The company car landscape in Luxembourg is changing rapidly, influenced by tax and regulatory changes aimed at encouraging sustainable mobility through the adoption of more environmentally-friendly vehicles. Company cars also have a significant economic impact on the local economy, whether in terms of jobs, sales or employee retention in Luxembourg.
The Luxembourg government has revised the calculation of the benefit in kind (BIK). Since January 1, 2025, vehicles with internal combustion or hybrid engines have been subject to a single rate of 2% for the benefit in kind. However, until the end of 2026, 100% electric cars will continue to benefit from more favorable rates, set at 0.5% and 0.6% depending on their energy consumption.
The ecological bonus (Klimabonus Mobilitéit) has been extended but revised on October 1, 2024 to encourage the acquisition of electric vehicles. The amount of the premium for new electric vehicles is now:
The QM ruling of the Court of Justice of the European Union of January 20, 2021 requires that the provision of a company car to an employee be subject to VAT in his country of residence if three conditions are met:
The employer must then apply the foreign VAT and remit it to the relevant tax authorities.
The fact that the private use of a company car involves the payment of VAT is nothing new, but it is now the VAT rates and rules of the country of residence that apply, sometimes requiring appropriate assistance. In addition, in 2023, the AED (Registration Duties, Estates and VAT Authority) clarified the counterparty, and there is also the question of retroactivity, which differs depending on the country of residence. In any case, the company car remains advantageous, even with the application of the QM ruling.
In Luxembourg, the company car plays a central role in the mobility of companies, their employees and especially cross-border workers. They represent an attractive benefit-in-kind, facilitating mobility while optimizing taxation and costs for employers.
The company car represents a major economic asset for Luxembourg, and continues to be a key factor in attracting and retaining talent in an economic context that must remain competitive. It accounts for 54% of new passenger car registrations, contributing to a modern, safe and sustainable fleet.
Finally, it's worth remembering that operational leasing offers real advantages (ease of use, competitiveness, total absence of risk, full integration of services for a fixed budget, preserved borrowing capacity, integration and pre-financing of bonuses, and tax benefits) making it totally unadvantageous to convert the vehicle budget into a salary.
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