Evaluation of certain benefits-in-kind granted by employers

The Luxembourg tax authorities issued a new circular n° 104/1 on November 20th 2014 (hereafter the "Circular"), setting forth the evaluation rules for certain benefits-in-kind granted by an employer to his employees and replacing the circular of February 18th 2009 on the same topic.

The Circular mainly focuses on the evaluation rules concerning company cars owned or leased by the employer and made available for free or at a reduced cost to his employees for business, as well as private use. Cars owned or leased by the employee himself, even if part or all of the costs are borne by the employer, do not fall within the scope of the Circular.

The benefit-in-kind to be taxed in the hands of the employee is determined by reference to the actual private mileage. The employee has to keep a logbook, recording all private journeys, as well as its home-work route. The private mileage multiplied by the cost price per mile, to be determined by the employer with respect to the type of car, equals the benefit-in-kind granted to the employee.

This valuation rule may however be replaced by a flat-rate method, according to which the monthly benefit in kind shall be deemed to amount to 1.5% of the global purchase price of the vehicle as new, including accessories and VAT.

In case the employee has to contribute towards the costs incurred by the employer, any lump-sum contribution is generally deductible from the value of the benefit in kind, as determined according to the above mentioned rules. However, where the contribution of the employee varies depending on the private mileage, it will only be deductible from the value of the benefit-in-kind if the latter has been assessed on the basis of a logbook.

Any contribution by the employee towards the purchase price of the car will not have any consequences on the flat-rate valuation method of the benefit-in-kind, as described above. It may however, within certain limitations, be deductible, as amortisation costs, from the monthly benefit-in-kind to be taxed in the hands of the employee.

In the event that the employee purchases the car at a preferential price after the period of it having been made available by his employer, an additional advantage might be taxable in the hands of the employee.

"As compared to the previous circular, the Circular now covers this additional advantage and provides for a simplified valuation, depending on the age of the vehicle."

Such valuation is to be compared with the purchase price paid by the employee in order to determine the existence of a possible advantage.

In addition to the rules concerning company cars, the Circular also covers cost-free housing of employees.