Luxembourg VAT authorities issue new circular on company cars

The new administrative circular 807bis dated 28 April 2023 ("Circular 807bis") complements and clarifies the administrative circular 807 dated 11 February 2021 on company cars ("Circular 807").

For more information on the Circular 807 and its application please read our previous  article dated 23 March 2021.

The Circular 807bis recalls the three situations where the provisions of a company car is to be considered against consideration for VAT purposes:

• where the employee makes a payment to the employer;
• where the employer retains a part of the employee's remuneration; or
• where the provision of the company car is conditional on the employee foregoing other benefits.

In any case, the employee could use the company car for private purposes and for a period of more than 30 days.

According to the Circular 807bis, the taxable basis subject to VAT should be the "normal value" of the service, i.e. the price that would have been paid between unrelated parties under normal market conditions, it being understood that:

• in case of leasing, the normal value cannot be less than the lease payments made by the employer;
• if the company car was purchased by the employer, the normal value should not be less than the depreciation value of the car over a five-year period including any costs incurred by the employer with respect to the car;
• in cases where the car is partly used for business purposes, the normal value should be reduced accordingly.

The Circular 807bis only applies to situations where the employee is resident in Luxembourg. Where the employee is resident in another EU Member State, only the Circular 807 should apply and the employer must consider VAT payments in the employee's country of residence.