Tax provisions for company cars for employees (leasing)
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The provision of a company car (purchased or leased by the employer) is a common practice in Luxembourg and is part of the compensation policy of many employers.
When an employee is provided with a company car for their professional and private use (e.g., trips between the employee's place of residence and their place of work, etc.), the car is considered to be a benefit in kind which is taxable as income from paid employment and subject to social security contributions.
When an employee purchases a company car (owned by the employer or leased with an option to purchase) at a price below market price, the car is also considered to be a benefit in kind which is taxable as income from paid employment and subject to social security contributions.
Who is concerned
How to proceed
Methods of evaluation
When an employee is provided with a company car for their personal use, the car is considered to be a taxable benefit in kind.
There are 2 methods for evaluating the benefit in kind.
The flat-rate method
The benefit in kind is assessed at a monthly flat rate of 1.5 % of the value of the vehicle when new (including options and VAT) less any discount given by the seller. The evaluation of the benefit in kind is identical for used cars.
Example:
Price of the vehicle when new (VAT and options included, less the discount granted by the seller): EUR 29,000
Taxable monthly benefit in kind: 1.5 % x 29,000 = EUR 435
The monthly benefit in kind assessed using the flat-rate method is subject to withholding tax on salaries and social security contributions as income from paid employment.
The logbook method
The employee keeps a logbook and records the number of kilometres travelled when the vehicle is used in a professional capacity. The number of kilometres travelled when the vehicle is used in a private capacity is therefore equal to the difference between the total number of kilometres travelled and the number of kilometres travelled when the vehicle is used in a professional capacity. The amount of the taxable benefit corresponds to the ratio of the cost of the vehicle and the kilometres travelled, multiplied by the private kilometres. Preferably, this should be calculated monthly.
The monthly benefit in kind assessed using the logbook method is subject to withholding tax on salaries and social security contributions as income from paid employment.
Impact of leasing in the event of dismissal or collection of a pension
In the event of dismissal, the cost of leasing a vehicle that increases the gross taxable income is taken into account for the calculation of severance pay. This increase in gross compensation will also have an impact on the calculation of unemployment benefits. However, the statutory severance pay will not be increased.
Under certain conditions, the amount of pension will be increased if a benefit in kind is received.
Employee contributions to various expenses
There are 2 types of employee contributions to expenses.
Employee contributions to maintenance costs/leasing or rental costs
If an employer provides an employee with a company car in return for a fixed flat-rate contribution (deducted from the employee's net compensation) to the maintenance costs/leasing or rental costs, that contribution will be deducted from the benefit in kind.
However, the contribution to the deductible cost of the lease is limited to 20 % of the cost paid by the employer. The Luxembourg Inland Revenue (Administration des contributions directes) considers that a contribution of more than a 20% to the cost of the lease is motivated by personal considerations.
Example:
Price of the vehicle when new (VAT and options included, less the discount granted by the seller): EUR 29,000
Monthly benefit in kind: 1.5 % x 29,000 = EUR 435
Monthly cost of the lease paid by the employer: EUR 600
Employee's fixed contribution to the monthly cost of the lease (deducted from the employee's net compensation): EUR 150
The employee's deductible contribution to the cost of the lease/rental limited to 20 % x (EUR 600 - EUR 150) = EUR 90. The taxable monthly benefit in kind is 435-90 = EUR 345.
However, variable contributions to the cost of operating the vehicle (fuel, maintenance, repairs, etc.) are not deductible from the amount of the benefit in kind.
Employee's contribution to the purchase price
The employee's contribution to the purchase price of the vehicle does not affect the evaluation of the benefit in kind. This contribution (which is limited to 20 % of the purchase price paid by the employer) can be offset against the value of the benefit by amortisation. The Luxembourg Inland Revenue considers that a contribution of more than 20 % is motivated by personal considerations.
Example:
Purchase price of a new vehicle acquired on 1 October 2011 (VAT and options included, net of the discount granted by the seller): EUR 29,000 euros, including the employee's contribution in the amount of EUR 3,480.
Monthly benefit in kind: 1.5 % x 29,000 = EUR 435
Amortisation of the employee's contribution over 8 months (3,480/435)
For a period of 8 months (October 2011 to May 2012), there is no taxable benefit in kind. From 1 June 2012, the benefit in kind of EUR 435 is subject to withholding tax on salaries.
Purchase of the car by the employee and determination of its value
Employees have the option of purchasing a company car at below-market value. This constitutes a taxable benefit in kind.
Employee purchase of a company car
The purchase by the employee of a company car (belonging to the employer, or on long-term rental or lease with an option to purchase) at a price that is lower than the market price constitutes a taxable benefit in kind and is subject to social security contributions.
The tax base of the benefit in kind corresponds to the difference between the market value of the vehicle at the time of purchase and the price paid by the employee.
Determination of the market value of the vehicle
The evaluation of the benefit raises the issue of having to determine the market value of the vehicle in question. In view of the various factors that may affect this evaluation, and in the interest of tax fairness, the ACD recommends a simplified method for evaluating company car rates when an employee purchases the vehicle.
For example:
Price of the vehicle when new (VAT and options included, less the discount granted by the seller): EUR 29,000
Purchase price paid by the employee (generally 10 % of the price of the vehicle when new in financial leases): EUR 2,900
Age of vehicle: 36 months
Market value of vehicle: EUR 13,050
The benefit in kind of EUR 10,150 euros (13,050 - 2,900) is subject to withholding tax on salaries and social security contributions as income from paid employment.
Online services and forms
My data
Who to contact
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Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Related procedures and links
Procedures
Links
Legal references
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Article 95 de la loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
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Article 104 de la loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
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Circulaire LIR n°104/1 du 1er septembre 2015
Évaluation de certains avantages accordés par l’employeur à ses salariés a) Mise à la disposition à titre gratuit ou à loyer réduit d’une habitation, b) mise à la disposition à titre gratuit ou à prix réduit d’une voiture de service que le salarié peut utiliser pour ses besoins privés
