In Luxembourg, it’s common for employers to provide a company car to employees including those who live in Germany, Belgium, or France. Until recently, VAT on the private use of these vehicles was systematically accounted for in Luxembourg.
However, since the QM judgment of the Court of Justice of the European Union (CJEU) in 2021, certain situations now require VAT to be accounted for in the employee’s country of residence.
What changes following the CJEU decision
The CJEU considers that making a company car available to an employee constitutes a long-term hire (long-term leasing) taxable at the place of the employee’s residence if both of the following conditions are met:
- The service is provided for consideration (remuneration or payment);
- The employee enjoys exclusive private use for more than 30 days.
Excluded from this rule:
- Vehicles used solely for business purposes;
- Vehicles shared among multiple employees;
- Cars made available to employees for 30 days or less.
Consequences for employers
If the conditions are met, VAT must be accounted for in the employee’s country of residence. The company then has two options: either use the One-Stop Shop (OSS) system or proceed with a local vehicle registration in the relevant country.
However, if these conditions do not apply, VAT continues to be accounted for in Luxembourg.
Consequences for employees
For the employee, the impact depends on who bears the VAT. When the employer covers this expense, it is treated as a non-cash benefit and as a result has no direct effect on the employee’s net salary.
If instead the VAT is charged to the employee, it is deducted directly from the employee’s net salary. In that case, the deduction represents the employee’s contribution to the cost of the fixed benefit, which reduces the actual amount received each month.
Adjustments for past periods
Businesses should review past periods to identify potential risks and make any necessary adjustments. For example, if VAT was incorrectly paid in Luxembourg, it may be possible to file corrective VAT returns to obtain a refund.
A clarified tax regime for 2025
Tax authorities in Germany, France and Belgium have now clarified how the CJEU decision applies. As a result, there is no remaining uncertainty regarding the taxable base or the effective date in those countries.
ParFi Group by your side
At ParFi Group, we understand that changes to VAT on company cars can have a material impact on your business.
Our team is available to review your situation, advise on the optimal approach, and support you end-to-end.
Questions?
Book a meeting with your usual ParFi Group adviser or email us at info@parfigroup.eu
