Vehicle Leasing vs. Car Allowance Comparison
Vehicle Leasing vs. Car Allowance Comparison
When meeting your company’s vehicle needs, choosing between providing employees with a cash car allowance and allocating company vehicles is often not easy. Both models have their own financial, tax, and operational implications. With the Vehicle Leasing vs. Car Allowance Comparison tool developed by Hedef Filo, you can see which option is more suitable for your company in just a few minutes.
At first glance, a cash car allowance may seem like a simpler and more affordable solution. However, when income tax, Social Security Institution (SGK) contributions, and stamp tax are factored into payroll calculations, every Turkish lira paid to an employee generates a cost for the company that is significantly higher than the amount paid. With long-term vehicle leasing, on the other hand, the rental fee is a direct operating expense, and all operational costs associated with the vehicle are included in the rental fee. The comparison tool presents these two models side by side, using the same assumptions.
For the car allowance option, you can enter the monthly net allowance amount to be paid to the employee and the employee’s monthly gross salary. The gross salary directly affects the result, as it determines which income tax bracket the allowance falls into and whether the Social Security Institution (SGK) contribution ceiling is exceeded.
For the leasing option, simply enter the monthly rental fee. The inclusion of operational costs such as Motor Vehicle Tax (MTV), compulsory traffic insurance, comprehensive insurance, maintenance and repairs, winter tires, tire storage, replacement vehicles, and vehicle inspections in the rental fee allows for a comparison based on a single cost item. Tax parameters such as the corporate income tax rate, the monthly rental expense deduction limit for passenger vehicles, and the applicable operating expense deduction rate are also included in the calculation.
Once all this data is combined, the car allowance and long-term leasing scenarios are presented in a detailed comparison table. This allows you to clearly see your company’s payroll burden, net after-tax cost, and total vehicle cost per employee.
Hedef Filo’s Vehicle Leasing vs. Car Allowance Comparison tool accelerates decision-making processes while enabling human resources and finance teams to work with the same figures. In the following sections, you can find the tax implications of the allowance, the costs of both models for the company and the employee, and the criteria you should consider when making your decision.
A car allowance is a cash benefit paid monthly by a company to its employees to enable them to acquire and use their own vehicles instead of being provided with company vehicles. Known internationally as a “car allowance,” this model is also referred to in Türkiye as vehicle assistance, cash car allowance, or automobile allowance.
Under this model, the vehicle is owned by the employee, who is also responsible for purchasing, insuring, maintaining, replacing tires, and reselling the vehicle. The company is only responsible for making the allowance payments. This is where the two models differ: companies seeking to transfer operational responsibilities prefer the car allowance model, while those prioritizing cost predictability and brand control tend to opt for long-term vehicle leasing.
Cash car allowance payments made to employees are classified as wages under the Income Tax Law. This means that the allowance must be included in payroll and is subject to all statutory deductions and contributions applicable to wages:
Income Tax Withholding: Tax is withheld at rates ranging from 15% to 40%, depending on the employee’s cumulative taxable income. Since the allowance is added to the employee’s existing salary, it often falls within the employee’s highest applicable tax bracket.
Social Security Contributions (SGK): The allowance is included in earnings subject to social security contributions. In 2026, the employee contribution rate is 15%, while the employer contribution rate is 21.75% after applicable reductions. Together, these contributions amount to approximately 37% of the gross amount.
Stamp Tax: Wage payments are subject to stamp tax at a rate of 0.759%, which is added to the total payroll cost.
Looking at the figures makes the difference clearer. In a scenario where the employee’s earnings are below the Social Security Institution (SGK) contribution ceiling and fall within the 27% income tax bracket, a net car allowance of TRY 15,000 corresponds to a gross amount of approximately TRY 24,500, while the total cost to the employer is approximately TRY 29,800. The employer’s total cost for the same allowance is approximately TRY 25,500 in the 15% tax bracket and TRY 36,400 in the 40% tax bracket. When the employee’s earnings exceed the SGK contribution ceiling, the situation changes again as the additional social security contribution burden no longer applies. This is why the comparison tool asks for the employee’s gross salary.
In short, there is a significant difference between the net car allowance received by the employee and the gross cost incurred by the company. Considering only the amount paid when calculating the cost of a car allowance leads to a fundamentally flawed basis for decision-making. It is recommended that you consult your financial advisor to assess the specific implications for your company.
The expense deduction limitations for passenger vehicles were introduced by Law No. 7194, and the limits are updated annually based on the revaluation rate. The limits applicable in 2026 are as follows:
Monthly Rental Expense Deduction Limit: For passenger vehicles, monthly rental payments of up to TRY 46,000, excluding VAT, can be deducted from taxable income. Any amount exceeding this limit is considered a non-deductible expense for tax purposes.
Operating Expense Deduction Rate: Only 70% of operating expenses such as fuel, maintenance, repairs, insurance, and parking can be recorded as tax-deductible expenses. The remaining 30% is considered a non-deductible expense for tax purposes.
Vehicle Purchase Deduction Limit: For purchased passenger vehicles, up to TRY 1,200,000 of the total Special Consumption Tax (SCT) and Value Added Tax (VAT) can be directly deducted as an expense. The depreciation base limit is TRY 1,380,000, excluding SCT and VAT. When these taxes are included in the acquisition cost or when a used vehicle is purchased, the applicable limit is TRY 2,600,000.
Since the payments made under long-term vehicle leasing are classified as direct operating expenses, leasing expenses reduce the company’s taxable income within these limits. Although cash car allowances can also be deducted as expenses, the additional payroll-related costs increase the total cost. This is the key difference between the two models from a tax perspective.
The cost of a car allowance to a company is not limited to payroll expenses: severance pay liabilities, recurring annual pressure to increase allowance amounts, loss of brand control, replacement vehicle risks, and employee benefit equity are aspects of this model that are not reflected in the direct costs.
Impact on Severance Pay: Since the allowance is classified as wages, it may be included in severance pay calculations and create an unexpected long-term liability.
Pressure to Increase Allowances: The allowance amount is expected to be adjusted annually in response to salary increases and inflation, making costs unpredictable.
Brand and Image Control: The age, maintenance condition, and insurance coverage of an employee’s vehicle are beyond the company’s control. Vehicles used for client visits directly impact the corporate image.
Operational Continuity: If the vehicle breaks down, the employee is responsible for arranging a replacement vehicle, while the company bears the risk of business disruption.
Employee Benefit Equity: Managing perceptions of fairness becomes more challenging between employees who receive a car allowance and those who do not, as well as between teams using different vehicle segments.
From the employee’s perspective, the answer depends on how frequently the vehicle is used: a car allowance is more advantageous for employees who drive fewer kilometers and prefer to choose their own vehicle, while a company car is more beneficial for employees who frequently drive for fieldwork.
A car allowance offers employees the freedom to choose their own vehicle, and they retain ownership of the vehicle when they leave the company. However, due to the taxation of the allowance, the net amount they receive may be lower than expected. They also bear full responsibility for the vehicle purchase down payment, loan interest, insurance, maintenance, tires, and, most importantly, the risk of depreciation in the vehicle’s resale value.
Under the company car model, on the other hand, employees use a vehicle with no down payment, all expenses covered, and replacement vehicle support in the event of a breakdown. Therefore, particularly for field-based teams and employees who drive high mileages, a company car offers greater employee satisfaction than a cash car allowance.
When determining the car allowance amount, factors such as job level, vehicle segment, and estimated annual mileage are generally taken into account. For an accurate calculation, the allowance is expected to cover the employee’s costs of acquiring and operating a vehicle in that segment: the monthly portion of the vehicle purchase price, Motor Vehicle Tax (MTV), compulsory traffic insurance and comprehensive insurance, maintenance, tires, and depreciation.
When these cost items are added together, the resulting amount exceeds the car allowance initially estimated by most companies. Moreover, since this amount must be paid on a net basis, the total cost to the company increases further when it is grossed up to account for taxes and statutory contributions.
In terms of recruitment and employee retention, a company car is more effective because it offers a tangible benefit that candidates can use from day one, without its value being diminished by tax deductions.
Employee benefits are among the most visible tools for attracting and retaining qualified employees. Providing a company car creates a strong competitive advantage during the job offer stage, while the perceived value of a cash allowance diminishes after tax deductions. In addition, a corporate fleet increases the brand’s visibility in the field and gives employees a shared sense of corporate identity.
For most companies, long-term vehicle leasing is more advantageous because a car allowance is classified as wages and is subject to payroll-related costs, whereas the leasing fee is treated directly as an operating expense.
Although a cash car allowance offers ease of administration, its taxation as wages, impact on severance pay, and pressure for annual adjustments can increase total costs unpredictably. In contrast, long-term vehicle leasing offers a more predictable structure through fixed monthly payments, the inclusion of all operational expenses in the contract, and its classification as a direct operating expense. When the other advantages of fleet leasing are taken into account, the difference becomes even more pronounced.
However, a cash car allowance may still be a viable option for positions with low vehicle usage; therefore, the decision should be made on a position-by-position basis using actual figures.
If you would also like to include the purchasing option in the comparison, you can use the Vehicle Purchase vs. Leasing Comparison tool alongside this tool.
The decision on vehicle-related employee benefits should be based on the total cost to the company, rather than the allowance amount. When the net allowance is grossed up and employer social security contributions are added, the resulting amount often exceeds the monthly leasing fee of a vehicle in the same segment. Making the comparison on a position-by-position basis using your own figures is the most practical way to manage your employee benefits budget without unexpected costs.
After reviewing the actual cost per employee, if you would like to evaluate vehicle and service packages suitable for your company, fill out the long-term leasing quotation form and let Hedef Filo’s portfolio managers prepare a customized fleet plan for your company.
