Entrepreneur's Vehicle Expenses – How to Reduce Taxes
An entrepreneur’s vehicle expenses can be tax-deductible if the vehicle is part of the company’s business assets. Read about when expenses can be deducted, how a mileage log works, and the difference between personal and business use.
Table of Contents
- Entrepreneur’s Vehicle Expenses – How to do Tax Deductions
- Is the Vehicle a Business Asset or Private Property?
- What Counts as Business-Related Driving?
- Mileage Log: How to Verify Business Use
- Deducting Vehicle Costs in Accounting
- Deductions for a Privately Owned Vehicle
- Vehicles in a Limited Company, General or Limited Partnership
Entrepreneur’s Vehicle Expenses – How to do Tax Deductions
A sole proprietor can deduct vehicle expenses from taxable income if the vehicle is used for business purposes. It is essential to maintain a mileage log and determine whether the vehicle is a business asset or privately owned. All tax deductions are based on the share of kilometers driven for business versus private purposes.
Is the Vehicle a Business Asset or Private Property?
A vehicle is considered a business asset if more than 50% of the annual mileage is for business purposes. In that case, all vehicle expenses can be entered into company bookkeeping, but only the business-use portion is tax deductible.
If business use is 50% or less, the vehicle is classified as private property. In that case, the expenses are not deductible, but the entrepreneur may claim tax-free mileage compensation for business travel.
More information: Finnish Tax Administration’s Guide on Entrepreneur Vehicle Costs
What Counts as Business-Related Driving?
Business-related trips include:
- Travel to warehouse, customer visits, or business-related locations
- Occasional travel outside the primary business area
- Picking up or delivering goods
Private use includes, for example:
- Travel from home to the business office
- Family trips
- Leisure driving
Mileage Log: How to Verify Business Use
A mileage log is a key document to prove how total kilometers are split between business and private use. It can be paper-based, in Excel, or a GPS-based digital system. Record the following:
- Start and end time of the drive
- Start and end location, and route if necessary
- Distance traveled
- Purpose of the trip
- Odometer readings at start and end
- Driver’s name
- Total kilometers driven during the year
Deducting Vehicle Costs in Accounting
If the vehicle is a business asset:
- Expenses such as maintenance, insurance, taxes, fuel, tires, and depreciation are recorded
- Only the business-related portion is tax deductible
- Depreciation is calculated using a maximum 25% declining balance method
Example:
Total expenses: €8,000
Business related kilometers: 13,000 km out of 20,000 km = 65%
Deductible portion: €5,200
Private-use portion (€2,800) is added to the taxable profit
Deductions for a Privately Owned Vehicle
If the vehicle is privately owned but used for business trips, the entrepreneur can claim tax-free mileage compensation (e.g., €0.59/km in 2025).
Example:
Business realted driving: 7,000 km
Deduction: 7,000 x €0.59 = €4,130
Vehicles in a Limited Company, General or Limited Partnership
In a limited company:
- If the vehicle is in the company’s name → all expenses are deductible
- Personal use is taxed as a fringe benefit
In a general or limited partnership:
- Company-owned vehicle: private use is added to taxable income
- Personal vehicle used for business: mileage can be reimbursed tax-free by the company
