Luxembourg Tax Administration Clarifies VAT Treatment of Company Cars

What are the VAT obligations for companies in Luxembourg that provide company cars to their employees? If you're not 100% certain, fret not - many employers in Luxembourg have similar doubts. Fortunately, due to some confusion surrounding the VAT treatment of company cars, the Luxembourg Tax Administration has issued a circular clarifying the matter. Here's what your business needs to know. 

Navigating VAT: Treatment of company cars in Luxembourg

According to the circular published on 28 April 2023, employers in Luxembourg are subject to pay a VAT rate of 17% for company cars provided to employees. However, this also means that as company cars now constitute a VATable company expense, employers can fully recover VAT incurred on the related costs. Some of the most significant clarifications surrounded the frequently asked questions on VAT and company cars in Luxembourg. 

When does a supply of services take place in Luxembourg? 

If the employer provides an employee with a company car against remuneration, the supply of services is deemed to take place in Luxembourg. This depends on whether the employer deducted, at least, a part of the VAT incurred on the cost of acquiring or leasing the car. 

What is the taxable amount on leased company cars? 

The taxable amount on company cars is equal to the costs incurred by the employer for supplying the car to the employee. In circumstances where the car is rented or leased, the taxable amount is equal to the rent or lease payments (including any other related costs incurred by the employer). 

What is the taxable amount on purchased company cars? 

If the car is purchased by the employer, the taxable amount will be equal to the depreciation value, calculated for five years, as well as the additional related costs incurred. It's important to note that taxpayers will not be able to deduct VAT if the car is used for VAT-exempt business activities. 

Are there any exemptions or reduced VAT rates for company cars in Luxembourg?

As it currently stands, there are no confirmed exemptions or reduced rates regarding company cars in Luxembourg. The standard rate of 17%, which applies to all supplies of goods and services, will apply. 

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