France, Iceland and Luxembourg also pay less tax than other European countries in this category.

Taxes rise significantly for internal combustion engines

Category D the vehicles in the simulation consisted of only those with internal combustion engines. The specifications are: pick-up 4×4 with combustion engine, unleaded petrol 95-98 RON, cylinder volume 3.5 liter V6, power 300 kW (400 hp), consumption 12.4 l/100, CO2 emissions 296 g/ km, NOx emissions 20 mg/km, weight 2,200 kg; price USD50,000 (example Ford F-150 Ecoboost V6).

Where the pre-tax price was 47,483 euros ($50,000) in 2022, the final price ranged from 53,289 euros in Switzerland to 179,297 euros in Turkey. There were no states where people paid less than the pre-tax price for a Category D vehicle.

Taxes are more than twice the pre-tax price in 7 countries

Taxation is obviously highest for vehicles with internal combustion engines. The amount of tax is more than twice the price without tax in seven out of 27 European countries.

To buy a category D vehicle at a price of €47,483 before tax, the final prices people had to pay in 2022 were: €179,297 in Turkey, €146,716 in Denmark, €122,820 in the Netherlands, €117,759 in Norway, €105,898 in Finland, €96,519 in Iceland and €95,599 in France.

Apart from Sweden, where the final price was €59,354, people from the Nordic countries topped the list, paying the most for vehicles with internal combustion engines.

Looking at the average annual tax revenues per motor vehicle in the main EU markets, they differed significantly in 2022. Spain (€1,148) collected the least taxes per vehicle, while Belgium (€2,892) collected the most.

This figure is €1,625 in France, €1,764 in Germany and €2,723 in Finland.

Germany collected €34.2 billion in VAT revenue on vehicle sales, servicing, repairs and parts, as well as sales and registration taxes. This figure was just over €20 billion in France (€21.7 billion) and Italy (€20.8 billion) in 2022.

Denmark, Sweden and Finland collected more than €2 billion in this category, while Greece (€1.2 billion) and Ireland (€1.5 billion) recorded the least.

The total tax on vehicles is almost €400 billion in 13 EU countries

Motor vehicles are responsible for €374.6 billion in tax revenue for the thirteen EU countries in the graph above.

In addition to sales and registration taxes, this figure includes annual property taxes and, more importantly, fuel and lubricant taxes.

Turkey is far outside the country relying on a special consumption tax

OECD data shows that in 2022, Turkey is a state of emergency for vehicle taxation in all categories. The highest prices were registered in Turkey in all four simulations. People first had to pay a very high rate of special consumption tax (ÖTV), which was between 60% and 220%. They then had to pay VAT (18%) on that.

In 2023, the minimum ÖTV rose to 80% and VAT to 20%. So the final prices would be higher if the simulation was based on the 2023 regulations.

By July 2023, ÖTV’s revenue from vehicles will account for 10% of all taxes collected by the government. This does not include VAT and other charges, which shows how much the government relies on special taxes.

The cheapest places to buy electric cars

Final prices are lowest in France and Luxembourg for both types of electric vehicles. Final prices were below the pre-tax price in both countries thanks to the bonuses. People in France and Luxembourg paid virtually no taxes, but were happy to pay less than the pre-tax price.

People in Germany, Norway, Iceland and Sweden were also lucky compared to other countries, paying less taxes and fees for electric vehicles.

As regards the taxation of vehicles with internal combustion engines, the policies of France and Norway have changed. Both countries were ranked in the top 7 in this category. Norway also ranks third in hybrid vehicles.

OECD: Taxation can help green transition

Globally, transport was responsible for 25% of direct CO2 emissions from fuel combustion in 2018, mainly road transport according to the ITF Transport Outlook.

“Well-designed taxes can be very effective in reducing pollution and greenhouse gas emissions,” the OECD Consumption Tax Trends report states.

Meanwhile, in 17 of the OECD members in Europe, CO2 emissions are directly taken into account to determine the level of taxation. These include Austria, Belgium, Czech Republic, Denmark, Finland, France, Greece, Iceland, Ireland, Italy, Lithuania, Netherlands, Norway, Portugal, Slovenia, Spain and Sweden.

In 2022, some European countries such as France, Germany, Italy and Sweden granted a “bonus” to buyers of selected vehicles with low or no CO2 emissions. This may be a subsidy paid by the government or local authority when the vehicle is purchased.

A malus, which is an additional tax, fee or charge, was imposed on vehicles with high CO2 emissions in some countries, including Belgium, France, Italy and Sweden.