Significant VAT decision regarding company cars in Luxembourg

The Administration de l’Enregistrement, des Domaines et de la TVA (the Luxembourg VAT authorities) confirmed in Circular n°807 that :

  • Where the car is made available for more than 30 days to employees who have full and exclusive use of the car, the service deemed to be provided by the employer to the employee is subject to VAT in the country where the employee resides. This means that employers are subject to potential VAT obligations in countries where their cross-border workers leave (Belgium, France and Germany);
  • For Luxembourg employees, Circular n°807 confirms that 17% VAT should be paid by the employer to the VAT authorities;
  • Employers deemed to provide a service to their employees are however allowed to fully recover the VAT incurred on related costs; and
  • Where the car is made available to the employee for no consideration and the related input VAT (or part thereof) was recovered, a VAT adjustment should be made for the private use of the company car in accordance with the Luxembourg VAT law (methods previously used in accordance with market practice might therefore have to be reconsidered).

In light of the above, employers are strongly advised to:

  • Review the VAT treatment applicable in relation to the benefit given to their employees and assess their VAT obligations both in Luxembourg and abroad (including for the past);
  • Assess the opportunity to reclaim the related input VAT (including for the past);
  • Review their salary package and the relevant contractual documentation to secure a VAT treatment and avoid conflicting positions between Luxembourg and neighbouring countries. 

Although the VAT authorities remain silent as to whet treatment is expected for the past and the VAT authorities of neighbouring countries are yet to confirm their expectations, voluntary disclosures for making past adjustments should be considered. 

Our Tax-VAT team will keep monitoring the situation closely and keep you informed on any developments. In the meantime, please feel free to contact us should you have any questions regarding this.