"The car is a means of attracting and retaining talent"

Published on 07/09/2023, updated on 15/03/2024

Let’s take a look at the history. How did leasing develop in Luxembourg?

The first leasing solutions arrived in Luxembourg in the mid-1980s with Hertz Leasing, now ALD. The beginnings were quite difficult. The bosses didn’t really see the advantage of this solution. They reduced it to a financing solution. It took a lot of education to explain that it was above all a service solution, both for the company and the employees. Operational leasing means that the company’s financial resources are not tied up, that all the costs of using the vehicle are included, that management is simplified and that risks such as residual value, repairs and maintenance are covered.

The development of operational leasing took off with the arrival of new players in the mid-90s. It paralleled the growth of the labour market. The company car was, and still is, a means of attracting talent to Luxembourg and retaining it.

Is it still worthwhile for an employee to have a company car?

If we’re talking about the taxation of the benefit in kind in the strict sense of the term, it’s prohibitive. Luxembourg is one of the countries where this benefit is the most heavily taxed. Conversely, road tax remains moderate and there is no ecomalus. Company cars also benefit from larger discounts on purchase. Vehicle maintenance is extremely expensive, but it is covered.

As well as the financial aspect, you should also consider the convenience of a leased company car. You don’t have to worry about anything. No maintenance, no tyres, no insurance to manage yourself – everything is included. Finally, the employee always benefits from a recent vehicle with the best technology in terms of safety, comfort and environmental impact.

The Luxembourg government favours electric models for tax purposes. Is this desirable?

The long-term aim is to push everyone towards electric cars. But today, you can always choose the engine you prefer. The benefit in kind is different, but it has to be put into perspective. It’s useful to calculate the impact. In some cases, we’re talking about a difference of a few dozen euros a month in net salary.

However, from 2025, if the benefit in kind for internal combustion engines is reduced to 2%, for electric vehicles it will be doubled and therefore twice as attractive. The calculations will no longer be the same. We understand that the authorities want to stimulate electric mobility, but it’s a pity that they are pushing it without taking into account the ancillary aspects. I’m thinking in particular of the possibility of charging at work or at home – most homes will never be properly equipped, to give just one example. For us rental companies, the question also arises in terms of resale value. We are taking on a huge amount of risk. In the not too distant future, how can we resell a vehicle that has become unattractive or even obsolete due to technological developments?

Be that as it may, we’re playing the electric game by offering complete solutions that make life easier for our customers. We even include the installation of home charging points and management of the cost of recharging on the public network or at home. Today, between 30% and 40% of leasing orders are for electric vehicles.

How will private use of company cars be taxed in future, particularly for cross-border commuters?

You refer to the QM ruling by the Court of Justice of the European Union. This ruling introduces the concept of a chargeable service for the provision of a car, as opposed to the provision of a vehicle free of charge. The concept of “onerous” is open to interpretation. As an association representing some twenty car rental companies, we assume that the majority of company cars will fall into this category. To sum up, the ruling states that the beneficiary of a company car for consideration must pay VAT to the State in which he resides when he uses his car for private purposes. It should be noted that the journey to and from work is considered to be a private journey.

In the case of Luxembourg, four countries are involved: Luxembourg, Germany, France and Belgium. Discussions are underway with Luxembourg, where employers already pay a non-recoverable portion of VAT to the Administration de l’enregistrement et des domaines for the private use of a company car. So, for residents, there should be little change. As for Germany, which is behind this ruling, the question has been settled. Since 2014, Germany has considered that 100% of the use of a company car is private. We are waiting for Belgium and France to take a clearer stance. We believe that this issue has been widely dramatised and we are confident that the consequences of the ruling will ultimately be fairly minor.

However, there are fears about the date chosen for the application of this ruling. It dates from 2021. There is a risk that European countries will ask for the ruling to be applied retroactively.