How to assess the value of the benefit in kind of the company cars from 2023?
15/12/22
In brief
The tax reform introduced by the Grand-Ducal Regulation of 12 May 2022 was set to bring in new rules on how the value of the benefit in kind on company cars will be computed.
This reform includes a transitional period starting on 1 January 2023 and ending on 31 December 2024, with the reform coming into effect on 1 January 2025. How the rules for the determination of the benefit in kind for company cars will apply in each of these periods will depend on the date on which the lease agreement is signed and on the date on which the vehicle is registered.
The Luxembourg Government’s target for 2030:
49% of all cars registered in Luxembourg should be electric.
In details
1. Current rates
Making a company car available that employees may also use for private purposes is considered to be a benefit in kind (BIK) for tax purposes. The taxable benefit in kind can be determined using a lump-sum assessment method. The amount of the benefit to be recorded monthly on the employer’s payroll corresponds to a rate determined by way of a Grand-Ducal Regulation (and which varies according to several parameters). This rate is multiplied by the purchase value of the vehicle when new (inclusive of options and VAT) and after any discounts have been deducted. Current rates are detailed below:
Current rates – percentage to determine the BIK value of the company car (to apply to the purchase price when new, inclusive of VAT) |
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CO2 emission category |
Non-diesel internal combustion engine (ICE) |
Diesel internal combustion engine (ICE) |
Fully electric |
> 0g – 50g/km |
0.8 |
1.0 |
0.5 |
> 50g – 110g/km |
1.0 | 1.2 | |
> 110g – 150g/km |
1.3 | 1.5 | |
> 150g/km |
1.7 | 1.8 | |
2. A two-stage reform
Below are the transitional rates which will apply from 2023 and the new rates which will apply from 2025 onwards.
Reform – percentage to determine the BIK value of the company car (to apply to the purchase price when new, inclusive of VAT) |
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CO2 emission category |
Non-diesel internal combustion engine (ICE) |
Diesel internal combustion engine (ICE) |
Fully electric |
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From 2023 |
From 2025 |
From 2023 |
From 2025 |
From 2023 |
From 2025 |
|
> 0g – 50g/km |
0.8 |
2 |
1.0 |
2 |
0.5 If > 18kWH/100 km: 0.6 |
1.0 If > 18kWH/100 km: 1.2 |
> 50g – 80g/km |
1.0 |
1.2 |
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> 80g – 110g/km |
1.2 |
1.4 |
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> 110g – 130g/km |
1.5 |
1.6 |
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> 130g |
1.8 |
1.8 |
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Overview of the reform:
From 2023:
- The rates for internal combustion engine (ICE) vehicles will increase by 0.2% and they will reach rates up to 1.8%, faster than they did before with the introduction of a new bracket (in bold in the table above);
- The rate for more powerful electric cars (>18 kWh/100 km) will increase slightly (from 0.5% to 0.6%); the rate will be 0.5% for hydrogen cars.
Transitional years:
- The benefit in kind for a car whose lease agreement was signed no later than 31 December 2021 and which is registered no later than 31 December 2022 will continue to be assessed in line with the current rates.
- However, the assessment of the benefit in kind for a car which is registered in 2022 and for which the lease agreement is also signed in 2022 will be reviewed on 1 January 2023, in line with the new rates applicable from 2023, as shown in the table above.
- The benefit in kind for a car whose lease agreement is signed no later than 31 December 2024 and which is registered no later than 31 December 2025 will still be assessed in line with the rates applicable from 2023.
From 2025:
- The rate will be 2% for all ICE cars, regardless of the car’s CO2 emission category;
- The rates for electric cars will increase and reach rates that are equivalent to those applying today to current internal combustion engines (from 1% to 1.2%, depending on the car’s power). The rate for hydrogen fuel cell cars will increase to 1%.
3. Illustration
Vehicle category |
Diesel engine |
Full electric car | Surplus of taxable basis equal to the difference between the fiscal value of a diesel engine and an electric engine for a same purchase price |
| Purchase price of the new car, options included | 38,000.00 | 38,000.00 | 0 |
| Emission rate of CO2/ Electrical power | 125 g/km | >18 KWh | |
| Percentage to apply to the purchase price above when the car is bought in 2022 | 1.50% | 0.50% | |
| Fiscal value of the benefit in kind for 2022 | 570 | 190 | 380 |
| Percentage to apply to the purchase price above when the car is bought in 2023 | 1.60% | 0.60% | |
| Fiscal value of the benefit in kind in 2023 | 608 | 228 | 380 |
| Percentage to apply to the purchase price above when the car is bought in 2025 | 2% | 1.20% | |
| Fiscal value of the benefit in kind in 2025 | 760 | 456 | 304 |
4. Areas of attention
Zero-emission vehicles are tax incentivised and ICE vehicles, including hybrid models, are more heavily taxed.
Company car policies should be reviewed in order to anticipate company car fleets shifting towards fully electric models or hydrogen fuel cell models by the year 2025.
A support scheme will be established to help employers install charging points and Luxembourg will invest heavily into multiplying fast charging points across the country.
The date on which the lease agreement is signed and the date on which the vehicles are registered will determine which tax regime and rates apply. HR teams should pay particular attention to how the various regimes interlink with each other within the same company (2023 and 2025 are transitional years ) and keep track of these both relevant dates.
