On 1 September 2015, the Luxembourg tax authorities replaced the Circular L.I.R. 104/1 of 10 March 2015 on the valuation of certain benefits granted by an employer to its employees (the “Existing Circular”) with a new circular (the “New Circular”), to be effective immediately, the sole purpose of which is to reduce the amount of the tax exempt kilometric allowance granted to employees using their private cars for professional travel from 0.40 EUR/kilometre to 0.30 EUR/kilometre.
The amendment was required as a result of the approval of (i) a Grand Ducal regulation dated 14 June 2015 on travel and accommodation expenses and relocation allowance for civil servants and Government officials and (ii) a government regulation dated 19 June 2015 determining the kilometric allowance for vehicles used for business trips. These regulations reduced the amount of the allowance for civil servants and Government officials from 0.40 EUR/kilometre to 0.30 EUR/kilometre.
It should be recalled in this respect that pursuant to Article 115 (3) of the Income Tax Law and the related Grand Ducal Regulation dated 3 December 1969, allowances received by an employee in compensation for professional travel expenses are tax exempt provided that the allowance does not exceed the same granted to comparable civil servants.
Therefore, as of 1 August 2015, kilometric allowances granted by employers to their employees are tax exempt for an amount of 0.30 EUR/kilometre. Any amount paid in excess of that sum will be considered as benefit in kind and taxed as such.
