Company car tax is set to change in Luxembourg in 2017 to a system based around carbon dioxide (CO2) emissions. The changes could prompt an increase in demand for low-emission cars in the country.
Employees currently pay company car tax at a flat rate based on 1.5% of a vehicle’s taxable value, but from 2017 this will change to a ‘polluter pays’ system, with tax bands that range from 0.5% to 1.8% depending on its CO2 emissions and fuel type.
Petrol cars, including hybrids, incur a lower percentage tax charge than diesel or diesel hybrids in the same emissions band.
The system will affect all new cars registered after the law comes into force. Legislators are expected to approve the rule change during December and introduce it on 1 January 2017.
Drivers of cars that emit 110g/km or less will see their tax bill fall, while those with cars that emit more than 150g/km will see their tax bill rise.
For example, the driver of a €30,000 car emitting 100g/km would incur a tax bill of €450 under the current system, but this would fall to €300 for the driver of a petrol car or €360 for the driver of a diesel vehicle.
A driver of a €40,000 car emitting more than 150g/km would currently incur €600 in tax charges, but this would rise to €680 for petrol and €720 for diesels.
Although the system increases taxes for diesels compared to petrol models in the same emissions bands, diesel engines tend to produce lower levels of CO2.
Therefore, they are more likely to fall into the lower tax bands than equivalent petrol models.
Electric vehicles will incur a 0.5% charge, but this is unlikely to create a significant company car tax advantage as their price is currently much higher than equivalent petrol and diesel options.
Figure 1: Changes to company car tax rules in Luxembourg 2016-2017
Source: Corporate Vehicle Observatory
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