Company car benefit in kind in Luxembourg: rates

How is the company car benefit in kind computed in Luxembourg?

The company car benefit in kind in Luxembourg is valued on a flat-rate basis each month, by applying a percentage to the new vehicle value, options and VAT included, less the seller's discount. The percentage depends on the powertrain and on the date of first registration, not on the leasing rent. The scope covers category M1 cars owned or leased by the employer and made available at least partly for non-business purposes.

The legal basis is the amended grand-ducal regulation of 23 December 2016 implementing article 104, paragraph 3 of the income tax law. It has been amended several times, most recently by the grand-ducal regulation of 20 December 2024: the version a payroll department needs is the consolidated one applicable from 1 January 2025.

Two consequences surprise. The benefit does not decrease over time: the base stays the new vehicle value for the whole period the car is made available, with no depreciation. And it does not follow the rent: a lease renegotiated downwards does not reduce the benefit taxed on the employee, whereas a discount obtained at order stage does, because it reduces the base.

The benefit is income from a salaried occupation: it falls within the base of the wage tax withholding and of social security contributions, on the same footing as the other variable items of Luxembourg payroll, whose annual ceilings are set out in our article on Luxembourg social parameters. A forgotten benefit therefore feeds through to the withholding, the contributions and the salary account.

Which rates apply according to the date of first registration?

The company car benefit in kind rates in Luxembourg are read by date of first registration: 1.5% for contracts already running on 1 January 2017, a grid indexed on CO2 emissions for 2023 and 2024 registrations, and a simplified grid of 1%, 1.2% or 2% from 2025 onwards.

The reform presented on 11 January 2022 by the Minister for Mobility and Public Works first tightened the CO2 grid. For 2023 and 2024 registrations, the rate was raised by 0.2 point for most categories above 80 grams of CO2 per kilometre, and the maximum rate of 1.8% applies above 130 g/km, against 150 g/km previously.

For cars with zero CO2 tailpipe emissions, pure electric and hydrogen fuel cell, two rates coexist over that period: 0.5% where electricity consumption does not exceed 18 kWh/100 km, 0.6% above. The consumption threshold was introduced precisely so that a heavy electric vehicle is not treated like a frugal one.

For registrations from 1 January 2025, and provided no contract was signed before 31 December 2024, the grid becomes simpler: 1% for pure electric cars consuming at most 18 kWh/100 km and for hydrogen, 1.2% for pure electric cars above that threshold, and 2% for every other powertrain, petrol, diesel, CNG, LPG, hybrid and plug-in hybrid. The plug-in hybrid loses any intermediate treatment here.

What does the grand-ducal regulation of 20 December 2024 change for electric vehicles?

The grand-ducal regulation of 20 December 2024 extends by two years the favourable transitional rates reserved for pure electric and hydrogen fuel cell cars in Luxembourg: those vehicles stay at the reduced rates if registered up to 31 December 2026, or up to 31 December 2027 under a contract signed by 31 December 2026.

That regulation entered into force on 1 January 2025 and the Luxembourg Inland Revenue relayed it in its newsletter of 10 January 2025. Its effect is asymmetric: the simplified grid bites immediately on combustion and hybrid powertrains, at 2%, while zero-emission powertrains keep the earlier regime for two further years.

The gap is not marginal. On the same new vehicle value of 50,000 euros, one month represents 250 euros of taxable benefit at 0.5% and 1,000 euros at 2%. Over twelve months the difference in base reaches 9,000 euros, withholding and contributions included.

A fleet decision is therefore taken with a calendar in mind, not only with a catalogue. We regularly see orders placed at year end without the file recording which of the two dates governs it, the signature of the contract or the first registration. That check, carried out before the order, fixes the rate for the whole period of availability.

One caveat: the extension bears on the registration date, not on the tax year. An electric vehicle registered in 2026 keeps its reduced rate beyond 2026; registered in 2027 with no earlier contract, it falls under the 1% or 1.2% grid.

Does an employee contribution reduce the benefit in kind?

An employee contribution does reduce the company car benefit in kind in Luxembourg: where the employee pays a fixed flat-rate contribution, deducted from net remuneration, towards maintenance costs or the leasing cost of the vehicle, that contribution is deducted from the amount of the benefit. The deduction is not unlimited, however.

The contribution to the leasing cost accepted as a deduction is capped at 20% of the cost borne by the employer. Above that threshold, the Luxembourg Inland Revenue takes the view that the contribution is motivated by personal considerations, typically the choice of a vehicle more upmarket than the one the role entitles the employee to, and the excess is not deducted from the taxable benefit.

The payroll consequence is direct: the deduction made on net pay must be provided for by the contract or an amendment, and the share exceeding the cap must stay within the base. We regularly see high contributions, agreed verbally, deducted in full in the payroll software. Reconstructing the position after an audit then covers several years.

The exact nature of the contribution therefore matters as much as its amount, and it is the contract that characterises it. A clause referring to a contribution towards costs without saying which costs makes the 20% cap impossible to apply properly, and leaves the employer with no document to produce if the position is checked.

When should a log book be kept instead of applying the flat rate?

The log book is the alternative method to flat-rate valuation of the company car benefit in kind in Luxembourg: the employee records every private journey in it, including journeys between home and the place of work, and the log book is attached to the salary account kept by the employer.

Under that method, the benefit equals the number of kilometres driven privately multiplied by the per-kilometre cost of the vehicle. It is for the employer to establish that per-kilometre cost taking into account the vehicle actually made available. Circular L.I.R. no. 104/1 of 16 July 2018 issued by the director of taxation is explicit on one point: a flat-rate estimate of private mileage is not accepted.

In other words, the log book is not a lighter flat rate, it is journey accounting. On engagements we find it only holds over time for a vehicle used very little privately and a record filled in as journeys happen. A log book reconstructed at year end from fuel invoices does not survive a request for supporting documents.

One statutory safeguard cuts both ways: where applying the valuation rules produces a result manifestly at odds with reality, the valuation must follow article 104, paragraph 2 of the income tax law, at the real value of the benefit.

On the formal side, the Luxembourg Inland Revenue publishes a dedicated benefits in kind form, model 980F, whose first heading concerns the private availability of a car.

What is the VAT effect of making a car available to an employee?

For VAT, making a car available to an employee in Luxembourg turns on a prior characterisation: free of charge or for consideration. Circular no. 807-1 of 21 October 2025 issued by the Registration Duties, Estates and VAT Authority leaves that characterisation to the taxable person, in the light of the contracts negotiated with its employees.

That circular clarifies circular no. 807 of 11 February 2021 and repeals circular no. 807bis of 28 April 2023. It draws the consequences of the judgment of the Court of Justice of the European Union of 20 January 2021, case C-288/19, QM v Finanzamt Saarbrücken.

For consideration, the employer is in the position of a taxable person supplying the hire of a means of transport to a non-taxable person. The Court held that this is a hire other than short-term where the employee may use the vehicle privately for more than thirty consecutive days and exclude other persons from that use, in exchange for a rent. The supply is then taxable in the member state where the employee resides.

For a Luxembourg employer with cross-border commuters, this is the heaviest point in this article: availability for consideration can create a VAT obligation in France, Belgium or Germany, and not in Luxembourg. The taxable amount follows article 28, 1°, a) of the amended VAT law of 12 February 1979, and cannot fall below the open market value.

The circular opens a correction route for a taxable person who had declared private use in Luxembourg while the other member state taxed the hire retroactively: the taxable amount of the private use and the input VAT deduction may be corrected for the period taxed in that state, outside periods time-barred under article 81 of the VAT law. A review of your VAT returns will say whether that route is still open to you.

The mistakes we correct most often

On the company car benefit in kind, the Luxembourg payroll files we take over almost always show the same series of mistakes, and none of them turns on a legal subtlety: they come from a badly established base, a rate fixed too early, or a missing document.

The base computed on the amount paid rather than on the new vehicle value, where the employer acquires a second-hand vehicle or buys the vehicle out at the end of the lease. The flat-rate base is neither the residual value nor the cumulated rent.

The rate applied by reference to the year of the leasing contract rather than to the date of first registration, or the other way round, without the rule on how the two dates coexist having been read for the vehicle concerned.

Options invoiced separately at order stage, left out of the base although the text includes them, VAT included. Conversely, the seller's discount forgotten as a deduction, which overstates both the benefit and the employee's withholding.

Rebuilding a history of that kind means going back to purchase orders, certificates of conformity and availability agreements, vehicle by vehicle. It is documentary work before it is configuration work; our engagement terms are set out on the pricing page.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, authorised accountant (authorisation 10077274). Sources were verified on 30 September 2026, the date on which every rate, threshold, date and legal reference quoted here was cross-checked against an official public source.

The sources consulted are the following. Legilux, for the amended grand-ducal regulation of 23 December 2016 implementing article 104, paragraph 3 of the income tax law, consolidated at 1 January 2025, and for the grand-ducal regulation of 20 December 2024 extending the reduced rates. The Luxembourg Inland Revenue, for its newsletter of 10 January 2025 (registration dates of 31 December 2026 and 31 December 2027, in force from 1 January 2025), its A to Z page on benefits in kind, circulars L.I.R. no. 104/1 of 16 July 2018 and no. 104/1bis of 4 February 2020 (log book, per-kilometre cost established by the employer, flat-rate private mileage not accepted, article 104, paragraph 2) and form 980F. Guichet.public.lu, for its page on a company car under a lease (new vehicle value including options and VAT less the seller's discount, taxation as salaried income, liability to contributions, cap of 20% of the cost borne by the employer). Gouvernement.lu, for the press release and press pack of 11 January 2022 (0.2 point above 80 g/km, maximum of 1.8% above 130 g/km against 150 g/km, 0.5% and 0.6% either side of 18 kWh/100 km, grid of 1%, 1.2% and 2% from 1 January 2025). The pfi.public.lu portal, for circulars no. 807 of 11 February 2021, no. 807bis of 28 April 2023 and no. 807-1 of 21 October 2025 repealing it (characterisation left to the taxable person, hire other than short-term taxable where the customer resides, article 28, 1°, a) of the VAT law of 12 February 1979, time bar under article 81). And the Joint Social Security Centre, page on remuneration.

Three points could not be verified in their primary source and are therefore not asserted here. The intermediate bands of the pre-2025 CO2 grid: legilux.public.lu, impotsdirects.public.lu, guichet.public.lu, gouvernement.lu and pfi.public.lu are blocked by the network proxy of our drafting environment, and those documents were read through indexed extracts using a search restricted to those official domains; the table publishes only the bands cross-checked. The treatment of vehicles outside category M1. And the detail of the corrections opened by circular no. 807-1, of which we have read only the indexed summary. Those three points are verified in the consolidated regulation on legilux.public.lu, with the competent wage tax office and with the Registration Duties, Estates and VAT Authority.

This article states the law as at the date of publication and is not personalised advice: the applicable rate depends on the actual powertrain, on the emissions and consumption shown on the certificate of conformity, on the registration and contract dates, and on the content of the availability agreement. Report an error to contact@financialservices.lu: the correction is dated in the article.