Why Electric Vehicles Are Becoming a Strategic Choice for Companies in Luxembourg

As of 1 January 2025, the benefit-in-kind (avantage en nature or BIK) applicable to company vehicles in Luxembourg has been significantly revised to reflect new fiscal priorities. For companies and employees alike, these changes are especially important when evaluating the cost-effectiveness of electric vehicles versus traditional or hybrid vehicles.

For internal combustion (ICE) vehicles, hybrids and plug-in hybrid vehicles, the benefit-in-kind is now set at a flat 2 % of the total vehicle cost (including VAT) regardless of CO₂ emissions.

For 100 % electric vehicles, however, the fiscal treatment remains significantly more favourable under the current transitional regime, as follows:

• 0.5 % of the total vehicle cost for electric vehicles with energy consumption equal to or below 18 kWh/100 km
• 0.6 % of the total vehicle cost for electric vehicles with energy consumption above 18 kWh/100 km

This reduced regime for electric vehicles is currently maintained until at least the end of 2026 (for vehicles ordered before 31 December 2026 and registered by the end of 2027), giving companies a significant window to plan and benefit from the preferential treatment.

To illustrate the tax difference:

• A company car with a list price of €50 000
  • At 2 % (thermal/hybrid) → monthly BIK = €1 000/year taxable
  • At 0.5 % (electric ≤18 kWh/100 km) → monthly BIK = €250/year taxable
  • At 0.6 % (electric >18 kWh/100 km) → monthly BIK = €300/year taxable

In this example, the electric vehicle’s benefit-in-kind taxable value is four times lower than for a thermal or hybrid vehicle, leading to a lower personal tax burden for the employee and lower social contributions for the employer, which in turn makes electric vehicles substantially more tax-efficient.

Given the current regime:

• The taxable benefit of electric vehicles is significantly lower than that of thermal or hybrid alternatives.
• Electric vehicles are therefore more attractive from a total cost perspective, especially when factoring in reduced taxable benefits for employees.
• This fiscal treatment provides companies with a strong incentive to electrify their fleets, making electric vehicles not just environmentally sound, but also economically efficient under the current Luxembourg taxation system.

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