Company car depreciation in Luxembourg: tax rules, VAT and electric vehicles

In Luxembourg, a purchased company car is depreciated for tax purposes over its usual useful life, normally on a straight-line basis, with no cap linked to CO2 or price: we found no such limitation in the income tax law (L.I.R.). The real difference between electric and combustion cars lies elsewhere: a new zero-emission car qualifies for the 12 % investment tax credit on the first €50,000 of its price, while combustion cars are excluded.

This guide is for finance teams and their accountants. It answers the questions that come up in Luxembourg with every car purchase: over how many years, straight-line or declining balance, how much the tax credit is worth, what applies to holding companies, cross-border staff and resale, and whether buying beats leasing. It covers depreciation methods, the investment tax credit, VAT on the car and on charging electricity, chargers, resale and the weight of depreciation in total cost. Voltaback adds one useful piece of evidence: measured kWh per car, which documents how electricity costs are allocated.

The basic rules: Article 32 L.I.R.

Depreciation (amortissement pour usure) of a car held as a business asset falls under Article 32 L.I.R. It is calculated on the acquisition cost, less any salvage value, and spread over the asset's usual useful life (durée usuelle d'utilisation).

Three methods are available:

• Straight-line (Article 32, paragraph 1): the same charge every year. This is the usual method for cars.
• Declining balance (Article 32, paragraph 3): higher charges in the early years. It is open to tangible assets other than owner-occupied buildings, so in principle to a car, within the limits set by law.
• Deferred depreciation (Article 32, paragraph 1a, since 2017): the business can push all or part of the straight-line charge to a later year, within certain limits; the deferred amount must be used by the end of the asset's useful life at the latest.

Source: ACD, Circular L.I.R. No. 32/1 of 15 May 2018.

Declining balance: limits and worked example

The declining-balance rate may not exceed three times the straight-line rate, nor 30 %. Switching from declining balance to straight-line is allowed; the reverse is not. Source: PwC Tax Summaries, Luxembourg, deductions.

For an electric car at €42,735 excluding VAT with a 5-year useful life (20 % straight-line), the cap is therefore 30 %:

Declining balance brings about €4,300 of depreciation forward into the first year. It mainly helps a company with high profits in the year of purchase; over the full useful life, the total is the same. Switching to straight-line pays once spreading the remaining book value over the remaining years gives more than the declining charge: in year 3, €20,940 ÷ 3 = €6,980 against €6,282 on a declining basis.

What useful life for a car?

The law does not set a useful life per asset type, and there is no official depreciation table for passenger cars. In practice, company cars are often depreciated over 4 to 5 years. The right period depends on your actual use (mileage, replacement policy): agree it with your fiduciary and apply it consistently.

4 or 5 years: what the choice changes

The shorter period brings expense forward but creates a larger taxable gain on resale. Over the whole cycle, the two largely even out. More important than tax optimisation is plausibility: a useful life that matches your real replacement cycle stands up to an audit and avoids large book gains or losses on disposal.

No CO2 or price cap

Unlike several neighbouring countries, we found no depreciation cap for passenger cars in Luxembourg and no emissions-based add-back. A €70,000 car is depreciated on its full cost. Have your fiduciary confirm this for your situation, especially if a shareholder or director uses the car.

The battery is depreciated with the car

We found no Luxembourg rule requiring or allowing separate depreciation of a battery bought with an electric car. It is part of the acquisition cost and is depreciated over the same period as the car. The situation differs if the battery is rented separately, as some manufacturers have offered: it is then not part of the acquisition cost, and the rental is a running expense. If you take over such a car second-hand, include the battery rental contract in your calculation.

Commercial and tax accounts

In Luxembourg, tax depreciation generally follows accounting depreciation. Unlike countries with their own tax caps on passenger cars, there is usually no add-back that neutralises part of the depreciation for tax. Differences arise mainly with deferred depreciation and with special depreciation that only applies for tax. Use the same useful life in both sets of accounts, so the administration has no reason to question it.

Assets under €870

Assets costing less than €870, or with a useful life of one year at most, can be fully depreciated in the year of purchase. For a fleet, this concerns accessories such as a portable charging cable or a cable bag, not the car itself.

The investment tax credit: the EV advantage

The tax credit for global investment (bonification d'impôt pour investissement global) is a 12 % credit on the acquisition cost of qualifying investments made in the financial year. Motor vehicles are in principle excluded, but there is an exception for electric cars.

A car qualifies if it meets all of these conditions:

1. a zero-emission passenger car running exclusively on electricity or on a hydrogen fuel cell;
2. no more than 9 seats including the driver's, classed as M1;
3. first registered after 31 December 2017;
4. only the first €50,000 of the purchase price per car counts.

Second-hand assets are excluded (except in a limited start-up case), as are assets depreciated over less than 3 years. Combustion cars, hybrids and plug-in hybrids do not qualify. Sources: Guichet.lu, tax credit for global investment, ACD, investment tax credit.

The credit goes to the tax owner only: purchase or finance lease. Under an operating lease, the company does not get it, but deducts its rentals in full. We compare both in our article on leasing an electric company car.

Before an early resale, check with your fiduciary any holding conditions attached to the credit.

Used electric cars

A used electric car is depreciated over its remaining useful life, shorter than for a new car. The investment tax credit is in principle not available, since second-hand assets are excluded; an exception of up to €250,000 applies only to investments made when equipping a newly created business. For the driver's benefit in kind, the original new price still applies, not the lower used price.

What about the Klimabonus?

If the company receives the Klimabonus Mobilitéit for an electric car (€6,000 or €3,000 depending on consumption, where the scheme applies to the contract period), the question is whether the grant reduces the acquisition cost or is booked as income. The depreciation base, and possibly the base of the tax credit, depend on it. Settle the treatment with your fiduciary before counting on the grant; its extension beyond 30 June 2026 also depends on bill no. 8725.

Worked example: an electric car versus a diesel

Two cars are bought in 2026 and depreciated straight-line over 5 years. The company recovers the 17 % VAT, so the depreciation base is the price excluding VAT.

Step by step for the electric car:

1. Price excluding VAT: €50,000 / 1.17 = €42,735.
2. Annual depreciation: €42,735 / 5 = €8,547.
3. Tax credit: €42,735 is below the €50,000 cap, so 12 % x €42,735 = €5,128.

The €5,128 is a tax credit, deducted directly from the tax due, not just a deductible expense. It comes on top of depreciation, which is still calculated on the full base, so it more than offsets the price gap between the two cars.

What depreciation is worth after tax

Depreciation and the tax credit work differently. Depreciation reduces taxable profit; the credit reduces the tax itself. For tax year 2025, the combined rate of corporate income tax, solidarity surcharge and municipal business tax in Luxembourg City was 23.87 %. Source: PwC Tax Summaries, Luxembourg, taxes on corporate income.

Although the electric car costs €4,273 more excluding VAT, it costs the company about €1,870 less after tax, before energy, maintenance and residual value are even considered. The calculation assumes the company owes enough tax to use both depreciation and the credit.

Depreciation base and benefit in kind: two different values

The same car has two reference values that are often confused:

Accounting therefore needs both values in each car's master record. Using the depreciated net value for the benefit in kind understates the benefit. Details are in our article on electric company car taxation.

VAT on the car: recoverable, private use taxed

On purchase, the 17 % VAT on a car used for VAT-taxable activity is recoverable. The flip side concerns making the car available to an employee.

Since the QM judgment of the Court of Justice of the European Union (case C-288/19, 20 January 2021), a company car made available to an employee for private use, against consideration, can be treated as a long-term hire taxable where the employee lives. The AED set out its position in Circular No. 807-1 of 21 October 2025: full input VAT recovery by direct allocation, but no reduction of the taxable base for business use. Practitioner summaries add that the taxable amount is built from the car's depreciation spread over five years plus the related costs borne by the employer. Sources: BDO Luxembourg on Circular 807-1, Paperjam, company cars: which VAT?.

For cross-border employees, VAT on that supply may be due in their country of residence (Belgium, Germany, France), through the OSS one-stop shop or a local registration. Settle it car by car with your VAT adviser.

Two limits on VAT recovery: holding companies and luxury cars

Luxembourg does not exclude car costs from VAT recovery across the board, unlike several neighbouring countries. Two cases still lead to losing the deduction. First, a pure holding company that only holds shareholdings, or a business with exempt supplies and no right to deduct, has no basis for recovery; VAT on the car then becomes a cost and increases the depreciation base. Second, for cars whose value is out of proportion with the company's turnover, the administration can refuse the deduction as an entertainment expense under Article 54 of the VAT law. Source: Paperjam, VAT on means of transport.

For depreciation, this means: without VAT recovery, you depreciate the price including VAT, €50,000 instead of €42,735 in our example. The tax credit remains capped at the first €50,000.

When providing a car to cross-border staff becomes subject to VAT

The QM judgment only covers provision treated as a supply for consideration. According to practitioners, three features are typical: the employee gives up part of their cash salary for the car or pays for it, they have a permanent right to private use excluding others, and the provision lasts more than 30 days. Where these apply, the supply is taxable where the employee lives: at 17 % for Luxembourg residents, at their country's rate for cross-border workers. Source: Paperjam, leased company cars and VAT.

If the car is provided free of charge, it is not a hire; if input VAT was fully recovered, an adjustment for private use is then needed. In both cases, have your VAT adviser review the car policy, especially if you employ many cross-border workers.

Can you recover VAT on charging electricity?

Electricity carries a reduced VAT rate of 8 % in Luxembourg. There are two cases.

Charging at company premises. The electricity invoice is in the company's name. VAT is recoverable under the normal rules, and the cost is an operating expense.

Charging at the employee's home. The contract and invoice are in the employee's name. In principle, the company cannot recover VAT invoiced to someone else. The reimbursement to the employee is a deductible expense for its gross amount, but with no recoverable VAT. Have your fiduciary confirm this treatment.

On the employee's income tax side, there is no official flat rate per kWh. In practice, under the Grand Ducal regulation of 23 December 2016, electricity for the company car is a running cost covered by the flat-rate benefit in kind, provided the real cost of the kWh actually charged is reimbursed. This is not an official ACD position, so have it confirmed.

In both cases the key evidence is the same: measured kWh per car, valued at the real price. Voltaback relies on the home's MID-certified meter, not on a standalone cable meter. Data is read from the connected car with no box, and the measurement is audited by an independent third party (1.22 % relative error). Explore our home-charging reimbursement solution.

Battery: repair or replacement

If the battery fails after the warranty, an accounting question arises. A repair that maintains the original condition is usually an immediately deductible expense. A replacement that substantially extends the car's useful life points rather to capitalisation as a subsequent acquisition cost, depreciated over the new remaining life. Where the line lies is decided case by case. For cars replaced after 4 to 5 years, this remains the exception: the battery is then usually still under the manufacturer's warranty.

Depreciating company charging points

Charging points in the company car park are separate assets with their own useful life, distinct from the cars. Hardware, installation and cabling form the acquisition cost; grid reinforcement may belong to the building depending on how it is done. As tangible assets other than buildings, charging stations can in principle also qualify for the investment tax credit.

For investments that protect the environment or save energy, Article 32bis L.I.R. provides special depreciation of up to 80 %, with an increased credit rate of 14 %, subject to certification by the competent administration. Whether charging infrastructure qualifies depends on the project: check with your fiduciary before ordering. Sources: ACD, investment tax credit, PwC Tax Summaries, Luxembourg, deductions.

A charger at an employee's home paid by the company remains a company asset if the company keeps ownership, and is depreciated like any other charging station. If ownership passes to the employee, it is no longer an investment but a salary cost, with consequences for the benefit in kind. Have this point confirmed, as no text addresses it explicitly.

Selling the car: gain or loss

On resale, the company compares the sale price with the net book value (acquisition cost less depreciation charged).

Example: the electric car above is sold after 4 years for €15,000 excluding VAT. Its net book value is €42,735 minus 4 x €8,547, or €8,547. The €6,453 gain is taxed with the year's profit, about €1,540 of tax at a combined 23.87 %. Under conditions, Luxembourg law allows such a gain to be rolled over tax-neutrally when reinvested in qualifying assets; check with your fiduciary whether this works when replacing the car with a new one. A sale below net book value gives a deductible loss.

EV resale values remain hard to predict. That is one of the arguments for operating leases, where the lessor carries this risk.

How much depreciation weighs in total cost

Depreciation is often the largest cost line of a company car, but also the most predictable. The lines that vary most are elsewhere:

Energy assumptions: diesel at 6 l/100 km and about €2.05 a litre in late October 2026; EV at 18 kWh/100 km, charged 80 % at home at about €0.19 per kWh at night and 20 % on public chargers at about €0.50. Source: fuel-prices.eu, Luxembourg, October 2026.

Energy only stays at €907 if home charging is reimbursed at the right price. For a cross-border driver, a kWh can cost €0.24 to €0.33 in Belgium or about €0.32 in Germany, so a single flat allowance quickly distorts the numbers. For the full picture, read our article on fleet total cost of ownership, and model your own fleet with our home-charging cost simulator.

If you are also equipping your car parks, chargers are separate investments with their own support schemes: see our article on workplace charger subsidies.

Buy or lease: the decision at a glance

For profitable companies with a stable fleet that want the tax credit, buying an electric car can be cheaper. If you want predictability and relief from residual value and admin, lease. For the driver, the financing choice changes nothing: the benefit in kind follows the new price either way, and home charging electricity must be measured and reimbursed either way.

Operating or finance lease: what changes for depreciation

Under an operating lease, the rule for company cars in Luxembourg, the car stays on the lessor's balance sheet. The company depreciates nothing and deducts the rentals as operating expenses. The tax credit and residual value risk sit with the lessor, who prices them in.

Under a finance lease, the company is usually the economic owner: it capitalises the car, depreciates it and can claim the tax credit. The distinction depends on the contract (term relative to useful life, purchase option). Our article on leasing an electric company car compares both forms.

Common mistakes and points to check

• Depreciating the price including VAT although VAT was recovered.
• Calculating the credit on the full price of a car above €50,000: only the first €50,000 qualifies.
• Treating plug-in hybrids as zero-emission: they are excluded from the credit.
• Declining balance above 30 %, or switching back from straight-line to declining.
• Hiding the charging point in the car's value instead of recording it as a separate asset.
• Selling early without checking the credit's conditions.
• Forgetting VAT on cars provided to cross-border staff.

At year end: depreciation step by step

1. Update the fixed asset register: every car and charging point with purchase date, net cost, useful life and method.
2. Book the year's depreciation, straight-line or declining within the limits, deferred where chosen.
3. Claim the tax credit for new zero-emission cars and qualifying charging points, with the tax return.
4. Record disposals: cars sold, with book value, sale price and gain or loss.
5. Reconcile VAT: input VAT on purchases, private-use adjustments, supplies to cross-border staff.
6. Document energy costs: on-site electricity invoices and home charging reimbursements backed by measured kWh.

Checks by role

Finance director

• Choose between buying and leasing, factoring in the tax credit and residual value risk.
• Set a useful life consistent with your replacement policy.

Accounting and fiduciary

• For each EV, check the credit conditions: zero emission, M1, new, first registered after 2017, €50,000 cap.
• Depreciate on the net base when VAT is recovered.
• Track VAT on the supply of cars to employees, including cross-border staff.

Management

• Align car choice, financing and charging policy: an EV bought to use the tax credit loses its advantage if the driver mostly charges at expensive public chargers.
• Decide whether the company wants to carry residual value risk itself.

Fleet and payroll

• Keep each car's list price including VAT for the benefit in kind.
• Reimburse home charging from measured kWh and each driver's real price.

Make your fleet's energy line reliable

Depreciation can be planned. Energy depends on each driver. Voltaback measures the kWh charged at home in each company car and values them at each driver's real contract price, resident or cross-border, with a monthly export ready to import into your payroll software. 100 % software, ISO 27001 certified since 2 December 2025, GDPR compliant: the employer never receives drivers' geolocation.

Talk to our team to put a figure on home charging for your fleet.