The Luxembourg VAT authorities have published Circular No. 807-1 dated 21 October 2025, repealing Circular 807bis of 28 April 2023 and providing important clarifications on the VAT treatment of company cars made available to employees, further to the Court of Justice of the European Union’s judgment in case C-288/19 (QM v Finanzamt Saarbrücken).
The circular reiterates that the provision of a company car by an employer to an employee always qualifies as a supply of services for VAT purposes. Employers must assess, on the basis of the contractual arrangements in place, whether this supply is carried out free of charge or for consideration.
A provision is regarded as being made “for consideration” not only where the employee pays a direct amount, but also where part of the employee’s cash remuneration is withheld or where the employee is offered a choice between different benefits, such as under a flexible remuneration scheme or a “car budget”. In these situations, the transaction is treated as a taxable rental of a means of transport to a non-taxable person.
In cross-border situations, long-term rentals to employee’s resident in another EU Member State are taxable in that Member State, with the possibility, for the employer, to fulfil reporting and payment obligations through the One-Stop Shop (OSS) scheme for VAT due as from 1 July 2021. Retroactive adjustments may be possible under certain conditions.
The authorities also confirm that, where the arrangement qualifies as a rental, the employer is deemed to waive its own right to use the vehicle for business purposes. As a result, no portion of the rental can be classified as professional use in order to reduce the taxable amount.
With respect to the taxable base, Luxembourg VAT law requires taxation at least on the normal value of the service. For leased vehicles, this corresponds at a minimum to the lease instalments borne by the employer; for purchased vehicles, to the depreciation value calculated over five years, increased by any additional costs linked to the vehicle.
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