Company cars in Luxembourg: benefit in kind, the 2027 increase and VAT

How do you calculate the benefit in kind of a company car?

A car belonging to the employer (bought, leased or hired) that the employee may use privately, including for commuting, creates a benefit in kind subject to tax withholding and social contributions (Grand-Ducal Regulation of 23 December 2016). The employer calculates it every month, using one of two methods:

• Flat rate: a monthly percentage of the overall purchase price of the vehicle when new, options and VAT included, less any discount. The same base applies to leased and hired cars and to used cars.
• Logbook: the employee records all private journeys, commuting included; the benefit equals private kilometres multiplied by the cost per kilometre set by the employer. The logbook is attached to the payroll account and the calculation is monthly.

The flat rate depends on the engine type and on the date of first registration, or of signature of the contract. The CO2 category (WLTP standard since the 2021 tax year) and the energy consumption are shown on the registration certificate and the certificate of conformity, which serve as proof. If the employer only pays the costs of the employee's private car, it is not a company car: those costs are taxable salary (see expense claims in Luxembourg). A bicycle, even an electrically assisted one, made available to an employee creates no taxable benefit.

Which benefit in kind rate in 2026, and what changes in 2027 for electric cars?

Under the current regulation, these dates set the car's rate for its whole period of use. Cars registered from 2017 to 2021 follow a scale of 0.5% to 1.8% depending on CO2. On 5 October 2026, no text published on Legilux extends the 0.5% rate beyond the dates in the table.

Employee contribution: what reduces the benefit, with a worked example

The employee's contribution only reduces the taxable benefit if it is fixed:

• a fixed flat contribution is deducted from the benefit;
• a contribution per private kilometre is only deducted with a logbook;
• variable costs paid by the employee (fuel, servicing, repairs) are never deducted from the flat rate;
• a contribution to the purchase price is amortised against the benefit, up to 20% of the price; a contribution to a lease is deducted as a fixed contribution, up to 20% of the cost borne by the employer.

Over a 48-month lease, moving from 0.5% to 1% adds €240 of taxable benefit a month, or €11,520 over the term. If the car is granted in exchange for a salary cut, the flat rate does not apply: the salary cut is compared with the real value of the benefit, and other costs borne by the employer are taxed at their actual value (Article 7 of the regulation and Circular L.I.R. No. 104/1 of the Luxembourg Inland Revenue). If the employee buys the car at a preferential price, the taxable benefit is its market value (depreciation table in the regulation or expert valuation) less the price paid; added to the benefit already taxed, recalculated at 1.5%, it cannot exceed the car's purchase price, less the employee's deductible contributions (Article 5).

VAT on company cars: private use, employee contributions and cross-border staff

The VAT treatment turns on one question: does the employee give anything in return for the car? The rules below come from the VAT Directive (2006/112/EC) and the Court of Justice of the European Union (CJEU).

• Deduction: the company deducts VAT on the purchase or lease used for its taxable transactions; only Luxembourg VAT is deductible in Luxembourg, and the deduction is partial if the company also has exempt activities.
• Free car: with no payment, no salary sacrifice and no choice between benefits, providing the car is not a supply for consideration, even if income tax treats it as a benefit in kind (CJEU, 20 January 2021, QM, C-288/19, about cars of a Luxembourg company provided to employees living in Germany). But private use of a business asset by staff is treated as a supply of services if the asset gave a right to deduction, on a base equal to the costs incurred (Articles 26 and 75 of the Directive).
• Car with consideration: if the employee pays a rent, gives up part of their salary for it or chooses the car instead of other benefits, providing the car can be a supply for consideration. If the employee then has the car permanently at their disposal, including for private purposes, for an agreed period of more than 30 days, it is a long-term hire, taxable where they live or usually reside: French, Belgian or German VAT for a cross-border worker (Article 56 of the Directive).

Illustration of the principle, on simplified assumptions: a Luxembourg company that deducts all its VAT, a lease of €700 excluding VAT a month (€119 of VAT at 17%), energy and servicing of €150 excluding VAT (€25.50 of VAT), private use of 25% according to the logbook.

These amounts illustrate the principle, not a validated method. Have your VAT adviser validate the base used, the private share (with or without commuting), the case of a contribution below the normal value, and how to declare foreign VAT: registration in the country of residence or the EU One-Stop Shop (OSS).

Klimabonus, speed camera fines and records to keep

The Klimabonus is a grant for a new electric or hydrogen car registered in Luxembourg, open to individuals and private-law legal entities (Climate Law, Articles 15-1 and 15-2, introduced by the Law of 24 July 2025):

• contract signed by 30 June 2026 and first registration by 30 June 2027;
• for contracts signed since 1 October 2024: electric, €6,000 up to 160 Wh/km, €3,000 up to 180 Wh/km (or 200 Wh/km with at most 150 kW); hydrogen, €6,000; capped at 50% of the cost excluding VAT;
• for a lease, the keeper may apply if the owner waives the grant, with a lease of at least 36 months; for an electric car, a 100% green electricity contract is required, and the car must not be sold or exported within 36 months.

Bill No. 8725 would extend the grant, at the same amounts, to contracts signed from 1 July 2026 to 30 June 2030, and would require a lessor who receives it to pass it on in full in the rent. It had not been passed on 5 October 2026: for a contract signed since 1 July 2026, do not count on the grant.

A speed camera notice is sent to the keeper or owner, who may name the driver within 45 days (one more month for a non-resident) through a dated and signed statement: surname, first name, date of birth, sex, address. The fixed fine ranges from €49 to €145; a false statement is punishable by €251 to €10,000. Keep a car allocation register for this purpose. Finally, for each car, keep for 10 years the contract or invoice showing the list price, options and discount, the dates of signature and first registration, and the certificate of conformity (CO2, Wh/km, kW).

Common mistakes

• Taking the price excluding VAT or without options as the base: the benefit is calculated on the new list price, options and VAT included, less any discount.
• Ordering at the end of 2026 an electric car that will be registered in 2027, with no contract signed by 31 December 2026: the rate rises from 0.5% to 1% for the whole term.
• Deducting fuel or servicing paid by the employee from the benefit: only a fixed contribution is deducted.
• Funding the car through a salary sacrifice without measuring the effect: the flat rate no longer applies, and VAT can become due on a hire, in the employee's country of residence.
• Believing a free car escapes VAT: under the Directive, private use of an asset on which VAT was deducted is taxed.
• Signing a lease of under 36 months while counting on the Klimabonus, or taking its extension for granted while Bill No. 8725 has not been passed.

Your checklist

• Build a file for each car: list price, options, discount, contract date, date of first registration, certificate of conformity.
• Set the rate (0.5%, 0.6%, 1%, 1.2% or 2%) from these dates and keep it for the whole term.
• Calculate the benefit in kind every month and subject it to tax withholding and contributions.
• Put the employee's fixed contribution in writing and check the 20% cap.
• For an electric car ordered at the end of 2026, have the contract signed by 31 December 2026.
• Document the VAT treatment of private use and contributions with your VAT adviser, including the employee's country of residence.
• Keep a car allocation register so you can name the driver within 45 days.
• Keep contracts, invoices and certificates for 10 years.

Frequently asked questions

Official sources

• Grand-Ducal Regulation of 23 December 2016 (company car benefit in kind), consolidated version of 1 January 2025, Legilux
• Grand-Ducal Regulation of 20 December 2024 amending the rates (Article 3bis), Legilux
• ACD, Circular L.I.R. No. 104/1 of 16 July 2018 (car made available)
• Guichet.lu, Company car and leasing
• Directive 2006/112/EC on the common system of VAT, consolidated version (Articles 26, 56 and 75)
• CJEU, 20 January 2021, QM, C-288/19 (car made available to an employee and VAT)
• Registration Duties, Estates and VAT Authority (AED), Place of supply of services
• Law of 24 July 2025 amending the Climate Law (Klimabonus), Legilux
• Chamber of Deputies, Bill No. 8725 (extension of the Klimabonus)
• Guichet.lu, Paying or contesting a fixed fine

This guide sets out the general rules in force on 5 October 2026. It is not legal advice for your situation (collective agreement, sector, employee status).